the Mortgage Minute

 This weeks Housing Starts data is good news for home sellers.  Housing Starts fell in October to their lowest levels since 1947.  Building permits were also down.  Fewer homes under construction results in less inventory for home buyers to select from.  Decreasing supply will add a strong support floor to home prices.  Sellers may feel less pressure to lower asking prices.  When supply is less than demand, prices increase, and vice verse.

(Image courtesy: The Wall Street Journal)

Effective January 1, 2009, FHA loan limits revert to pre March 2008 levels.

FHA home loans are mortgages made by private lenders and insured by the federal government. 

 2009 FHA loan limits (in most areas of the country) are:

• 1-unit : $271,050
• 2-unit : $347,000
• 3-unit : $419,400
• 4-unit : $521,250

Note that the loan limits don't apply to all areas of the country equally.  Higher-cost regions feature higher loan limits, based on typical home values.

The official FHA announcement published all of the counties with access to higher loan limits, spread across two spreadsheets.  The first spreadsheet lists each county at the $625,500 maximum; the second list is everyone else.

If your home county is on neither list, use the "base" numbers above.

Click here  for today's rates.

For the hundreth time, all real estate is local.  Zillow.com reported today home values in Simpsonville, SC decreased a paltry -.11% in the third quarter of 2008.  Great News for buyers and sellers in Simpsonville.  Our market, although not unscathed, is certainly much stronger than most media folk would have you believe.  This number is substantially lower than the -9.7% decrease nationwide.  Often, perception is realty.  It is tough dealing with home buyers and home sellers in a down market.  Use this data to keep them informed of local conditions.

The Producer Price Index (PPI) released today shows the biggest drop in wholesale inflation since records began in 1947.  Most of the decline can be attributed to the 25%+ drop in gas prices.  However, the Core PPI ( which excludes food and gas ) increased more than expectations.  The year-over-year Core PPI shows the highest reading in nearly 20 years.  In general, deflation, not inflation, is of immediate concern. 

Another volatile week in this crazy market.  Retail Sales dropped for the 5th straight month.  Expect a dismal holiday shopping season ahead...probably the worst retailers will have seen in a long time.  Circuit City filed for Chapter 11 Bankruptcy, and will be closing 150 stores.  We also learned of poor economic reports from Nordstrom, Best Buy, Macy's, Wal-Mart, General Motors and Intel.  And bad news continued on the job front, as Initial Jobless Claims reported the highest number of first time unemployment claims since 2001.  Jobless claims have reached their highest level in 25 years.   As a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.  That didn't hold as rates ended slightly higher than last week.

This morning, Mortgage Bonds are near unchanged levels and hover near the 200 day Moving Average.  I would recommend floating.  However, if you find a rate and payment combo that suits your budget, consider locking. 

Retail Sales numbers fell for the fourth straight month and plunged to their worst level since record keeping began in 1992. This is important information because it indicates a bad outlook for the retail industry overall and comes as we head into what looks to be the worst holiday shopping season in a long, long time.

To help demystify the mortgage process, the federal government is giving the much-maligned Good Faith Estimate document a makeover.  Effective January 1, 2010, the current, 2-page form will be replaced by a new, easier-to-understand version, spanning 3 pages.

The biggest strength of the new Good Faith Estimate is that it uses everyday English to explain how the mortgage works.  For example, in one section titled "Loan Summary", the Good Faith Estimate specifically answers:

• What is your interest rate?
• Can your interest rate rise?
• Does your loan have a prepayment penalty?

Using today's disclosures, the answers are spread across 3 separate forms.

In addition, the new-look Good Faith Estimate identifies what charges are legally allowed change at the time of settlement, and how a mortgage applicant can opt for higher fees in exchange for a lower mortgage rate, and vice versa.

These educational elements are lacking from the current model.

But for all of its clarity, the Good Faith Estimate doesn't address the issue of suitability.  As in, is this the right loan for the right borrower?  The new Good Faith Estimate won't prevent homeowners from choosing "bad loans" -- it will only educate them about the loan's facts.

For suitable advice -- as always -- talk with a trusted mortgage professional who will both listen to your needs and help you make plans for them.  Getting the "best terms" on an unsuitable loan can be far worse that getting great terms on a loan that fits.

Foreclosure is a hot topic among the press lately.  It's hard to turn on the television or open up a newspaper without seeing a story about it.

But what's most interesting about foreclosures is that they appear to be concentrated in certain areas of the country. 

According to the foreclosure-tracking service RealtyTrac, 4 states accounted for more than half of nation's foreclosures last month.

And those 4 states -- California, Florida, Arizona, and Nevada -- share some very similar characteristics including:

1. Their respective popularity with retirees and real estate investors
2. Their large home value increases earlier this decade

In looking at the rest of the country's foreclosure data, the remaining 46 states combined accounted for just 48.8 percent of October's foreclosures. 

That's 1.06% per state on average.

Now, this isn't meant to diminish the impact of foreclosures on the economy -- quite the opposite.  Foreclosures harm to the national housing market because most mortgage lenders are national.  But, we highlight statistics like this to show that the foreclosure "problem" isn't so bad in most parts of the country, relative.

Furthermore, mortgage lenders are intervening to slow the flow of defaults nationwide.  Following the lead of JP Morgan and Bank of America, CitiMortgage just announced a sweeping plan to help homeowners avoid default and keep their homes.

In a way, for as good as this news is for homeowners, it's equally bad news for home buyers.  As the number of foreclosures decrease in any given market, it reduces the inventory of homes for sale.  Lower supply levels often lead to higher sale prices and less room to negotiate.  And this may be what the banks are trying to accomplish.

For the 4th consecutive year, the government has set the conforming mortgage loan size limit at $417,000.

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

The 2009 conforming loan limits, as released by the government, are:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

Loans in excess of conforming loan limits are more commonly called "jumbo", or "super jumbo" home loans, depending on their size. 

Out-sized mortgages like these are often more costly than their conforming-mortgage counterparts because jumbo loans are not guaranteed by the U.S. government like Fannie Mae loans are. 

There are loan limit exceptions, however.

Left over from the Economic Stimulus Act of 2008, specific, "high-cost" areas around the country have their own conforming loan limits, not to exceed $625,500.  There are 59 designated high-cost regions in the U.S., most of which are in California.

Loan limits are re-assigned each year, based on "typical" housing costs around the country.  Since 1980, as home prices have increased, so have conforming loan limits.  As home prices have fallen in recent years nationwide, however, the conforming loan limit has not.