Here’s an article by Carrie Bay, from today’s DSNews.com

Many critics argue that the pace of modifications under the federal Making Home Affordable (MHA) program isn’t keeping stride with the nation’s raging foreclosure problem, so the Obama administration announced Monday that it is taking a new approach to pressure servicers into converting more trial modifications to “permanent” status.

The government says that from now on, servicers failing to meet performance obligations under the federal program will face punishment, “subject to consequences which could include monetary penalties and sanctions.”

The Treasury is also instituting new procedures and additional paperwork that will allow for closer monitoring of mortgage companies’ foreclosure prevention efforts. Major servicers will be required to submit a schedule to the Department demonstrating their plans to reach a decision on each home loan for which they have documentation and to communicate either a modification agreement or denial letter to those borrowers.

Each of these top servicers will also be assigned an “account liaison,” a representative from the Treasury or program administrator Fannie Mae who will follow up daily as necessary to monitor progress against the servicer’s submitted plan. In addition, daily progress will be aggregated by the end of each business day and reported to the administration.Treasury officials say the mortgage industry isn’t doing enough to keep people in their homes with the tools provided them by the federal government, and soon that alleged lack of effort will be on display for the world to see.

According to the New York Times, the administration also plans to resort to public humiliation as a means of persuasion. A Treasury official told the paper over the weekend that the administration will openly wag its federal finger at those servicers who it feels are lagging in their efforts to churn out permanent mortgage mods by publicizing the servicers’ names.Michael S. Barr, Treasury’s assistant secretary for financial institutions, told the New York Times, “

The banks are not doing a good enough job. Some of the firms ought to be embarrassed, and they will be.”

Not only is the administration playing on servicers’ sense of Public Relations, but it’s also tightening its grip on those compensatory carrots. Barr says the Treasury will not shell out the incentive payments promised to mortgage modifiers until homeowners successfully complete the 90-day trial modification and the servicer converts the workout to a permanent modification. “They’re not getting a penny from the federal government until they move forward,” Barr told the Times.

Murmurs throughout the industry are labeling the administration’s newfound drive for modification conversion as a political ruse. Next month’s report from the Treasury on MHA performance is expected to include data on the number of permanent modifications converted by each servicer, and by all preliminary estimates the numbers will not be good. According to a report from the Congressional Oversight Panel last month, fewer than 2,000 assisted homeowners had successfully completely the trial mod period and been converted to permanent status.

The administration said in its announcement Monday, “Roughly 375,000 of the borrowers who have begun trial modifications since the start of the program are scheduled to convert to permanent modifications by the end of the year.” But the key phrase here is “scheduled.” Many servicers say the problem is not how swiftly they can finalize the loan workouts as permanent, but delays on the homeowner’s part to complete all the necessary documentation for conversion. The administration is hoping to address this issue as well. The Treasury is extending the period for trial modifications started on or before September 1st to give homeowners more time to submit required information, and it is streamlining the application process and paperwork requirements.

Servicers will also be required to report to the administration the status of each modification to help identify situations where borrowers face obstacles in moving to the permanent phase.

As part of the new actions announced Monday, additional outreach initiatives at the state, local, and county level are also being deployed, as well as new Web tools and resources to help borrowers’ quickly submit the required documentation. One special servicer, Florida-based Ocwen Financial, stands out as already having considerable success in moving troubled homeowners into a permanent modification. Paul Koches, Ocwen’s EVP and general counsel, explained to DS News that his organization’s trial-to-permanent conversion rate is well over 50 percent, versus the rest of the industry’s average conversion rate of single digit percentages. According to Koches, there are three key reasons for Ocwen’s high change-over rate:

• scalable technology that allows Ocwen to perform the re-underwriting upfront and maximize the likelihood of sustainable results;

• the use of behavioral science, psychological principles, and communication to ensure buy-in from the homeowner; and

• partnerships with nonprofits and faith-based groups working at the grassroots level to assist the servicer with homeowner outreach and gathering the required documents.

“We’re happy to see the shift in focus more to permanent mods rather than trial mods,” Koches said. “Obviously, it’s the number of trials that are converted to permanent mods that will make a difference in bringing down foreclosures.” ( End of article.)

The supply of newly-built homes fell to its lowest levels since 2006, offering additional proof of a housing market in recovery.

Home supply is defined as the amount of time it would take to sell the current inventory of homes at the current pace of sales.

In October, for the 8th consecutive month, home supplies fell. Since peaking in January 2009, it’s now down by almost half.

Lower supply leads to higher prices.  This is Economics 101.

Furthermore, supply is expected fall into 2010. According to the government, builders are breaking ground on new homes at a declining pace, even as sales ramp up.

Builders are cheering the October New Home Sales report, but its the everyday sellers of “existing homes” that have real reason to celebrate.

See, as builders clear out their respective inventories and turn profitable, there’s less reason for them to offer the types of over-the-top purchase incentives that characterized the last 12 months of selling. 

With fewer builder incentives, the playing field levels between large corporations and individual home sellers.

And while this is happening, buyers are eagerly taking advantage of low mortgage rates and federal tax credits for buying homes.  It’s pressuring home prices higher overall.

Since January 2009, the average sale price of a newly-built home is up 6 percent.

Mortgage markets improved last week on stronger-than-expected economic data and safe haven buying.

The holiday-shortened trading week amplified what should have been modest gains into large ones.

Conforming mortgage rates dropped by about a quarter-percent last week, dropping them near their best levels of the year — and of all-time.

Oddly, mortgage rates are falling as the U.S. dollar weakens. This is atypical because mortgage bonds are repaid in U.S. dollars.  When the value of the dollar is falling, therefore, the value of holding mortgage bonds become less over time. 

Investors are snapping up bonds with fury, however. Partially because of lingering concerns related to Dubai, and partially because of faith in the U.S. economy’s long-term health.

This week, those beliefs could be shaken to the core — specifically because of Friday’s jobs report.

It’s no secret that the economy is growing.  Housing is improving, banks are re-capitalizing, and businesses are making capital investment.  However, employment is lagging.

More than 4 million jobs have been lost this year and the unemployment rate is north of 10 percent for the first time since 1983.  Consumers are worried for their jobs and are guarding their wallets the holiday season as a result. 

The economy can’t grow without consumer spending, though, and that’s why Friday’s job figures will play an especially large role in mortgage markets. If employment data goes positive, stock markets will rally at the expense of mortgage rates.

Conversely, if data looks worse, mortgage rates should dip.

Either way, it’s a gamble.  If you haven’t looked at the benefits of a refinance lately, waiting until Friday to see what happens may be ill-advised.  This is because the last two times mortgage rates fell this low, markets corrected within 48 hours, sending rates soaring higher.

Rates look good today. Consider locking something in before rates have reason to rise.

For today’s home buyers and homeowners that can manage the higher monthly payments, 15-year fixed rate mortgage rates look attractive as compared to comparable 30-year products.

The 15-year/30-year interest rate spread is near its 5-year high.

Despite lower rates, however, homeowners opting for a 15-year fixed mortgage should be prepared for its higher monthly payments.  This is because the principal balance of a 15-year fixed is repaid in half the years as with a standard, 30-year amortizing product.

As compared to 30-year terms, 15-year products repay 3 times as much principal each month.

Versus a 30-year, 15-year fixed mortgages have a few downsides worth noting.  The first is that, because 15-year mortgages are heavy on principal and light on interest, homeowners who itemize tax returns may have to claim a smaller mortgage interest tax deduction at tax time.

Another negative is that the sheer size of the payment.  If you run into fiscal trouble down the road, the only way to reduce the monthly obligation is to refinance into a 30-year product and that costs money to do. 

In other words, be sure you can manage the payments over the long-term before you opt for a 15-year term.   If you can manage it, though, the rewards are tangible.

At today’s rates, a 15-year fixed vs. a 30-year fixed costs $230 extra per $100,000 borrowed.

It’s official — home prices are no longer in free fall. 

According to the Federal Housing Finance Agency, the Home Price Index posted its first quarterly increase since 2007 last quarter.

The news was reported Tuesday.

The Home Price Index is an interesting metric.  It’s huge in its scope, accounting for every home sold in the country that backs a mortgage bound for Fannie Mae or Freddie Mac with two notable exceptions:

1. It doesn’t track new construction
2. It doesn’t track multi-unit homes

Because the Home Price Index makes these specific exclusions, and because it doesn’t account for FHA and jumbo mortgages, some analysts discount the HPI’s relevance.  They prefer the private-sector Case-Shiller Index instead.

Now, to be fair, the Case-Shiller has its own set of flaws, too. 

For example, it excludes condos and co-ops, and only tracks sales in 20 cities nationwide.  But, of all the private home valuation models, Case-Shiller is the most well-known and most widely-used.

The Case-Schiller Index was also released Tuesday and the report showed the same results as its government-issued counterpart — home values increased between the second and third quarter.

When the Home Price Index and Case-Shiller Index reach similar conclusions, markets tend to buy-in.  Home buyers should, too. 

Home values have likely bottomed and are starting to turn higher, as shown in two separate reports.  High sales volume and dwindling supply are contributing factors.  So are low mortgage rates and a tax credit.

If you’re on the fence about buying a home, at least consider your options.  In 2010, homes are unlikely to be as cheap to buy, or as cheap to finance.

Another month, another piece of evidence that the housing market is in recovery.

Existing Home Sales surged in October as the nation’s homebuyers took advantage of low mortgage rates, low list prices, and, for some, a generous tax credit.

Home resales are 23 percent higher versus a year ago and home supply is down to 7 months nationwide.

Inventory hasn’t been this low since February 2007.

The news shouldn’t be surprising, however.  The same real estate trade group that produces the Existing Home Sales report also publishes a monthly report meant to predict future home sales called the Pending Home Sales Index.

Pending Home Sales have been through the roof since mid-May.

So, with pending home sales showing no signs of slowing and 80% of pendings turning into actual, closed sales, we can expect existing home sales volume to rise in the coming months, too.  Especially because Congress extended the home buyer tax credit to include (1) “Move-up” buyers and, (2) Buyers with higher household incomes.

It’s terrific news for home sellers. The housing market turnaround means higher sale prices and fewer concessions to buyers long-term.

To buyers, on the other hand, the news isn’t so good. The window to find a “deal” appears to be closing quickly.

Mortgage markets worsened last week on a mixed bag of economic data.  Inflation data came in soft, but so did the start of the holiday shopping season.

For the first time in a month, mortgage rates worsened last week, adding roughly 0.125 percent on conforming fixed-rate products, and a little bit more on ARMs.

Despite rates worsening, there was still some good news for home buyers and would-be refinancers. Mortgage rate volatility was markedly lower than in recent weeks.  You could shop for mortgage rate last week and actually take your time about it.

This is in stark contrast to the last month or so over which mortgage rates changed every few hours, on average.

This week, though, because a heavy data calendar is combining with a holiday-shortened trading week, rates aren’t likely to stay as tame.

• Monday: Existing Home Sales
• Tuesday: Consumer Confidence, Home Price Index, Fed Minutes
• Wednesday: New Home Sales, Personal Income and Outlays

Each of these data points are market-movers by themselves. In tandem, however, they could really shake things up. Then, at the tail end of the week, markets will react to Black Friday.

If stores look full Friday and initial receipts appear high, stock markets should rise at the expense of bonds, leading mortgage rates higher.

Additionally, expect that mortgage rate changes will be amplified because of low trading volume.  This could work in your favor, or out of your favor — depending on the market direction.

With mortgage rates at such low levels and unlikely to fall much further, locking a rate is advisable. If you choose to float, though, keep your loan officer on speed dial because when rates do rise, they’re going to rise quickly. 

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

Each year, the government sets the maximum allowable loan size for a conforming mortgage, based on “typical” housing costs nationwide. 

Loans in excess of this amount are typically called “jumbo”.

While home prices increased from 1980 to 2006, so did conforming loan limits.  Since then, however, as home prices have dipped, the conforming loan limit has held.

Now, in 2010, for the 5th consecutive year, the government set $417,000 as the nation’s conforming mortgage loan limit.

The 2010 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

But conforming loan limits don’t apply to all U.S. geographies equally.  As a result of various economic stimuli since 2008, the government now considers certain regions around the country ”high-cost” areas. ( My Orange County, California is one of these.)  In these areas, conforming loan limits can range to $729,750.

There are less than 200 such areas nationwide.  The complete list is published on the Fannie Mae website.

Mortgage markets improved last week as foreign buyers of mortgage debt helped to push mortgage rates to a 4-week low.

It marked the 3rd consecutive week that rates improved, breathing extra life into this year’s ongoing Refi Boom.

Fixed-rate, conforming mortgage rates fell about 0.125 percent on the week. ARMs did about the same.

There wasn’t much data to move mortgage rates last week; investors worked mostly on momentum and trends. However, the Friday University of Michigan Consumer Sentiment survey release garnered some attention. 

After worsening in August and September, consumer sentiment fell for the third straight month in October.  Analysts worry about what it could mean to the economy.  Holiday Shopping season is here and consumer spending fuels the economy.  If households hold the purse strings tight, our nation’s budding economic recovery may stall.

In a scenario like that, employment rates won’t rebound so fast, but rate shoppers might not mind.  Slower-than-expected economic growth tends to suppress mortgage rates, helping to improve home affordability overall.

This week, data comes back into focus.

At 8:30 AM ET today, the government will release October’s Retail Sales report.  This one should be closely watched for its ability to change rates.  A weak report should drag rates down, and a strong one should push rates up.

Then, on Tuesday and Wednesday, look for PPI and CPI — two key inflation indices.  Inflation causes mortgage rates to rise so if either of these reports comes in hotter-than-expected, rates will almost certainly rise. 

And, lastly, also on Wednesday, we’ll get the Housing Starts report for October.  Don’t expect the markets to move on this one, but keep an eye on the data anyway.  Housing markets remain crucial to economic recovery.

Despite rates hovering near recent lows, remember that markets change quickly.  A rate quote from the morning is rarely valid by the afternoon and, when rates rise, rates rise fast.

For the eighth straight consecutive month, national foreclosure activity in the U.S. was dominated by a small set of states.

As reported by RealtyTrac.com, more than half of October’s foreclosure-related activity came from just 4 states:

1. California
2. Florida
3. Illinois
4. Michigan

The remaining Top 10 states in terms of total foreclosure activity included Arizona, Georgia, Texas, Ohio, New Jersey, and Maryland.

Foreclosures are up 19 percent from last October, but a deeper look at the RealtyTrac report revealed two positive developments for the housing market.

1. Foreclosure activity is down 3 percent from last month
2. Foreclosures per Household decreased in 9 of the 10 most heavily concentrated states

Furthermore, Nevada’s foreclosure pace is down 4% from last year.  This is a big deal because Nevada has long led the nation in foreclosure-related activity. Until last month, Nevada’s year-to-year foreclosure rate hadn’t fallen in more than 4 years.

It’s too soon to say that the foreclosure market is drying up, but bargains are getting harder to come by.  First-time buyers and bona fide investors alike have been snapping up property at a furious pace.

According to an industry trade group, distressed homes account for nearly one-third of home resale activity.

That said, buying foreclosures isn’t for everyone.

For one, properties are often sold as-is and may be defective.  The cost of repairs may negate “the deal” or “the steal” — depending on the cost of the home.

In the end, fundamentally, buying a foreclosed home is the same as buying a “regular” home — there’s a contract and a closing.  Most of the steps in the middle, however, are different. 

Read the complete foreclosure report and take a peek at the foreclosure heat maps on the RealtyTrac website.  If you like what you see, give me a call and let’s discuss the possibilities.

There’s still good deals in the foreclosure market, especially in the higher price ranges, and this is likely to continue for the next year, in my humble opinion.

Despite the economy’s improvement and prodding from Congress, banks don’t seem ready to open their purse strings just yet.

Nationally, mortgage approval standards are tightening.

The data comes from a quarterly survey the Federal Reserve sends to its member banks.  The Fed asks senior bank loan officers around the country whether “prime” residential mortgage guidelines had tightened in the last 3 months.

For the period July-September 2009:

• Roughly 1 in 4 banks said guidelines tightened
• Roughly 3 in 4 banks said guidelines were “basically unchanged”

Just one bank said its guidelines had loosened.

Combine the Fed’s survey with recent underwriting updates from the FHA and from Fannie Mae and it becomes clear that mortgage lenders are much more cautious about their loans than they were, say, 2 years ago.

Today’s borrowers face a host of hurdles including:

• Higher minimum FICO scores
• Larger downpayment requirements for purchases
• Larger equity positions for refinances
• Lower debt-to-income ratios

In other words, mortgage rates may stay low into 2010, but that won’t matter to homeowners that don’t meet minimum eligibility standards.  With each passing quarter, that list gets smaller.

Therefore, if you’re on the fence about whether now is a good time to buy a home, remember that, along with an increase in mortgage approval standards, home values are rising, too. 

Acting sooner is probably better than acting later.

Consider this a last call for FHA Streamline Refinances.  Starting next Tuesday, the popular rate-lowering program gets strict on borrowers.

There’s 5 days left.

Under the current streamline refi guidelines, FHA homeowners have minimal program eligibility requirements.

• FICO scores must be 620 or higher
• The refinance must provide a “tangible benefit”
• No mortgage lates allowed in the last 12 months

Beyond that, everything else goes, practically.  There’s no income, asset, or job verification with the current FHA Streamline program. Neither is there an appraisal requirement.  It doesn’t matter if you’re 50% underwater.

Until next week, that is. 

Beginning November 17, FHA Streamline Refinance applicants must show evidence of income and employment, plus proof of cash required to close. Furthermore, the FHA is limited loan-to-values to 97.75% for homeowners that want to “roll closing costs” into their mortgage.

In areas of declining home values, this may render refinancing impossible.

There’s more changes, too, as highlighted by the Federal Housing Commissioner. Read up for yourself, or ask a mortgage professional for help.

If you’re a homeowner and you’re currently financed through the FHA, it may be prudent to explore the possibility of an FHA Streamline Refi.  Mortgage rates are low right now and FHA guidelines are loose.

Starting next week, FHA Streamlines will be a completely different beast.

Mortgage markets were extremely volatile last week, carving out a wide range between Monday and Friday. 

Thankfully for rate shoppers, the overall momentum was positive.

Mortgage rates fell for the second time in as many weeks. Rates still sit higher versus their early-October lows.

For pure “news”, last week was a busy one:

• The Federal Reserve held the Fed Funds Rate near 0.000 percent
• The Unemployment Rate crossed 10 percent
• The First-Time Home Buyer Tax Credit was extended to April 2010

Combined, the 3 events reinforced the growing belief on Wall Street that the U.S. economy is in recovery, but not yet out of the woods.  This particular philosophy has been excellent for mortgage rates, helping to hold conforming 30-year fixed mortgage rates near 5.250 percent since the start of the year. 

It helped rates last week, too.  But low rates aren’t without threats. 

For one, the Fed’s vote to hold the Fed Funds Rate near 0.000 percent will eventually spark inflation concerns.  When it does, mortgage rates will rise. That won’t be this week, though.

Actually, nothing may happen this week — there’s not much data to release.  Apart from a retail report, a confidence survey and some Fed speakers, the calendar is bare.  That, and Wednesday is a federal holiday.

However, without data, markets often trade on things like geopolitics, or energy concerns, or momentum.  In other words, don’t be lulled into thinking rates won’t change this week.

At least for now, the mortgage rates look good. By the end of the week, that may not be the case.

Congress both extended and expanded the First-Time Home Buyer Tax Credit program Thursday. 

The White House says the President will sign it into law today.

The up-to-$8000 tax credit’s expiration date has been pushed forward to spring, requiring homebuyers to be under contract by April 30, 2010, and to be closed by June 30, 2010.

The program’s basic eligibility requirements remain the same:

• Buyers can’t purchase the home from a parent, spouse, or child
• Buyers can’t purchase the home from an entity in which they’re a majority owner
• Buyers can’t acquire the home by gift or inheritance
• All parties to the purchase must meet eligibility requirements

The new law includes some notable updates, however. 

For one, the definition of “first-time home buyer” has been expanded to include most homeowners with at least 5 years in their current home.  “Move-up” buyers like these are now eligible for IRS tax credits, but with a cap at $6,500.

This means that you don’t have to be a true first-time home buyer to claim the “first-time home buyer tax credit”.

Other eligibility changes include:

• The subject property’s sales price may not exceed $800,000
• The subject property must be a primary residence
• Income thresholds raised to $125,000 for single-filers and $225,500 for joint-filer

And remember, the First-Time Home Buyer program grants a tax credit as opposed to a deduction.  This means that a tax filer would receive a cash payment of $2,000 from the U.S. Treasury if his “normal” tax liability totals $6,000 and he was eligible for all $8,000 available under the new law.

The complete list of qualifying criteria is posted on the IRS website.  Be sure to review it with a tax professional to determine your eligibility.  Then mark your calendar for April 30, 2009.

It’s 5 months away.

The Federal Open Market Committee caps off a scheduled, 2-day meeting today in the nation’s capital, its 8th meeting of the year.

The group adjourns at 2:15 PM ET and, as is customary, will issue a press release reviewing its monetary policy and the health of the U.S. economy. 

The FOMC’s post-meeting statements are brief but comprehensive. They’re a window into the mind of the Federal Reserve and Wall Street picks apart every sentence for clues.

It’s why FOMC meetings tend to shake up the mortgage markets — for good and for bad. 

After its September 2009 meeting, the FOMC said in its press release:

1. Financial markets have improved
2. Housing activity has increased
3. Economic activity has “picked up”

Since September, the momentum has picked up.  Credit risks have reduced further, home sales are surging, and, although unemployment remains high, the Fed remains optimistic about a full economic recovery.

Today’s FOMC press release will be closely watched. If the Fed alludes to strong growth with inflation in 2010, mortgage rates should rise. Reference to slower growth should help keep rates steady.

The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent — the lowest it’s been in history.  However, it’s what the Fed says Wednesday that will matter more than what it does.

If you’re floating a mortgage rate or wondering if the time is right to lock, the safe approach is to lock prior to 2:15 PM ET Wednesday.

The housing market continues to steam forward.

As reported by the National Association of Realtors®, the Pending Home Sales Index posted its 8th consecutive monthly gain in September.

It’s the longest winning streak in the history of the index and Pending Home Sales are now at their highest levels since December 2006.

A Pending Home Sale is a home under contract to sell, but not yet closed.  It’s the precursor to an Existing Home Sale. 

Trade group data shows that nearly 80 percent of “pending” homes close within 2 months.  The majority of those remaining close within months 3 and 4.

When the Pending Home Sales Index rises, it tells us that market activity has picked up.  September’s data confirms what we’ve been noticing since February — the Buyers Market is ending.

With more homes under contract in the marketplace, homebuyers typically face one or more of the following:

   1. Competitive, multiple-offer situations
   2. Reduced purchase price leverage over sellers
   3. Fewer seller concessions

Therefore, if you’re buying a home in the next several months, know that the 8-month run in Pending Sales will lead to a run in closed sales.  It should result in higher home prices, too

Indeed, we’re already seeing it.

Mortgage markets improved last week after a series of hugely volatile trading sessions. 

Rates carved out a wide range on the week, culminating in a late-Friday plunge that dropped rates by about 1/8 percent.

It was the first time in 5 weeks that mortgage rates fell.

Volatility like that of last week is nothing new on Wall Street; it’s been a running theme in 2009.  Volatility occurs when markets don’t agree on what’s next for the economy and, this year, there’s been a lot of disagreement like that.

Data has been inconsistent.  Take last week for example.

At 9:00 AM Tuesday morning, the Case-Shiller Index showed home prices rising nationwide.  Because many analysts believe housing fueled the recession, strength in the sector is widely construed a positive for the economy.

Mortgage rates rose on the news.

But then, an hour later, the national consumer confidence report revealed a substantial deterioration in sentiment versus the month prior.  The data forced Wall Street to do an about-face.

Housing is important to the economy, but it can’t affect growth like consumer spending can. When Americans are less confident about their future income, they tend to keep their wallets closed, retarding economic growth.

Holiday Shopping Season is getting underway and the last thing businesses want to see is a suddenly reserved American shopper.

This week, the volatility should continue. 

In addition to the release of key employment and housing data, the Federal Open Market Committee has a scheduled 2-day meeting.  The group’s Wednesday afternoon adjournment will influence mortgage rates.

The Fed is widely expected to keep the Fed Funds Rate in its target range near 0.000 percent, but it won’t be what the Fed does that will matter as much as what the Fed says.

If the FOMC’s press release shows optimism for the economy, mortgage rates will rise in response.  Alternatively, if the Fed appears more dour, rates will fall. 

Either way, consider locking your rate before the Wednesday afternoon announcement.

Some days, newspaper headlines are a terrible place to get your real estate news. 

Today is one of those days.

After the September New Home Sales report showed sales volume down from August, the mainstream media jumped on the story:

• New Home Sales fall a surprising 3.6%
• Surprise Drop In New Home Sales
• Stocks slide as New Home Sales fall

But the headlines miss the point, somewhat.  Yes, home sales volume is important to housing, but it’s not as important as home supply.

A deeper look at the New Home Sales data reveals an interesting comparison point:

• New home sales volume fell 3.6%
• The number of new homes available for sale fell 3.8%

In other words, sales outpaced supply — a running theme this year and a positive signal for housing.

Since peaking in January 2009, the supply of newly-built homes has now dropped by 40 percent.  The average sale price is up 15% over the same period.

This is why you can’t get your real estate news from the headlines.  You have to dig a little bit deeper to get the real story.

September’s New Home Sales report was plenty strong.  The housing market recovery continues.

The national housing supply fell to a 2-year low last month, according to the National Association of Realtors®.

At the current sales pace, existing home inventories would sell out in 7.8 months — 30 percent faster versus November 2008.

For a 10-month window, that’s a major housing supply reduction and it helps to explain why multiple-offer situations have been so common lately.

Moreover, the same report from NAR showed sales activity reaching its highest point since July 2007, too.

If you’re looking for evidence that the long-standing Buyers Market is ending, this month’s Existing Home Sales report might be it.

Even median sales prices — typically dragged lower by distressed and foreclosed properties — declined at its slowest pace in a year.  The market may have turned a corner.

Home prices are rooted in the basic economics of supply and demand.

• When supply outweighs demand, home prices fall
• When supply lags demand, home price rise

Since March 2009, the market has been moving in the right direction.  Low mortgage rates, ample housing supply and a first-time home buyer tax credit fueled buy-side demand so that home prices are now rising in many U.S. markets.

Of course we already knew all this in Orange County, California. We have been experiencing multiple offers as commonplace, in the lower price ranges, since February.

If home supplies stay on this path into 2010, expect home prices to rise even more.

For August, the Case-Shiller Index showed annual home values improving across 19 of 20 U.S. markets. It’s the first time in 3-plus years that the benchmark housing index has shown such strength.

According to a Case-Shiller Index spokesperson, “The rate of annual decline in home price values continues to improve.”

It’s yet another sign that housing may have already bottomed.

However, just because the Case-Shiller Index shows a stabilization in home values, that doesn’t necessarily make it true. This is because real estate happens on the local level and the Case-Shiller Index is more “national”. It tracks data in just 20 U.S. cities.

Homeowners everywhere else are unaccounted for.

Furthermore, even within the 20 tracked Case-Shiller markets, there’s no allowance for the natural sub-markets that exist. Some neighborhoods under-perform and some neighborhoods out-perform.

Case-Shiller treats them all the same.

Despite its imperfections, though, the Case-Shiller Index remains a helpful, broader measurement of U.S. real estate. Economists believe that housing led the U.S. into the recession and they believe housing will lead us out, too.

If that’s true, August’s Case-Shiller data is another step in the right direction.

Mortgage markets were volatile last week, making it very difficult to shop for mortgage rates.

On most days, lenders issued multiple rate sheets with the trend putting rates higher in the morning, and lower in the afternoon.

Overall, mortgage rates were unchanged on the week. It broke a three-week streak through which mortgage rates rose.

Rates remain roughly one-half percent higher than the lows of early-October.

The biggest positive for rate shoppers last week was tame economic data — specifically concerning the Producer Price Index and the housing sector.

The Producer Price Index is an inflationary, Cost of Living-like measurement for businesses and it went negative in September. Analysts weren’t expecting that and the surprise pulled rates down an eighth.

Similarly, in housing, both the Home Price Index and Housing Starts figures were softer than expectations. These, too, tugged mortgage rates down.

At least temporarily.

We say “temporarily” because — all week long — a steadily-weakening U.S. dollar was leading mortgage rates higher.

All things equal, mortgage rates rise as the dollar loses value and, last week, the dollar touched a 14-month low versus the Euro. The greenback’s weakness countered most of the “positive” news for rate shoppers and is a major reason why rates were so volatile.

The volatility should continue into this week, too. With little data and no Fed speakers, look for mortgage rates to move with the market’s momentum.

Lately, momentum has been pulling rates higher so if you’re floating a rate and trying to time a bottom, the chances are good that we already passed it. Consider locking your rate before rates rise much further.

Once rates break 6 percent, they may not come back down.

With crude oil at its highest levels since October 2008, retail gas is up 8 cents per gallon this week.

It’s bad news for home buyers and mortgage rate shoppers.  The same force that’s driving oil higher is linked to rising mortgage rates.

We’re talking about the weakening U.S. Dollar which is now at its worst levels versus the Euro in 15 months.

Crude oil is priced in U.S. dollars, by the barrel.  When the dollar loses value, more of them are needed to buy the same barrel of oil.  As a result, predictably, the price of crude oil goes up.

Now, there are other reasons why crude oil is rising, but the fading U.S. dollar is one of the major ones and it’s why we’re addressing it.

The dollar has a similar impact on mortgage rates.

Mortgage rates are based on the price of mortgage bonds that — like crude oil — are also denominated in dollars. As the dollar loses value, so do mortgage bonds.  This causes demand for bonds to drop and prices on bonds to fall.

Because bond prices and bond rates move in opposite directions, mortgage rates rise and thisis precisely what’s happening on Wall Street today.

Since touching a 5-month low in early-October, mortgage rates have tacked on as much as 1/2 percent, depending on the product.  Moreover, with the dollar showing no signs of a rebound, the upward pressure on rates should continue.

If you’re trying to time the market bottom, you may have already missed it. Consider locking your mortgage rate before rates increase even more.

And your everyday signal that rates are rising? Just check your price at the pump. If gas prices are up, it’s likely that mortgage rates are, too.

Housing Starts on single-family homes gained last month, marking the 8th time that’s happened this year.

A “Housing Start” is a home for which the foundation has been excavated and, considered alongside other key market metrics, September data suggests that the housing market has stabilization is complete.

Momentum in housing is overwhelmingly positive:

• Homes under contract are soaring
• National home supplies are way down
• Home values are up in a lot of markets

Despite the positive news, the press is calling September’s Housing Starts data a “bummer“. Citing a drop in monthly building permits, the media purports that housing will slow in the months ahead. 

The conclusion may be right, but the rationale is may be wrong. 

The probable cause for fewer permits isn’t that the housing market is overdone.  It’s that home builders are choosing to exercise caution given the pending expiration of the First-Time Home Buyer Tax Credit and a still-growing number of foreclosed homes. 

It’s unclear what housing demand will be beginning in December and the last present a builder wants for the holidays is an excess of inventory.

It makes sense that building permits are down, in other words.

Looking back at February of this year, there’s a host of signs that housing is on the path to recovery.  Now, that path won’t be a straight line and there’s bound to be setbacks, but September’s Housing Starts is not one of them.

Housing Starts are up 40 percent on the year.

The new Good Faith Estimate makes its debut January 1, 2010.

Expanded from 1page to 3, the legislators responsible for the new Good Faith Estimate want it to be simpler for homeowners and home buyers to understand than the former version.

By most accounts, Congress will meet this goal. 

The new Good Faith Estimate includes plain-English explanations of every fee, charge, and interest payment involved in a purchase or refinance.  It also includes a section called “The Shopping Cart” in which applicants can compare lenders.

The new Good Faith Estimate is concise, too.  Using a series of “Yes/No” checkboxes on Page 1, mortgage lenders specifically note:

• The interest rate on the mortgage
• Whether the interest rate can change over time
• Whether the loan carries a prepayment penalty
• The length of the rate lock

Currently, this information is spread across 3 separate forms. 

Furthermore, the new Good Faith Estimate simplifies rate-and-fee comparisons, showing applicants how a lower rate can be available for a higher set of fees, and vice versa.

For all of its clarity, though, the new Good Faith Estimate still fails to address the issue of “suitability”.  As in, is this the right loan for the right borrower?  That’s something only a loan officer can do.

For suitable advice, talk with a loan officer who both listens to your needs and helps you plan for them.  Great terms on an unsuitable loan are often worse than “good” terms on the right one.

Mortgage markets worsened last week on better than expected economic data, causing mortgage rates to rise.

Last week was the third consecutive week that mortgage rates moved higher and, since touching a multi-month low in early-October, conforming mortgage rates are up by about a half-percent. 

It’s likely rates will continue to rise, too.  That’s because the same force that held rates down for so long is now the force pulling them up — expectations for the U.S. economy.

Over the last 6 months, it wasn’t clear in what direction the country was headed.  The housing sector has been gaining in strength, but the rest of the economy has been a question mark.

Last week put an end to some of those questions:

• Retail Sales posted stronger-than-expected results
• Consumer Sentiment matched September 2008 levels
• Jobless and continuing claims fell below consensus estimates

Expectations for the U.S. economy are changing on the fly.  As a result, stock markets gained last week and mortgage markets lost.

This week, rates could move higher still.  There are an unusually large number of key economic reports including on housing and inflation, plus a handful of speeches from key Federal Reserve members.

With each positive announcement, mortgage rates should rise.