The concept was basic: For mortgage applicants with high-risk profiles, collect up-front payments to offset potential long-term losses. 

Similar to the auto insurance model in which younger drivers pay higher premiums, riskier applicants pay higher fees.

At the inception of the program, Fannie Mae defined ”risk” as a combination of borrower credit score and home equity percentage.  In general, lower FICOs and higher LTVs paid more costs.

Effective April 1, however, Fannie Mae’s definition of risk is expanded.  By a lot.  Fannie Mae’s new loan-level fees now impact any conforming mortgage that meets any of the following criteria, with the exception of fixed rate loans of 15 years or less.

• Up to 0.75% fee: Secured by a condo/co-op with less than 25% equity
• Up to 0.50% fee: Features a junior mortgage (i.e. HELOC, HELOAN)
• Up to 1.00% fee: Features interest only payment options
• Up to 1.00% fee: Secured to a 2-unit property
• Up to 3.00% fee: Is designated as “cash out”

Each 1 percent in fees equals 1 percent of the borrowed amount. Therefore, a condo buyer with a $200,000 first mortgage and a $25,000 line of credit is subject to a mandatory 1.25% charge of $2,500, due at closing.

However, it doesn’t stop there.  Fannie Mae has also adjusted its original FICO-LTV matrix so that nearly every applicant — irrespective of credit score — will face higher closing costs on their home loan.

Mortgage rates may be falling, but the cost of financing a home is rising.

Fannie Mae’s latest announcement is its fifth risk-based pricing update in the last 15 months.  It’s likely it won’t be the last, either.  Therefore, if you’re torn between to buy a home now or later, consider that the cost of waiting may outweigh the benefits of falling prices or falling rates.

A terrific example is the chart at right.

Published by Freddie Mac, it shows the 30-year fixed mortgage’s “going rate” as reported by the nation’s mortgage lenders. On December 30, 2008, that rate was 5.1 percent.

But 5.1 percent is only half of the relevant information.  There’s a mandated fee schedule that accompanies the Freddie Mac-reported rate survey.

Currently, the published fee required to get a 5.1 percent mortgage rates is 0.7% of the borrowed amount, or $700 per $100,000 borrowed.  This fee is more commonly known as “points” and versus last year, it’s nearly doubled from 0.4 points.

So, yes, conforming mortgage rates are low and they have fallen near all-time lows but there’s more to the story than just the interest rate — there are the fees that go with them, too.

Mortgage rates and loan fees often move in opposite directions so to get lower rates, consider paying additional points.  Conversely, to face fewer fees, accept a higher rate.  It’s a trade-off and your loan officer can help you best understand the choices.

(Image courtesy: The Wall Street Journal)

The calls on housing and mortgage rates run the gamut:

• Home prices have farther to fall
• Home prices have touched bottom
• Mortgage rates will dip
• Mortgage rates will rise

Put it all together and it’s clear that the experts have no better idea about the future than you or I.  Their guesses are educated ones, but they’re guesses nonetheless.

A terrific example of how poorly experts can predict the future comes from a Wall Street Journal performance analysis of 1,700 mutual funds. 

In 2008, only one earned a positive return.  That one fund represents zero-point-zero-six percent of all tracked mutual funds.  Surely, the fund managers of the other 99.94% didn’t expect to post negative returns on the year.

So, before you use predictions about the demise (or recovery) of the broader economy to make “personal economy” decisions, consider that the oft-quoted experts have a hugely better track record in analyzing the past than the future.

All we know for sure right now is that home prices are, in general, lower than at the time point last year, and mortgage rates are, too.  By 2010, both could be lower still.

Or they may not.

Poor indoor air quality is linked to Sick Building Syndrome, a combination of ailments with more than 50 seemingly separate and unrelated symptoms, including:

• Dizziness and nausea
• Headache
• Symptoms related to Irritable Bowel Syndrome
• Personality changes

Avoiding sickness like this – as explained by The Today Show — may be as simple as choosing the right paint for your home. 

Most “standard” paints come loaded with chemicals called VOCs — volatile organic compounds.  The naturally-occuring chemicals are added to the paint to help it spread better and last longer.  Unfortunately, these same chemicals are damaging to soil and groundwater, react with sunlight to form dangerous ozone, and contribute to global warming.

There is a safer choice.

Non-VOC household paints are widely available for about the same cost as their toxic cousins.  They’re eco-friendly and, because recent advances in the manufacturing technology, the paint quality is outstanding.

To buy the non-VOC paints featured in the video, head to your local Benjamin Moore dealer, or get it online from Cox Paint.

As part of the Economic Stimulus Act of 2008, Congress authorized a conforming loan limit increase in “high-cost” areas around the country. Versus the national conforming loan limit of $417,000, for example, a Manhattan home buyer could secure a 2008 mortgage for $725,000 and still be within “conforming” guidelines.

Effective January 1, however, those limits rolled back.  Conforming mortgages in the 59 designated high-cost regions are now capped at $625,500. 

In non-high-cost areas, the 2009 conforming loan limits remain unchanged from 2008.

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

Loans in excess of these dollar amounts are often called “jumbo”, or “super jumbo” home loans, depending on their size.  Jumbo home loans tend to be more costly than their conforming-sized cousins.

For home buyers, the timing couldn’t be better.

Because December 31 is one of Wall Street’s most thinly-traded days of the year, low volume is exaggerating the announcement’s impact on mortgage markets.

Mortgage rates are lower this morning.

However, you may not have much time to act.  Few mortgage lenders permit after-hours rate locking and bond markets close at 2:00 PM ET for the holiday.  If you miss today’s Fed-fueled low rates, markets re-open Friday for your second chance.

In general, the more buyers and sellers there are for a particular item, the easier it is to find that “fair value” and make the deal. 

An abundant number of buyers and sellers often creates a liquid market in which assets — in this case, mortgage bonds — can be sold rapidly with minimal loss.

This week, though — with so many traders on vacation — the “liquid market” has gone illiquid.  The treasury market posted just 41 percent of its normal, daily volume Monday, leading to erratic pricing in the mortgage bond market which, in turn, caused mortgage rates to follow.

For example, mortgage rates started the day lower yesterday before sprinting higher over a 30-minute, early-afternoon span.  Markets were largely unprovoked by economic data, geopolitical developments, or technical factors.  It just, kind of, “happened” and the move left mortgage rate shoppers in the dust.

That could happen a lot this week.  So, if you’re in the market for a mortgage, be ready to lock quickly.  With low liquidity, rates rarely sit still for long.

(Image courtesy: Purdue BCM)

Grease should never be poured down a kitchen drain.  The moment that liquid fat touches cold water or cold pipes, it can harden and block pipes.

Traditionally, disposing of grease required:

1. Pouring the grease into a glass jar
2. Placing the jar in the refrigerator
3. Throwing out the jar once the grease had hardened

However, a new, biodegradable product called Absorb-Ease lets you go from Grill to Garbage in one easy step — with no spilled grease and no collecting of glass jars.

Just put an FDA-approved Absorb-Ease pad in a hot, greasy skillet and watch it absorb liquid like a paper towel absorbs a spill.  The analogy is fitting, in fact, because Absorb-Ease is made from food-grade, fibrous tree pulp — much like paper towel. 

Grease-soaked Absorb-Ease pads can be thrown out with the rest of the garbage and can be bought online in packs of 64.  They cost roughly $0.27 each.

After getting stung by defaults, conforming mortgage standards for non-owner occupied home loans tightened dramatically last quarter.

One major change was the reduction in the total number of homes Fannie Mae or Freddie Mac will finance for any one borrower. 

Prior to the chance, the number of financed properties could be as high as 10.  Today, that number is 4, stinging investors with large real estate portfolios.  Going forward, buying properties isn’t the problem; financing them with conforming mortgage money is. 

Another guideline change mandates larger downpayments.

Versus early-2008, when a real estate investor could buy a home with 10 percent down, today’s investor is required to pay 15.  But, as an added wrinkle, few private mortgage insurers write policies against rental homes anymore, rendering the 15 percent downpayment insufficient.  The de facto requirement, therefore, is now 20 percent down.

And then came the fees.

As part of its “pay-for-risk” pricing model, Fannie Mae added mandatory fees to all of its investor property mortgages this year.  Based on loan-to-value, the fees are:

• 75% LTV or less: 1.750 percent of the borrowed amount
• 75.01 – 80.00% LTV : 3.000 percent of the borrowed amount
• Greater than 80% LTV : 3.750 percent of the borrowed amount

So, if your personal plan includes the purchase of investment properties in 2009, consider the impact that tighter conforming guidelines, larger downpayments and higher fees will have on your bottom line.

All things considered, now may be a good time to make that rental property bid.  Sure, prices may fall going forward, but increased acquisition costs may wipe out the long-term gains.

For the first time in over a year, the sales of “used homes” fell below the 5-million unit trendline, helping to push the total home inventory higher by 0.1 percent nationwide.

Based on the rate at which homes are selling nationwide, it would take 11.2 months for the existing housing supply to be exhausted.

For home buyers, this is an opportune time for negative news on housing. 

First, sellers know that between now and the Super Bowl, housing activity will be light.  The general scarcity of buyers may force a seller to accept a bid he wouldn’t have accepted otherwise.

Second, the economy is showing weakness and that, too, can concern a home seller.  Buyers are less likely to extend themselves during times of economic uncertainty, further reducing the buyer pool and, again, putting pressure on the seller to “make a deal”.

And lastly, because the government has been trying to force mortgage rates down as a way to stimulate the economy, the weak housing data is actually making it cheaper to finance a home.  This means that a well-qualified home buyer can better stay within budget.

Each 0.500 percent rate reduction saves $33 per $100,000 borrowed.

It is important to remember, though,  that the U.S. housing market is not national — it’s highly localized.  This is one reason why national real estate reports can be misleading.  Just as figures from Phoenix have little to do with statistics from St. Paul, even data from neighboring ZIP codes can vary.

The universal truth, however, is that a home that is priced fairly will sell more quickly than a home that is not.  And, until the Super Bowl passes in 45 days, expect fewer buyers to be out there competing for them.

(Image courtesy: The Wall Street Journal Online)