Nicole Lahti, Austin Texas Mortgage

Mortgage rates suffered some volatility mid-week, but ended Friday about where they opened on last Monday. The same cannot be said about today, as rates opened about .125% higher than where they ended on Friday.

Last week showed the market is absorbing much of its housing inventory, which dropped to a 7.8 month supply, down from 10.1 months in April. This is in part due to builders' caution in beginning new developments -- Housing Starts and Building Permits came in below expectations last week. On the other hand, Existing Home Sales came in better than expected, with nearly 45% of homes sold to first-time home buyers!

PPI fell, however next month it could be higher as oil and natural gas prices have soured lately. Remember, high oil prices are not good for mortgage rates, and could send them higher.

Forecast for the Week

The Treasury Department will auction off nearly $123B in debt this week, which could cause some major volatility in mortgage rates this week, so hold on to your hats.

Other potential market movers this week are Wednesday's New Homes Sales, and Thursday's Initial Jobless Claims Report and GDP report. Lastly is another read on inflation with Friday's Core Personal Consumption Expenditure (PCE) Index.

Follow me on Twitter, for real-time semi-frequent updates on mortgage and real estate news!

Last week was another very volatile week for mortgage rates, which ended the week about .125% worse than where they began. This increase, followed by an increase in rates week before last, is an indication that rates maybe on a more permanent rise.

Why did rates increase? Firstly, the stock market did remarkably well last week; as a general rule, when the stock market does well, mortgage rates rise as money flows out of mortgage bonds and into stocks. Also, the CPI came in higher than expected last week, which indicates inflation (the archenemy of mortgage rates) may be on the horizon. And lastly, the Fed has begun to scale down its purchase of mortgage-backed securities. Its now averaging $14B a week in purchases, which is down from the $25B that its been averaging until recently.

Hate to say it, but all signs are showing rates are beginning to increase. Luckily, we are still at historic lows; however, I'd recommend moving quickly if you're seriously considering buying or refinancing a home before rates get much higher.

Forecast for the Week

This week shows no sign of relief from volatility as we have a pretty jam packed week of economic news.

We'll hear more about inflation on Tuesday with the Producer Price Index and Core Producer Price Index due out. We'll also hear more news on the housing front with Building Permits and Housing Starts on Tuesday, and Existing Home Sales on Friday. And lastly, we'll hear about unemployment with Thursday's Initial Jobless Claims Report.

All reports have the ability to move mortgage rates quickly, so if you're adverse to risk, I'd recommend locking your rate if you're happy with the payment it provides you.

If you like my commentary, you'll love working with me! Give me a call if you're interested in buying or refinancing your home!

Interested in timelier mortgage and real estate news, Follow Me On Twitter. I post market updates on a semi-frequent basis as they come out.

Over the last month there's been a lot of back and forth on whether the Federal Housing Administration (FHA) is the next agency to need a bailout. Both sides of the argument agree FHA's delinquencies are rising and capital reserves are falling; but disagree on whether its current and future reserves are enough to withstand these rising delinquencies. This debate has me biting my fingernails as over half of my business is FHA loans, but with compelling arguments coming from either side, who do I believe? If you're also trying to wrap your mind around what exactly is going on, here's a breakdown of what FHA skeptics contend, and FHA's defense. Who do YOU believe?

The Facts

1. Congress requires FHA to keep a minimum of 2% of loans insured by the agency in cash reserves
2. FHA has fallen below the 2% minimum. The ratio in 2008 was 3%, down from 6.4% in 2007.
3. FHA currently guarantees about 23% of all home loans originated, up from 2% in 2005
4. Approximately 20% of FHA loans originated in 2008 face serious problems including foreclosure
5. Roughly 7% of all FHA loans are delinquent

What FHA Skeptics are Saying

In last week's testimony before Congress, Edward Pinto, Chief Credit Officer from 1987-89 for Fannie Mae, stated its inevitable for FHA to need a taxpayer bailout within the next 24-36 months. Watch this video of him on Fox News just a couple weeks before the drop below the 2% minimum was confirmed. He makes his case as to why FHA is in such bad shape.

FHA's Defense

FHA commissioner, David Stevens, acknowledges the seriousness of falling below the 2% minimum threshold; but in his testimony before the House Financial Services subcommittee last week he stated FHA will not need a taxpayer bailout. He asserted the capital reserve fund can be replenished within the next three years according to an independent, non-governmental actuarial review of the MMI fund which is based on a conservative estimate of the housing market's future recovery. He states in the video below that this assumes no further catastrophic decline in homes prices:

In this interview Stevens asserts FHA has enough reserves to offset rising delinquencies. Although the capital reserve fund has dropped below 2%, its total reserves are as high as they've ever been.

So who do I believe? Clearly, FHA is strapped, but can it weather the storm? Its concerning to me that Stevens is betting FHA's health a "conservative" recovery in the housing market. Conservative according to who? That seems awfully subjective. The last time the mortgage industry banked on rising home prices didn't turn out too well, did it? Also, FHA's delinquency rate is roughly 7%, does that sound familiar to anyone else?

I'm not trying to be Debbie Downer, God knows if anyone hopes it all works out, its ME! I just hope FHA is prudent in its predictions and underwriting, even if that means tightening its lending standards for the overall health of our economy. Overall, I'm still on the fence on this one, although I am concerned. How about you? Do YOU think FHA will need a bailout?

Yesterday the House of Representatives unanimously voted to extend the $8,000 first-time home buyer tax credit to active military personnel, foreign service and intelligence officers. HR 3590 extends the existing tax credit to this group until November 30th, 2010. The bill now goes to the Senate, and is expected to pass with the same ease.

The bill was introduced by Rep. Charles Rangel (D-NY) because it was thought that military personel serving oversees this year did not have the same opportunity to take advantage of the tax credit. If the original qualifications are met, the extension applies to military personnel who spent at least 90 days of the current calendar year oversees. It also does not require borrowers to payback the tax credit if they are deployed after receiving it. The current tax credit requires borrowers payback the tax credit if they do not occupy the home within three years of receiving the tax credit.

No word yet on whether the $8,000 tax credit will be extended for all eligible borrowers.

The bond market is closed today for Columbus Day, but ended last week leaving a sour taste in our mouth. Mortgage rates averaged well the entire week, then went up approximately .25% on Friday alone.

Could this mean mortgage rates are beginning to increase after enjoying months of historic lows? Perhaps, however the general sentiment is rates will continue their small fluctuations in the short-term, followed by a precipitous increase approximately 1-2 years from now. I know what you're thinking, "Nicole, why are you so smart?" Well, I largely attribute that to my early childhood Montessori education...what? That wasn't what you were thinking? You want me to define small fluctuations vs. a precipitous increase? Oh, got it.

Well, over the last 6-12 months we've experienced a very volatile mortgage rate environment. Although rates have averaged at historic lows, its normal to see small .125-25% fluctuations any given week, only to return to lower levels. On the other hand, I would define a precipitous increase in mortgage rates as a drastic and lasting increase. What will cause this precipitous increase? Inflation, or the scent of inflation coupled with the Fed's shift in monetary policy to combat it. Last week Bernanke, even how inflation would be combated if this situation occurred. Why is it estimated to take 1-2 years to begin? Inflation has kept at bay during our recession; however, as the economy begins to turn around the vast amount of liquidity pumped into the system by our government will have to be sopped-up somehow to avoid inflation. The 1-2 year time-frame stems from the fact that most believe its going to take 1-2 years for the U.S. to experience recovery (read NY Fed Chairman, William Dudley's, predictions last week).

So those are small fluctuations vs. precipitous climb for you. Now, somewhere between those two is where mortgage rates will fall by March 2010. By this date the Fed halts its purchases of mortgage-backed securities, the very thing that's brought us historically low interest rates. How high will rates get when this happens? Not sure yet, some are estimating anywhere from .25% to .50% higher, but the truth is we just don't know yet. What we do know is rates will increase by March 2010. When exactly rates increase largely depends on how the Fed weans off its purchases vs. cutting cold turkey.

Forecast for the Week

OK, now that I've taken you out about 6 months, let's rewind back to this week and see the economic news due that may affect rates. Firstly, the Fed's Open Market Committee minutes come out Wednesday which could cause some volatility depending on what is said; and the Consumer Price Index (CPI) is due out Thursday giving us a read on consumer prices. Either report will be interesting especially after Bernanke's comments last week on protecting the economy against inflation.

If you've seriously been thinking about buying a home its time to move quickly given where rates could be headed by March 2010 (and beyond). I've saved my clients thousands of dollars by closely monitoring news and reports that affect interest rates, and I'd love to do the same for you!

If you're interested in buying a home, call me first to discuss your qualification. I've love the opportunity to work with you!