by Kevin Whatley (NMLS #113781)

Credit scoring is becoming more important to mortgage pricing so now would be a terrific time to brush up on your credit education.

If you understand how the system works, after all, you can make it work to your advantage. One terrific place to start your research is at myFICO.com.

Published by credit scoring powerhouse Equifax, myFICO.com give you information right from the source. There are tens of pages of tips and tricks from which everybody can learn.

Here are some basic pointers to get you started:

Use It Or Lose It: If you don’t use credit, the credit agencies can’t assign you a credit score. Spend $10 monthly on your credit cards and then pay it in full to “get on the grid” and get yourself a score.

30 Is The Magic Number: Holding your credit card balances below 30 percent of their respective limits shows an ability to manage credit responsibly. Before consolidating multiple credit cards onto one credit line, consider that card’s credit limit. Overload it and the consolidation could hurt your credit score.

The Trend Is Your Friend: A track record of paying accounts on-time means that you’re likely to continue paying on-time. Credit bureaus like on-time payments. If you’ve been late, catch up immediately. At 35 percent, this is the largest component of your credit score.

History Is The Best Teacher: Don’t close unused credit cards. Having a credit “history” accounts for 10 percent of your score.

There are more helpful hints available at the Web site so with additional credit score adjustments to mortgage rates expected later this year, the best way to protect yourself is to be proactive.

Identify potential issues in your credit profile and work to improve them.

Credit scoring is not always intuitive so if you’re not getting the personal information you need from general Web sites, ask your loan officer for an in-depth analysis. The mortgage rate you save may be your own.

Average gas prices reached an all-time U.S. high Tuesday, touching $3.40 per gallon. San Francisco and Tulsa are the nation’s bookends at $3.94 per gallon and $3.11 per gallon, respectively.

But before you wonder if relief is coming to your family budget, remember that “rising gas prices” is a conversation we have every April.

Using data from gasbuddy.com and looking back to 2004, we can see that gas prices tend to rise during the Spring season.

If the pattern holds, we’ll should see another 10 percent increase at the pump before gas prices settle back down over the summer and fall months.

Today is Tax Day so here’s some IRS-related trivia to share at the water cooler:

Did you know… President Lincoln and Congress enacted the first income tax in 1862 to pay Civil War expenses.

Did you know… The Civil War income tax was repealed in 1872, revived by Congress in 1894, and ruled unconstitutional by the Supreme Court in 1895.

Did you know… In 1913, Wyoming was the deciding vote in the 16th Amendment which gave Congress the authority collect income tax.

Did you know… The first income tax was 1 percent on net personal incomes above $3,000. There was a 6 percent surtax on incomes over $500,000.

Did you know… The first 1040 form was 4 pages long — including instructions. Today, the instructions ALONE are 92 pages.

Did you know… During World War I, the highest rate of income tax was 77 percent. Taxes were used to help finance the war.

Did you know… In 1954, the tax filing date changed from March 15 to April 15.

Did you know… Electronic filings started in 1986. Today, e-filings have an error rate of 0.5 percent versus an error rate of 21 percent for paper filings.

And remember: If you don’t file tax returns, the Treasury Department won’t send your economic stimulus check. Happy April 15, everyone.

Source
A Brief History of the IRS
IRS.gov
http://www.irs.gov/irs/article/0,,id=149200,00.html

Through 5 days of see-saw trading, mortgage rates ended last week relatively flat; the downward tick into Friday’s close was a boon for home buyers this past weekend.

It may be short-lived, however.

Oil continues to sit near all-time highs and a slew of inflation-related data is crossing the wires this week.

When inflation pressures are high, mortgage rates rise.

The first piece of data is Retail Sales for March and it hits Monday at 8:30 A.M. ET.

Traders pay close attention to Retail Sales because consumer spending accounts for two-thirds of the economy. If sales growth is negative, it’s unlikely that Americans will spend the economy out of its weakness.

That should bode well for mortgage rates because a sluggish economy can combat some forms of inflation.

Next, on Tuesday, markets will see the Producer Price Index from March and, on Wednesday, it will see the Consumer Price Index from March. These are “Cost of Living” measurement for businesses and consumers, respectively.

Over the past few months, rising energy costs have pushed both indices to record levels, taxing Americans on all fronts. Rising costs are the heart of inflation and this tends to push mortgage rates higher.

Another “hot” number this month will be bad for mortgage rate shoppers.

Also impacting mortgage markets this week will be the earnings reports of key financial companies including Washington Mutual, JPMorgan Chase, Wells Fargo, Citigroup, and Wachovia. This list is a Who’s Who of mortgage-exposed banks and dramatic weakness will force investors to sell stocks in favor of bonds.

Because mortgage rates are based on the price of mortgage bonds, this sort of “safe haven” buying would lower rates.

Mortgage markets have been manic since the start of the year and there’s no reason to expect a reprieve this week. It’s data-heavy so if you see a rate you like, lock it before it’s gone.

Getting approved for a conforming home loan is now tougher than before.

Again.

As home loan defaults mount, government-sponsored financier Fannie Mae has imposed new guidelines on what it will lend and to whom, highlighting the need for a strong credit profile and a downpayment.

In other words, Fannie Mae is outright declining mortgage applicants whose credit is weak and whose payment history shows signs of trouble. But, it’s not just the “fringe” borrowers that are finding it harder to get a mortgage.

Buyers with strong credit profiles are being hit by new changes, too.

One such change says that owners of second homes must now have a 10 percent equity position in their homes; 15 percent if the property is in a “declining market”.

This is up from 5 and 10 percent, respectively, and represents a growing trend to make homeowners have a “stake” in their own homes. Downpayment requirements are higher for all mortgage products, in general.

Fannie Mae’s changes are the third set of restrictions imposed since December 2007 and more tightening is expected over the next few months. That makes now a compelling time to buy a home — borrowing money will be more restrictive (and more costly) later.

If you are actively shopping for homes and have not been pre-qualified in the last few weeks, reach out to your loan officer and get checked against the latest set of mortgage guidelines.

It’s better to know today than after you make an offer.

Every two years, the Jump$tart Coalition issues a “personal finance” exam to high school seniors.

The test highlights the importance of personal financial literacy among America’s youth and comes at an especially important juncture.

Many experts — including Fed Chairman Ben Bernanke — believe that basic financial knowledge is essential for (and lacking in) teenagers. Jump$tart’s exam did little to disprove this.

This year, 12th graders answered 48.3% correct on average and posted the lowest scores since Jump$tart first issued the test in 1996.

A sample question from the 31-question test:

Which of the following types of investment would best protect the purchasing power of a family's savings in the event of a sudden increase in inflation?

1. A twenty-five year corporate bond
2. A house financed with a fixed-rate mortgage
3. A 10-year bond issued by a corporation
4. A certificate of deposit at a bank

Find out the answer to the sample questions and 30 other questions by taking the complete Jump$tart Personal Financial Literacy test for yourself online.

The average adult scores 68%.

In three weeks, the Federal Open Market Committee will meet again and markets anticipate another cut to the Fed Funds Rate.

Based on data compiled by the Federal Reserve Bank of Cleveland at the close of business yesterday, traders put the probabilities of the Fed’s next move at:

• 62 percent chance that the Fed Funds Rate falls to 2.000%
• 36 percent chance that the Fed Funds Rate falls to 1.750%

Currently, the Fed Funds Rate is 2.250%.

Cuts to the Fed Funds Rate are meant to stimulate the economy by lowering borrowing costs for banks, businesses, and consumers. When less money is spent on interest payments, more money is available for goods and services and that tends propels the economy forward.

Cuts to the Fed Funds Rate, however, do not equal cuts to mortgage rates.

Mortgage rates are based on the price of mortgage bonds and — although it exerts an influence — the Federal Reserve does not set the prices for mortgage bonds any more than it sets the price for other investments such as stocks or mutual funds.

Since September 2007, the Federal Reserve has lowered the Fed Funds Rate by 3 percent. Over the same period of time, conforming mortgage rates have been mostly unchanged.

News sources like to use the term “credit crunch” in describing the U.S. economy, but they rarely define what a credit crunch is and what it means for Americans.

A credit crunch is when the amount of available loans suddenly decreases over a very short period of time.

Usually, it follows a period of lending which, in hindsight, becomes known for its “easy money”.

The start of a credit crunch often coincides with consumer loans starting to go bad and lenders losses starting to mount.

The realization that more losses are ahead forces lending institutions to tightening their respective lending guidelines.

Since the current credit crunch began in mid-2007, Americans looking for credit now face:

• Higher credit score requirements on auto loan applications
• Higher fees and interest rates on credit cards
• Larger downpayment requirements on their home purchases

And now, the newest symptom of the credit crunch: the largest buyer of mortgage loans — Fannie Mae — has instituted a new, 580 minimum score requirement for all mortgage applicants.

As consumer delinquencies mount and the economy continues to sputter, getting access to credit will likely get tougher for every American — good credit and bad.

And that’s the defining characteristic of a credit crunch.

Source
Credit Crunch
Wikipedia, April 8, 2008
http://en.wikipedia.org/wiki/Credit_crunch

Mortgage rates edged lower last week, buoyed by a weak employment report for March.

After shedding 80,000 jobs last month, the number of working Americans is lower by 232,000 so far this year.

Many pundits are claiming these figures are proof of a U.S. economic recession but it’s important to keep the data in perspective.

According to the government, there are 153 million people in the workforce.

The 232,000 terminated workers, therefore, represent a fractional 0.15 percent of the workforce. This is a very small percentage.

This week, there isn’t much new data for markets to digest but we’ll want to keep an eye on some important events.

The first is Monday’s Consumer Credit report. As the Federal Reserve has lowered the Fed Funds Rate, Prime Rate has fallen, too, and that means that credit card interest rates are down.

The Consumer Credit report will show whether Americans are spending the country out of a recession. Ballooning national debt levels should cause mortgage rates to rise because more spending on the consumer level increases the likelihood of inflation later this year.

The second is Tuesday’s release of the Federal Open Market Committee’s March meeting minutes.

We know what the Fed said and did after its last meeting; the minutes, though, give us the “Behind the Scenes” look at the debate. There shouldn’t be much in the minutes that we haven’t already heard, but if there is, expect mortgage rates to swing wildly in response.

Other than that, there’s not much doing this week. A few Federal Reserve speakers will be out and Friday we’ll get to see the University of Michigan Consumer Sentiment survey.

The biggest threat to mortgage rates this week is ongoing news of financial stability (or instability) with large banks and investment houses.

Mortgage markets do not like it when banks go insolvent so be aware of that type of news if it surfaces because it can change the direction of mortgage rates in an instant.

For the third month in a row, the economy shed jobs, suggesting that the U.S. is in a recession.

March’s monthly loss of 80,000 jobs is the largest since March 2003 and follows January and February’s losses of 76,000 each.

The weak data is edging mortgage rates lower as we head into the weekend.

The connection between poor jobs data and today’s falling mortgage rates is a little bit strained, but worth discussing. It all comes down to expectations.

Prior to today, there was an expectation that the Federal Reserve’s recent rate cuts would over-ignite the economy sometime this Summer. The Fed has cut 3 percent from the benchmark rate since September 2007.

Meanwhile, consumer spending makes up two-thirds of the economy and people can’t spend if they don’t earn.

So, after today’s report showing fewer workers (and falling confidence levels to boot), the largest component of the economy is expected to sag for a while.

This lack of spending should offset the cumulative impact of the Fed’s rate cuts and lowers the expectation for runaway inflation later this year.

Now for the connection: If inflation causes mortgage rates to rise, it’s the absence of inflation that causes them to fall.

And that’s precisely what we’re seeing today.