by Kevin Whatley (NMLS #113781)

Americans are feeling better about their budgets right now, raising the possibility of a full economic recovery.

According to a University of Michigan and Reuters, Consumer Sentiment rose for the fifth straight month in June.

Consumer Sentiment is now at its highest levels since September 2008, the month in which Lehman Brothers failed, Fannie Mae and Freddie Mac were nationalized, and the global financial crisis is believed to have peaked.

Rising confidence levels are important to the economy — and to housing –because a confident consumer is more likely to make the big-ticket purchases that propel the economy forward.

This includes buying new homes.

That said, the Consumer Sentiment Survey has its flaws.

For one, the survey’s sample set includes just 500 families. This is hardly a cross-section of America. Secondly, when people feel better about their finances, it doesn’t always lead to additional consumer spending — it could lead to more saving.

What people say they’ll do and what they actually do can be two very different things, but if consumer spending does increase in the months ahead, expect home sales to benefit on the willingness of families to “take more chances” and expect mortgage rates to suffer on concerns for inflation.

The mortgage market roller coaster continues. Markets worsened badly in the early part of last week, before rallying into Friday’s close.

Overall, mortgage rates were slightly higher for the week even though — briefly — they rose to levels not seen since November 2008.

Last week marks the third week in a row and the sixth out of the last seven that mortgage rates increased.

It’s not all bad news for mortgage rate shoppers, however. The market’s surge higher appears to be slowing and its momentum may start to reverse.

See, mortgage rates don’t come from thin air. They’re based on the price of mortgage-backed bonds and, over the last few weeks, it seems as if nobody on Wall Street wanted anything to do with them. A massive sell-off that caused bond prices to plummet and mortgage rates to soar.

Freddie Mac says rates are up 3/4 percent in the last 3 weeks but loan officers will tell you that’s undercutting it. Conforming mortgage rates are up more than 1 percent since Memorial Day.

The biggest reason for the sell-off was that markets feared a runaway inflation scenario. The U.S. Treasury has assumed an unprecedented debt load this year and to repay it, markets expect the government to print more cash — an inflation-inducing scenario.

However, when a number of high-profile investors and a country said last week that their faith in the U.S. economy remains strong, markets viewed it as an endorsement of government-issued debt. It served as Thursday and Friday’s rate-dropping catalyst.

This week, mortgage rates will move on three points:

1. Data, including key inflation and housing reports
2. Rhetoric, including 5 Federal Reserve member speeches
3. Momentum, including technical trading patterns

It’s unclear whether these factors will lead rates higher or lower, but one thing has been clear lately — when mortgage rates change, they change quickly.

Therefore, if you’re shopping for a rate and find one that fits your budget, consider locking in right away. With rates changing every few hours, it’s likely that if you wait too long, the rate will be gone.

When finances are tight, homeowners are often forced to choose between making home repairs right away, and putting them off until finances improve.

Some repairs, though, become more expensive if not tackled on the double. The hard part is knowing which fixes those are.

In this 5-minute piece from The Today Show on NBC, a Consumer Reports editor talks about important, must-make-them-now home repairs, including:

• Re-sloping soil for runaway rainwater
• Replacing curled and cracked roofing shingles
• Sealing damaged vinyl siding
• Replacing soft wood
• Treating mold issues — both major and minor

Maintaining a home preserves its long-term integrity and can help support resale value, too. Not every minor fix must made today, but left unchecked, some minor fixes can turn into major ones — and that’s when costs can pile up.

The Pareto Principle is a statistical concept most commonly known as the 80/20 Rule.

It says 80 percent of the effects come from 20 of the causes.

Apparently, the 80/20 Rule applies to foreclosures, too — at least according to data compiled by foreclosure-tracking firm RealtyTrac.

Based on data from May, 11 states accounted for 80% of the country’s foreclosure activity. The remaining 20% was spread across the 39 others.

That’s 80/20 almost to the tee.

The disparity goes deeper that that, though. The top three states in RealtyTrac’s list — California, Florida, Nevada — were home to half of May’s foreclosure-related actions.

Clearly, foreclosures are concentrated in certain geographies.

But, no matter in which state you live, foreclosures still impact you. This is because mortgage lenders are often national companies, lending in all 50 states.

When home loans go bad — in any state — lenders respond by increasing downpayment requirements and by adding new borrowing hurdles. If you’ve applied for a mortgage in the last 18 months, you’ve experienced this phenomenon personally.

On the other side, if you’re a home buyer in a foreclosure-heavy state, you’re finding terrific value versus several years ago. It’s one reason why Existing Home Sales in the West Region are up by 19 percent from last year, for example.

Tighter mortgage guidelines since late-2008 are forcing home buyers to make bigger downpayments. Anecdotally, the change has led to a surge in buyers taking gifts of cash from family members.

If you’re among those accepting a cash gift from family, it’s important to know that you can’t just deposit the money in your bank account.

There is a proper way to accept a cash gift and it requires 3 distinct steps:

1. Complete and sign an acceptable gift letter
2. Document the gifter’s withdrawal of funds with teller receipts
3. Document the giftee’s deposit of funds with teller receipts

See, mortgage lenders pay close attention to gifts-for-downpayments. For one, lenders have to make sure that downpayment cash is “clean” (i.e. not laundered). And, secondly, they want the gift to really be a gift and not a loan-in-disguise.

This is why lenders will often require that a signed, dated letter accompany the home loan application.

As an example:

I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].

This is a gift — not a loan — and there is no expectation of repayment.

Signed,
[Signature of gifter]

To further appease lenders, gift recipients should make sure that gift funds are not commingled at the time of deposit. If the gift is for $12,000, for example, the bank’s deposit slip should indicate that a $12,000 deposit was made — nothing more, nothing less.

Don’t add a random $50 check to the deposit, in other words. If you have a separate deposit to make, make it as a subsequent transaction with its own receipt.

It’s also worth noting that gifting funds between family members can create both legal and tax liabilities. If you’re unsure about how donating or receiving a gift may impact you, call or email me directly. If I can’t help you with your questions, I can refer you to somebody that can.

Since Memorial Day, conforming mortgage rates have jumped by more than 1.125 percent, adding thousands of dollars to the annual cost of homeownership.

To the casual observer, the moves may seem random. There’s a reason this is happening, however.

It starts with inflation.

As an economic force, inflation erodes the value of the U.S. Dollar. Left unchecked, it drives up the Cost of Living as each dollar “buys less” at the supermarket, gas station, or anywhere else.

But with respect to mortgage rates, inflation’s impact is more immediate. Because inflation devalues the dollar over the long-term, it renders long-term mortgage bonds a less attractive investment for traders.

If bond investors are repaid in U.S. Dollars, after all, it would make the investment worth less if the dollar is in an inflationary freefall.

Therefore, in situations when inflation is likely to present, we find that traders often sell out of their mortgage bond positions which, in turn, drives down the bond prices. Then, because bond yields move in the opposite direction of bond prices, rising rates are the inevitable result.

Lately, Wall Street is fearing inflation for a number of reasons:

1. Job losses are slowing, adding to consumer spending expectations
2. Gas prices have risen 41 days in a row
3. The federal government is increasing the money supply

These 3 factors — plus a few others — are all coming to a head around the same time and traders are getting defensive with their portfolios. As a result, they’re selling their mortgage bond positions and it’s driving mortgage rates higher.

Rates may continue to trek toward 7 percent through July and August, or they may retreat toward 5 percent. We can’t know for sure. What we can know, though, is that volatility in rates should continue until the economic picture gets more clear. That could be next week, or next year.

For now, be ready to lock at a moment’s notice. Mortgage rates are changing quickly.

The economy posted stronger-than-expected data last week, reigniting fears of inflation on Wall Street.

The positive-slanted economic news caused conforming mortgage rates to rise by another 1/2 percent last week.

It marked the second week in a row of soaring mortgage rates and the fifth week out of six that rates have moved higher.

Conforming mortgage rates are now as high as they’ve been all year and rest at the levels of December 2008.

The biggest news of last week is likely to influence mortgage rates this week, too.

On Friday, we learned that 345,000 Americans lost their jobs in May. And while that’s an awfully large number, it wasn’t nearly as bad as Wall Street had expected. Furthermore, the Unemployment Rate spiked to over 9 percent.

Now, again, with respect to the Unemployment Rate, the number looks bad, but the data may be a positive. This is because the Unemployment Rate measures Americans in the workforce versus the unemployed actively looking for jobs.

If the number of people trying to re-enter the workforce starts to surge, it’s basic math that Unemployment Rates will rise. This is what some economists think happened last month and it served as the backdrop for Friday’s rate surge.

With fewer Americans expected to be out of work, consumer spending seems poised to rebound in the months ahead, pushing the economy out of recession sooner than expected. If the sentiment holds this week, mortgage rates should rise even more.

Without much new data this week, markets are likely to trade on emotion — a difficult situation for rate shoppers. Conforming mortgage rates have been extremely volatile since May and are changing every few hours. If you see a rate you like, consider locking it.

Wait around too long, and it’ll be gone.

Suze Orman recently appeared on The Today Show and gave 5 minutes of practical money management advice. Not everyone’s a fan of Ms. Orman, but this is an interview worth watching.

The segment’s theme is “What should you do first?“, pitting real-life financial scenarios against each other, including:

• Pay off credit card debt, or save for an emergency?
• Pay off student loan debt, or pay off credit card debt?
• Save for retirement, or save for a child’s college tuition?

The advice is practical and relevant to most homeowners’ lives and, although financial tips are never one-size-fits-all, there’s some real gems in the segment.

Watch the entire interview at The NBC Today Show website.

In choosing its 2009 lineup of Top 100 Places To Live In America, Relocate America focused on areas with stable local economies and in which the housing market has avoided precipitous price drops.

It’s not a bad formula and topping the list of Top 100 Places To Live In America is Tulsa, Oklahoma, a city in which unemployment rates are 3 percent below the national average and the housing stock is, in general, considered affordable.

This was a common theme among the cities included, the Top 10 of which are:

1. Tulsa, Oklahoma
2. Dallas/Ft Worth, Texas
3. Pittsburgh, Pennsylvania
4. Raleigh/Durham, North Carolina
5. Huntsville, Alabama
6. Houston, Texas
7. Albuquerque, New Mexico
8. Lexington, Kentucky
9. Little Rock, Arkansas
10. Oklahoma City, Oklahoma

Relocate America notes that the cities on its 2009 list are poised to make a faster comeback from the economic recession than other U.S. cities, and few experienced the effects of the housing boom earlier this decade.

View the complete Top 100 Places To Live In America 2009 list at the Relocate America website.

The number of homes under contract to sell soared in April, climbing nearly 7 percent nationwide versus a month ago.

It’s the third straight month in which the Pending Home Sales Index gained and the biggest monthly jump since October 2001, the month prior to the end of the Early 2000s Recession.

A “pending” home sale is one that’s under contract to close, but has yet to do so.

The Pending Home Sales Index is an imperfect statistic because not every home under contract makes it to closing, but the data can a reliable indicator of home buyer activity.

It’s not tough to understand why homes-under-contract are spiking:

1. There’s a $8,000 tax credit for first-time home buyers
2. Conforming and FHA mortgage rates are hovering near 5 percent
3. Home prices are still soft nationwide

These elements are combining to make homes more affordable than they’ve been in the recent past. Indeed, in April, the Home Affordability Index posted its second highest reading since 1970.

We can’t know if home prices will rise or fall going forward, but if Pending Home Sales translate into closed home sales, values will be pressured to rise. This is because each closed transaction takes a home “off the market”, reducing the supply of available properties.

If demand rises while supplies fall, sellers regain the upper-hand in negotiations and higher prices are the inevitable result.

An estimated 80 percent of all Pending Home Sales close within 2 months.