Next, compare the total of all points and lender fees for each mortgage (from section 800 to 813 on the Good Faith Estimate), that is the price of the mortgage.

If you are refinancing, you will also need to review the cost of title insurance, closing/attorney, and appraisal. The company with the lowest combination of points, fees and third party costs for the same rate and product has the best mortgage rates.

Things to Watch Out For

APR is not always accurate, so it should not be used. To get the best mortgage rates, compare current mortgage rates and closing costs.

Good Faith Estimates are just estimates. Many brokers and lenders will give you a low ball estimate, and then after you have paid for your appraisal, they will inform you that the mortgage rate or closing cost have gone up. Look for lenders that guarantee their closing costs up front.

There is nothing wrong with No/Zero Closing Cost Loans. Just be aware that you will be looking at higher mortgage rates in exchange or if you are refinancing, the closing costs could be included in your principal.

Paying higher points and fees will result in lower mortgage rates. For example, at 7% you may have zero points and fees, while at 6% you may have points and fees of $3000. To get the best mortgage rates, you must estimate how long you will have the mortgage. Also, make sure you are comparing current mortgage rates when doing your comparison.  For more information, or if you want to compare rates, call me at 818-378-8669, or email at liz@mortgagesmart.biz

Riskier loan characteristics increase the risk of a default claim. Fannie Mae and Freddie Mac created the LLPAs to help offset that risk. A few of the risk-based characteristics that can change a person's mortgage rate

include:
        Condo loans with less than 25% equity in the home
        Credit scores less than 740
        Living in a 2-unit, 3-unit or 4-unit home
        Using the home as an investment property
        Doing a "cash out" refinance with less than 40% equity in the home
        Having a second mortgage to subordinate

The most important thing to remember about LLPAs, though, is that they're not discretionary lender fees; sources of profit or padding by the loan officer or the bank. They are specific fees assigned to specific loan characteristics.

Fannie and Freddie insure against losses in the country's conforming mortgage portfolio and Loan-Level Pricing

Adjustments are the fees they charge to insure against extra risk.

The Fannie Mae Loan-Level Pricing Adjustment chart is as thorough as it is punitive.

As a borrower, you can choose to pay your LLPAs as a one-time, at-closing fee. For most people, this is the more economical solution but it does requires an up-front cash payment and not everyone is comfortable doing that. The more common alternative is for people to build the LLPA into their interest rate.

In general, each quarter-percent LLPA loan fee can be offset via an increase of 0.125% on the offered interest rate. In the near-term, this is often the cheapest option but, over the life of the loan, an extra 0.125% can really add up.

It's especially true for real estate investors whose LLPA factors can range as high as 3.000 percent. Higher interest rates eat up the cash flow it takes to make a rental property work -- paying the fees at closing is often the best course.

It doesn't take much to trigger the risk-based pricing matrices of Fannie Mae and Freddie Mac; a lot of conforming mortgage applicants do. If you've read the Fannie Mae LLPA chart and don't know what to make of it, send me an email and I can help you figure it out. The math is simple once you know what you're looking for.

To dive a little further into the factors that drive mortgage rates one should take a step back and examine how the value of a bond is determined.

All interest rates are determined relative to what is considered to be the real risk free market interest rate if no inflation were expected. This real risk free interest rate, which most consider to be the 90 day US Treasury bill, is the benchmark for how other market rates are determined. Unfortunately the majority of interest rates are not risk free; there are other factors that go into determining what the money you invest NOW will be worth in the future. This is the concept of "The Time Value of Money". When placing a present value on your future cash flows you must consider several risks...these risks correspond to what you expect to receive in interest from an investment. That said, going back to how interest rates are determined...Remember all rates are based off of the "risk free" benchmark interest rate. On top of that to compensate for additional risks investors will demand additional interest based on the following...

1. Inflation Premium: If you invest $10 today and you expect the value of a dollar to be worth less tomorrow you will expect to be compensated for that loss of your initial investment. You will therefore demand a higher rate of return (interest rate). When inflation is expected to go up then interest rates go higher to compensate for the lost value of your principal investment.

2. Default Risk Premium: this portion of an interest rate is based off of the possibility that the person or company you are lending money to may not be able to pay you back. That is what a bond is after all, you are lending money to someone else , and in return you receive the interest rate plus the original money you lent them at a defined date. US Government Bill, Notes, and Bonds have a low default risk premium because the the Federal Reserve can essentially print money to pay you back. Subprime loans have a high default risk premium because the chance that those borrowers will default on their loan is higher than a borrower with strong credit and stable income.

3. Liquidity Premium: If an investment cannot be quickly turned back into COLD HARD CASH it is said to be illiquid. The liquidity premium is based off the market demand for the type of debt (bond) you hold or issue. There is a massive demand for US Debt (bills, notes, and bonds) so if you wanted to sell your holdings of these securities it would be easy to find a buyer. If you hold the debt of lets say a small company, it will be harder to find a willing buyer because for example information about that firm is not readily available to the public. When it is hard to find a buyer of the security you must lower the price enough to attract a willing buyer. This is said to be an illiquid security.

4. Maturity Premium: This compensates an investor for how long their money will be tied up in an investment ...the longer the length of the bond contract (longer maturity) the more time there is for economic conditions to change. That means the inflation expectations may change or the ability of the debt issuer to service their loan may change as well. This is why the yield curve of US Bills, Notes, and the Long Bond is generally sloped upward. The clarity of economic expectations defines the maturity premium

So to put all this together...

Interest Rate = real risk-free interest rate + inflation premium + default risk premium + liquidity premium + maturity premium

NOW to relate to all this to mortgages...In the most simplistic of explanations....the pricing behavior of a bond is as so : When there is more demand for a bond, meaning more buyers than sellers, the price of the bond goes up. When the price of a bond goes up the yield goes down until supply and demand reach equilibrium again (and vice versa).  To oversimplify this happens because the price of the bond eventually becomes too expensive relative to the return that is received (the interest rate).

Although mortgage rates act similar to US bills, notes, and bonds....they do not operate the exact same way. Allow me to give some background first. All the mortgages that are sold in the US end up being securitized in some way or another. Usually they are put together in big groups of loans with similar interest rates and similar loan characteristics. Those pools of loans have a specific cash flow tied to them based on the average interest rate (coupon) of the mortgages that make up (back) the pool. When investing in that pool of mortgages, because you know what the average coupon rate, you know how much money you will get paid and when you will receive these cash flows. This is a broad description of mortgage securitization, or how your mortgage becomes part of a mortgage backed security (MBS).

Now that you have some MBS foundation lets build on it. How are the rates you are offered determined?

When economic conditions change or one of the above premiums changes these pools of mortgages either gain or lose value, meaning they become worth more or worth less. When those pools change value so do the interest rates you  are offered when you seek to refinance or purchase a home. Here's how: Every morning lenders publish a rate sheet and distribute it to loan officers who then offer  you an interest rate. Depending on the time these rate sheets are generated, rates will either be better or worse based on the price the MBS pools are trading at when rate sheets are generated.  If the MBS is being bid up (price increases) rates will most likely be lower compared to the previous day.  If MBS coupons are selling off, the rate you are quoted will higher than the previous day.

Here is where things get a little more complicated. If the MBS prices go up and stay up, mortgage rates will move lower and lower. If rates move lower there may be enough incentive for you to refinance your home. When you do this you are paying off your old mortgage and getting a new one with a lower interest rate, which restarts the securitization process. But here is the thing...the loan servicer, money market fund, or bank that invested in the pool of MBS that your loan partially backs has lost the cash flow that you contributed when you made your monthly payment.  This is the big difference between mortgages and other types of bonds like the 10 yr US Treasury....an  MBS investor knows about how much cash flow they will receive and when they will receive it, what they don't know is  how long the cash flow will last due to the fact that borrowers have the ability to refinance their loan at any time. This additional risk associated with mortgages is called prepayment risk, the option to refinance is an  "embedded call option".  Prepayment risk adds a feeling of uncertainty to MBS investors, it distorts a portfolio managers ability to determine the present value of the expected future income streams that are generated from pools of mortgages.

When rates are expected to be lower in the future, well I should say low enough to provide incentive to refinance or purchase, the pools of mortgages (MBS) that are backed by loans with higher rates will begin to lose more and more value as rates go lower and more borrowers refinance their loans (they prepay their loan or use their call option). Remember the income MBS investor expect to receive is generated when you pay your monthly payment, so if you refinance your loan MBS investors lose the income stream they were expecting you to contribute to the MBS pool. MBS investors therefore must find a way to replace that lost expected future cash flow.  If a group of MBS investors believes rates will go lower then they may sell a portion of their higher interest rate MBS holdings in favor of lower rate pools to compensate for lost income. They do so because they believe they will receive stable cash flows for a longer period of time. Even though they receive a lower return, more income is generated in the long run.

How does this affect day to day mortgage rates?

When these shift in coupon days (buying a pool of mortgages with lower rate) occur there is a large amount of MBS selling which is usually not met with equal buying demand. Often times when selling a pool of MBS made up of mortgages with higher interest rates, investors will look to buy pools secured by loans with lower rates to stabilize their expected future cash flows. This is called a down in coupon day and is a major force in the daily price movements of mortgage backed securities. The same happens on up in coupon days but in that case MBS investors believe rates are going higher and they can make more of a return in higher yeilding MBS pools.

To summarize when reading our commentaries you should understand that when we say prices of mortgage backed securities (MBS) are going up that the rate you are offered as a borrower will go down. The MBS is subjected to the same premiums that determine the value of other types of bonds, except MBS are exposed to prepayment risk, the fear that an investor may lose future cash flows because a mortgage holder (borrower) decides to refinance their home.  This additional risk often forces portfolio managers to extend the duration of expected future cash flows by either buying lower coupon MBS pools or perhaps purchasing less risky securities with more relative value. In times of economic uncertainty, forecasting the expected interest rate environment becomes a difficult task. Therefore the models used to determine the future value of cash flows generated by a pool of mortgages become inaccurate.  This creates a volatile interest rate market and often times confuses borrowers as the why the range of offered mortgage rates vacillates in a wide range.  US Treasuries do not face these challenges and their values are therefore much more transparent.Remember MBS is the primary influence over what interest rate a mortgage lender or bank offers, not the 10 year US Treasury note.

 The 2nd is deferred for 5 years.
 
Who is eligible  ....
Anyone who receives a paycheck from a public school or community college.
·         Any member of the California State Teachers' Retirement System. (does not have to currently be employed can be retired)
 
What type of property:
·        Any owner occupied California property currently acceptable to lend on by FNMA guidelines
 
What are the MAX loan amounts:
·        Conforming 1st 80%LTV up to $417,000
·        Conforming 2nd 17% LTV up to $88,612
o       Max combined loan amount = $505,612
o       Max purchase price = $521,250
·        Non-conforming 1st up to $536,082
·        Non-conforming 2nd up to $113,918
o       Max combined loan amount = $650,000
o       Max purchase price = $670,103
 
Basic Guidelines:
·        Borrower can not own any other homes.
·        Home buyer education is required for 1st time home buyers
·        Occupying borrowers only
·        3% seller concessions allowed
·        3% down: only 1% needs to be borrowers own funds, additional funds may come from:
o       Gift from a relative if repayment is not required

If you are interested in more details, please do give me a call at 818-378-8669 or email me at Liz@mortgagesmart.biz

Under the new American Recovery and Reinvestment Act (ARRA), making green changes between now and the end of the year can not only lower energy bills, it can save some real money on the 2009 tax bill.  And the same will be true in 2010.   The legislation provides a lot of new or expanded tax benefits for changes that reduce energy use or create new energy sources and the IRS wants taxpayers to plan ahead and take advantage of these benefits.

Tax credits have had a tendency to come and go depending on the mood of Congress in any given year and the amounts available, while helpful, didn’t provide a real incentive to make costly changes.  But under the new law, a tax credit of 30 percent of the cost of qualifying improvements is available up to a maximum for years 2009 and 2010 of $1,500.   Under the old legislations there were several levels of credit depending on the energy improvement and there was a lifetime cap of $500.

Credits are available for improvements such as adding insulation, replacing windows with energy efficient models and energy-efficient heating and air-conditioning systems.

ARRA also increased the efficiency standards required for many products to be eligible for a credit; however those guidelines have not yet been released.  Until they are available later this spring homeowners who are itching to get started on green home improvements are advised to rely on existing manufacturer certification and Energy Star labels when purchasing products.  These certifications will be honored by the IRS until the standards are released.

Higher credit limits are also available for qualified residential alternative energy equipment such as solar hot water heaters, geothermal heat pumps, and wind turbines.  Taxpayers are now eligible for credits equal to 30 percent of the cost of the qualified product and many of the maximum limits to these credits have been removed.  An investment in some of these improvements can be substantial and these more realistic incentives may be the key to getting homeowners to take the plunge.

ARRA offers other credits for automotive related improvements and there is a whole category of benefits available to businesses.  For more information see the IRS publication Fact Sheet 2009-10.

Seller financing is becoming more prevalent as home sellers bend over backwards to lure in purchasers. Homebuyers may be surprised to learn, however, that seller financing isn't always the perfect arrangement.

If you've been out shopping for homes, you've probably seen the "seller will finance" pitch. Aggressive home sellers are so eager to attract buyers that they're doing what many mortgage lenders won't: they're offering to finance the deal. Under the right circumstances, this strategy is a true win/win; you get your loan plus a new home, and the seller gets to convert his property investment into a mortgage investment.   But the right circumstances don't always come along.

A mortgage loan solution that works

As a prospective homebuyer, you should take a moment to learn what seller financing can and can't do for you. On the plus side, seller financing can:

Expedite the time it takes to secure financing. Traditional mortgage loans and FHA loans are the alternatives to seller financing. The approval process for either alternative can drag out for weeks, because traditional lenders are too skittish these days for quick approvals, and FHA loans have always had notoriously long processing times. Seller financing can go much more quickly, because the seller is motivated to close the deal as quickly as possible or move on to other prospects.

Make it easier for you to get a home. If your credit qualifications aren't strong enough for regular financing, sellers may be willing to offer lease-to-own programs or other creative financing solutions.

Down payments and mortgage refinancing

Here's the other side of the story. For the record, seller financing cannot:

Help you when you have no mortgage down payment. Sellers typically ask for at least 20 percent of the purchase price as a mortgage down payment. If you don't have it, consider an FHA-insured mortgage instead, which only requires 3.5 percent as a mortgage down payment.

Get you the best deal. The best real estate bargains available right now are short sales and distressed properties. But the owners of these homes can't afford to offer you financing. People who can afford to enter into a financing deal aren't desperate; they're just getting aggressive about selling their property. Don't expect them to wheel-and-deal on the asking price, and then give you a loan, too.

The pricing on your seller-financed loan may not be dirt cheap, either. Most sellers would probably prefer that you pay them off with a mortgage refinance sooner rather than later. For that reason, they aren't going to give you a rate so low that you'll hold onto it for 30 years. Many sellers will even require that you get a mortgage refinance within a certain timeframe.

Seller financing can be a good or a bad idea. It's your job to know which applies to you-before you start shopping.  It's a strategy that you can discuss with your mortgage professional to see if it is the best option for you.

If you are interested in more details, please call me at 818-378-8669, or email at Liz@mortgagesmart.biz.

Home prices in the Sun Belt city, the 12th-largest metropolitan area in the United States, dropped 4.5 percent in February, according to the Standard & Poor’s Case-Shiller Home Price Index. Prices in Phoenix are now down 50.8 percent since the market peaked in June 2006.

For the country as a whole, the Case-Shiller numbers offered the thinnest of silver linings: things are still getting worse, but more slowly.

Home sales in Southern California and the San Francisco Bay area, where foreclosures dominate many markets, have snapped back this spring as prices dropped. But sales have slowed to a crawl in other markets like New York City, where prices declined 10 percent from a year ago.
“We’re seeing very strong sales in a few states and weak sales across 40 states,” said Patrick Newport, United States economist at IHS Global Insight. “The key factor driving them right now is just the excess inventory. Even though prices are undervalued, they’re still going to drop because of the excess. Even if we were at full employment we’d still see prices dropping.”

As prices have dropped, frozen housing markets in hard-hit areas like Southern California, Phoenix, Las Vegas and South Florida have begun to thaw. Record-low mortgage rates and huge inventories of foreclosed homes and other fire-sale properties have enticed first-time buyers to the market and lured others who had been sitting on the sidelines.

Inventories of unsold homes are edging down slightly, but there was still a glut of 3.7 million unsold homes in March, the Realtors’ group reported, representing a supply of nearly 10 months.

In February, the price of single-family homes in 20 major metropolitan areas fell 18.6 percent from the year earlier, compared with a record drop of 19 percent in January.

“Finally, we’re seeing a touch of moderation,” said David Blitzer, chairman of S.& P.’s index committee. “This is the kind of thing one might see if we’re beginning to see a bottom. I would not run out and celebrate, but I would not dig the bunker any deeper.”

Mr. Swan, the realty agent, said inventories of lower-priced homes were already dwindling in Phoenix as investors snapped up bank-owned properties at bargain prices.

“I’ve got Canadians coming here who are putting together investment pools of millions of dollars to buy houses by the hundreds,” he said. “They’re going to rent them out to all the people who were foreclosed and need a place to live. This is going to be a good year for us.”

Owners of "orphaned" mortgages are at a tremendous cash flow disadvantage versus everyone else:

• When rates fall, there is nobody there to tell them
• When pricing policies change, there is nobody there to advise them
• When mortgage guidelines change, there is nobody there to make a new plan with them

It has been estimated that 90,000 people left the mortgage industry in 2007.  That's a lot of orphaned mortgages and a lot of abandoned homeowners.

And it's not like the "big bank" to which homeowners write their mortgage checks each month is going to proactively call and say "Let's lower that rate for you".  Owners of orphaned mortgages are truly on their own in the mortgage world.

By contrast, an actively managed mortgage can save homeowners money.

As a personal example, when mortgage rates fell in late-November, they fell hard.  It only lasted for about a day-and-a-half.  During that time, I was on the horn with all of my eligible clients and was able to lower some of their mortgage rates from their existing levels to something better.

Owners of orphaned mortgages didn't get calls like this.  They're paying higher rates than the rest of the country.

And the examples aren't just isolated to getting lower rates:

• A real estate investor converted his highly-leveraged ARM to a fixed-rate mortgage before new mortgage guidelines prevented it
• A low-600 FICO homeowner remortgaged her home loan before Fannie 2.000% low-credit-score fee made it cost-prohibitive
• A homeowner in remortgaged his home loan before falling values pushed his loan-to-value above 80% and required PMI.

Owners of orphaned mortgages don't get the advice and end up paying the price.  When their loan officer left the business, they lost their "guy on the inside" and it's turning out to be expensive.

If your mortgage has been orphaned, talk to a friend whose mortgage hasn't.  Get the name and contact information for that loan officer, then call and ask if he's accepting new clients.  If your friend isn't 100 percent sure whether or not he was abandoned, there's a better-than-great chance that he was.

Mortgage rates and mortgage markets change every day.  It's the homeowners with active mortgage managers that will always have the best rates, payment, and mortgage planning guidance.

A professional loan officer will usually offer to review their customers’ financial situation at least annually, free of charge, and make recommendations based upon their current and projected financial situation and changing financial goals and needs. These loan officers are not just trying to get another refinance when rates drop.

So, if you have a mortgage and never hear from your loan officer (except when rates drop and they want to refinance your mortgage) you have an orphaned mortgage.

Q & A

If I don’t hear from my loan officer, how does that cost me money?

Here are a couple ways:

Over the past 3 months there were several times when rates were at or below 5.500% for a fixed rate, 30 year mortgage depending on your credit score and LTV. When this happened, all of my customers were notified and had to opportunity to lock in these rates. After rates had crept back up (these rock-bottom rates were available a very short time) the news started reporting rates at their lowest levels in years. I received several calls from people who read my blog about refinancing. Unfortunately, the rates were long gone by the time they had read about them, which is often the case.

Also, at the end of last year, Fannie Mae and Freddie Mac announced they were introducing delivery fees for mortgage with credit scores below 680 and LTVs over 70%. I contacted my customers that were in this situation and advised them to refinance before these changes took place. I was able to refinance several of them before the changes and saved them a lot of money – most of these customers would not have been able to save s much money on their refinances had they waited due to the increase in rates they would be subject to now.

Lastly, a customer of mine had contacted me in the fall. They had an ARM that adjusted up more than 2.5% in the spring and they had fallen behind on the payments due to the increase in payment. They had called a couple sub-prime lenders and were not going to be able to get a better rate and lower payment with them. They called me and I told them about the FHA Secure Program and refinanced them to a lower rate and better payment. They haven’t been late on a payment since.

So, what do I do if I have an orphaned mortgage?

Find a professional loan officer, such as myself. I am happy to help people with their financial needs and determine what mortgage program is right for them. Even if you are not ready for a new mortgage right now, I will be happy to evaluate the loan you have in light of your needs and goals and make recommendations to you. I talk to many more people who do not need a new mortgage than I do to people that do need a new mortgage now. It is part of my job as a professional loan officer. If you have questions or about your mortgage please don’t hesitate to give me a call or send me an e-mail.

Is this the best time to buy a house?
Do I have good credit?
The most common of all: Are mortgage rates headed up or down?

Let's focus on question #3, since it's the most common. The answer may not surprise you.

No one knows.

Why don't we know? That's a very complicated answer which requires a PhD in economics. Technically speaking, mortgage rates are comprised of many factors which are affected by even more factors and so on ....  it can all get very confusing.

Keeping that in mind, there are some factors and reports that move mortgage interest rates up or down. Knowing these factors and when these reports are issued can help you understand mortgage rates and to the best time to lock your mortgage rate.

Mortgage rates can rise and fall dramatically in just one day. Understanding as much as possible about mortgage rates will help you make the best financial decisions. You'll never completely be able to predict the future, but you can make choices that will get you the best deal when you're better informed.

Here are some factors and reports that greatly affect mortgage rates:

Gross Domestic Product (GDP) - The GDP determines the total dollar value of everything produced by all the people and all the companies in the U.S. It provides the best view of the economy's overall health and determines whether the country is considered in a recession or expansion. A lower month-over-month number can cause mortgage rates to decrease.
Retail Sales - Are consumers spending money or not? Retail sales represent two-thirds of the GDP and are a key predictor of economic growth. A month-over-month increase can cause mortgage rates to increase.
Employment Situation Report - Measures unemployment in the labor force, as well as the number of people on government or business payrolls. Lower unemployment percentage paired with a higher payroll number can cause rates to increase.
Consumer Price Index or CPI - The CPI is the average price we pay for goods and services. There is also Core CPI, which removes the cost of food and energy, as these are extremely volatile. A lower month-over-month number can mean inflation has ebbed, and therefore mortgage rates may decrease.
Producer Price Index or PPI - PPI is the average price that businesses pay to produce goods or services. Like Core CPI, Core PPI strips out the more volatile food and energy prices. A lower month-over-month number can mean inflation has receded, possibly causing rates to decrease.

To find the dates these reports are issued, check the Shirmeyer calendar, but be warned: The calendar contains a lot of data and can be confusing. It's best to work with a mortgage professional when studying this information.

You can also keep up-to-date on current rates with our mortgage Rate Watch Report.  If you are interested in receiving this on a weekly or monthly basis, click here, and click here to see a sample of this report.

There's never any pressure, so why not take five minutes to give me a call? We can discuss what makes sense for you right now - which might be just staying put in your current home loan. With a short conversation we can talk over the options, and you can then rest assured that given all the recent changes, you are making smart decisions on your home financing.

Rates are within inches of historic lows - so don't wait to miss a great opportunity to purchase the home of your dreams, or get more money back in your budget by a smart refinance.

_____ I receive several offers of pre-approved credit every week. (5 points)
_____ Add 5 points if you do not shred them (cross-cut shredder preferred) before putting them in the trash.
_____ I carry my Social Security card in my wallet. (10 points)
_____ My state driver's license has my SSN printed on it, and I have not contacted the Department of Motor Vehicles to request a different number.
(10 points)
_____ I do not believe someone would break into my house to steal my personal information. (10 points)
_____ I do not use a firewall on my personal computer. (10 points)
_____ I have not ordered a copy of my credit reports for at least 2 years.
(20 points)
_____ I use an unlocked, open box at work or at my home to drop off my outgoing mail. (10 points)
_____ I do not have a P.O. Box or a locked, secured mailbox. (5 points)
_____ I carry my military ID in my wallet at all times. (It displays my SSN.)
(10 points)
_____ I do not shred (cross-cut shredder preferred) my banking and credit information when I throw it in the trash. (10 points)
_____ I throw away old credit and debit cards without shredding or cutting them up. (10 points)
_____ I provide my Social Security Number (SSN) whenever asked, without asking why it is needed and how it will be safeguarded. (10 points)
_____  Add 5 points if you provide it orally without checking to see who might be listening nearby.
_____  I leave my purse or wallet in my car. (10 points)
_____  I am required to use my SSN at work as an employee ID or at college as a student ID number. (5 points)
_____  My SSN is printed on my employee badge that I wear at work or in public. Or it is posted on my time card in full view of others, or is on other documents frequently seen by many others at work. (10 points)
_____  I have my SSN and/or driver's license number printed on my personal checks. (10 points)
_____  I am listed in a "Who's Who" guide. (5 points)
_____  I carry my insurance card (including Medicare) in my wallet and either my SSN or that of my spouse is the ID number. (10 points)
_____  I do not believe that people would root around in my trash looking for credit or financial information or for documents containing my SSN. (10 points)
_____  I do not verify that all financial (credit card, checking) statements are accurate monthly. (10 points)

Each of these questions represents a possible avenue for an identity thief.

Understanding Your Score:

• 100+ points #151; Recent surveys indicate that 8-9 million people are victims of ID theft each year. You are at high risk. We recommend you purchase a crosscut paper shredder, become more security-aware in document handling, and start to question why people need your personal data.
• 50-99 points #151; Your odds of being victimized are about average.
• 0-49 points #151; Congratulations. You have a high "IQ". Keep up the good work and don't let your guard down now.

The Federal Reserve is going to extraordinary lengths to push down long-term interest rates, including home-mortgage rates. But those hoping mortgage rates will fall sharply from current levels, already historically low, may be disappointed.

Mortgage firms Thursday were quoting rates averaging 4.75% on 30-year fixed-rate mortgages, according to Zillow.com, a real-estate information service. That is down from more than 5% two days ago and about 6% in mid-November. But further big declines will be hard to achieve, partly because the mortgage-lending market has grown less competitive in the past year as hundreds of small banks and independent mortgage lenders have collapsed. The big banks that dominate the market are eager to boost their profits margins, not give deeper bargains to consumers.

Rates for borrowers with the strongest credit are likely to be in a range of roughly 4.5% to 4.75% for the rest of this year, says Mahesh Swaminathan, a mortgage strategist at Credit Suisse in New York.

Others say that is too optimistic. Assuming no big change in government policy, Walter Schmidt, an analyst at FTN Financial Capital Markets, sees a range of 4.75% to 5.5% for most of this year.

The Fed began driving mortgage rates down in late November when it announced plans to buy as much as $500 billion of mortgage securities this year. On Wednesday, the Fed expanded that program, saying it will spend as much as $1.25 trillion on such securities in 2009. That is enough to provide funding for more than half of all home-mortgage loans likely to be made in the U.S. this year.

The Fed also is buying long-term Treasury bonds to drive down rates on those securities, whose pricing affects mortgage rates.

By historical standards, rates look incredibly low. Until recently, 30-year fixed-rate mortgages hadn't been below 5% since the 1950s. For the past couple of months, rates have been bobbing between about 5% and 5.25%. The 30-year rate averaged 4.98% in the week ended March 19, down from 5.03% the prior week, according to Freddie Mac's survey. Fifteen-year fixed-rate mortgages averaged 4.61%, down from 4.64%.

One reason mortgage rates often tick back up after a decline is that a rush of people seeking to refinance quickly causes backlogs at lenders, which frequently don't have enough employees to process all of the applications.

"If lenders are working people overtime to close loans, they don't have an incentive to compete too hard on price," says Arthur Frank, who heads research on mortgage securities at Deutsche Bank in New York.

The situation highlights a conundrum for the government. It wants low rates to spur the housing market, but also wants the banks to make profits on loans so they can return to financial health.

Many of the small mortgage banks that remain are struggling. Mortgage banks, often small, family-owned companies, aren't licensed to take deposits and so lack that source of money for their loans. Instead, they typically borrow money for short periods from so-called warehouse lenders. They use this short-term credit to make loans to their customers and then pay back the warehouse lenders after selling the loans to bigger banks or to government-backed mortgage investors Fannie Mae and Freddie Mac.

But this warehouse credit is much harder to obtain than it was a year or two ago because many of the big banks and Wall Street firms that used to provide it have exited that business.

Despite these constraints, the Fed's action is "going to be a plus" for the housing market, says Thomas Lawler, an economist in Leesburg, Va. Lower rates make it more likely that home prices will hit bottom in many parts of the country later this year, Mr. Lawler says. The recovery, though, is likely to be gradual, partly because rising unemployment reduces housing demand.

Christopher J. Mayer, a real-estate professor at Columbia Business School in New York, says the Fed's moves to cut rates are "helping to put a floor under the housing market." But he worries that the Fed could face huge losses on the mortgage securities if inflation fears eventually push interest rates much higher.

Still, the consumers who need these low rates the most aren't likely to get much help. Many people can't qualify for these low rates because their credit scores aren't high enough or they can't afford a down payment of 20% or more on a home purchase. Such people will be socked with fees that can drive up their housing costs considerably. Banks also have become far pickier about appraisals and are nixing many purchases as a result.

Others can't qualify for a refinancing because they owe far more on their homes than the estimated current market values. Fannie Mae and Freddie Mac have new refinancing programs that will let some borrowers refinance into lower rates even if they owe as much as 105% of the home value, but only for current loans owned or guaranteed by Fannie or Freddie.

Write to James R. Hagerty at bob.hagerty@wsj.com

• The first of these is a program that is available to homeowners who have a solid payment history on an existing home loan owned by Fannie Mae or Freddie Mac, but who have been unable to take advantage of today's favorable rates because their homes have lost value.
• A second program, which involves loan modification, will help at-risk homeowners avoid foreclosure by reducing monthly payments.

Give me a call, so we can help determine if either of these programs may be right for your situation.

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009. The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

Who is eligible to claim the tax credit?

First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

What is the definition of a first-time home buyer?

The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

How is the amount of the tax credit determined?

The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

Are there any income limits for claiming the tax credit?

The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

What is "modified adjusted gross income"?

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains. To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher foreign- housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher education costs.

If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

Can you give me an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5.  The result is $4,000.  Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.  Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?

The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.

How do I claim the tax credit? Do I need to complete a form or application?

Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests.

What types of homes will qualify for the tax credit?

Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

I read that the tax credit is "refundable." What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit. For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?

Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own.

Do I still qualify for the tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.  In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?

Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?

No. You can claim only one.

I am not a U.S. citizen. Can I claim the tax credit?

Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.

Is a tax credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

I bought a home in 2008. Do I qualify for this credit?

No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.

Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.  Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding.  Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties. Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?

Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount. Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?

Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount. NAHB is providing the information on this web site for general guidance only. The information on this site does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action on this information, you should consult a qualified professional adviser to whom you have provided all of the facts applicable to your particular situation or question. None of the tax information on this web site is intended to be used nor can it be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.