As the equity in homes all across America appears to be evaporating like a glass of water in the middle of the desert, certified mortgage planners and certified financial planners are making home equity and mortgage management one of the cornerstones of sound financial planning.

Here are a few simple questions with complex answers that you can ask your certified mortgage planner, certified financial planner and certified public accountant:

1) Should you make additional payments towards the principal balance on my mortgage or max fund your retirement and/or college savings plans?

2) What is the effective “after tax” interest rate on your ”tax preferred debt” and are you carrying any  forms of “non-tax preferred debt”?

3) Considering your ownership intentions should you pay the premium for a 30 year fixed rate mortgage or is a hybrid ARM more appropriate?

The financial devastation brought on by the mortgage mess has opened the eyes of home owners across the country who thought that getting the lowest rate was the key to a good mortgage.  The fact is that a mortgage is a financial tool to which serious consideration needs to be given and when it comes to securing financing for your home advice is always more important that price!

Note the steep decline from 2005 through late-2007.  Since November, however, Existing Home Sales have remained within a very tight range and appear to have reached a flattening point.

The Existing Home Sales data supports the word-on-the-street from real estate agents nationwide that buyers are returning to the housing market in search of good values. But let’s not forget — demand is only half of the story.  There is the supply factor, too, and the supply side of the housing market is showing the same leveling signs as the demand part.

Looking at the chart of national inventory below, the number of existing homes for sale has hovered near 4.5 million for the last several months.  No change suggests stabilization.

Now again, statistics won’t tell the whole story but there are plenty of positive signals from the real estate market right now, just like there are negative ones, too.  This is one reason why real estate data causes so much debate — people want to take an either/or proposition about the state of the real estate and it doesn’t work like that.   Throw the tightening of mortgage underwriting guidelines into the mix and you have fodder for cocktail party debate.

Real estate can be simultaneously strong and weak and when it is, buyers look for value.  Perhaps this is why the national housing data is beginning to level off after a 3-year slide.  There’s good values to be had, and today’s home buyers know it.

For the first time in its history, the FHA changed its funding fees and mortgage insurance structure this week.  FHA-insured home loans are now subject to a risk-based pricing adjustment, as shown by the table above.

Because of risk-based pricing, FHA home loans are now more expensive for borrowers with less-than-ideal credit profiles, and less expensive borrowers with perfect ones.

Prior to the changes, most FHA borrowers paid an up-front fee of 1.500 percent, plus on-going annual mortgage insurance payments equal to one-half-percent on the amount borrowed.  (tip: mortgage insurance is now tax deductible if you have an AGI under $100,000, contact your CPA for details)

FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA program guidelines have remained loose.  FHA allows 3 percent down-payments on purchases, up to 6% sellers contributions and “cash out” refinances to 95 percent in some instances.

The media will be a-buzz with the notion that this action constitutes a government bailout and that the housing market, mortgage market and economy as a whole are in dire straights…but this sentiment ignores some basic facts.

Fannie and Freddie currently have about $5.3 trillion in outstanding mortgage debt of which about 1% is currently in some stage of default.  That 1% equates to about $530 billion of which given the most conservative estimates of the market value of the collateral leaves approximately $265 billion of unsecured or “bad debt”.  Depending on the source, estimates put the costs of the Iraq War at $200-300 billion per year so as you can see the $265 billion of bad debt is neither crippling nor the prelude to an implosion of the US mortgage or housing markets.

In regards to the US mortgage market, we have returned to the common sense underwriting guidelines of 6 or 8 years ago which is a far more sustainable environment and will in the long run create a healthier housing market and economy.

The long term effect of government intervention into the operations of Fannie Mae and Freddie Mac are yet to be seen but many analyst predict that given an implied guarantee by the Federal Government that it may have a stabilizing effect.

Stay out of the aisles while the uninformed panic and run for the exits and you will be just fine.

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Who is responsible for the current mortgage/real estate crisis?

A couple wishes to buy a home. Their income is approximately $125,000 per year.

Average home prices in their area are about $605,000. After their down payment they end up with a loan of $550,000. The lender will approve them for a loan but the payment is a tight squeeze. Technically they can “afford” the mortgage but they will need to be on a very tight budget to be able to pay their other bills and won’t have much discretionary income. They fall in love with a house and think it is a great buy as there are similar homes in the area listed for more. The couple goes ahead and makes the purchase.

Fast forward a year or two and home prices have dropped significantly and the couple now finds that they really can’t afford their mortgage after all. They are falling behind on the payments and face foreclosure. Who do we blame?

a) The Real Estate Agent. She knew that the home was probably a little more than the couple could comfortably afford and should have steered them toward lower priced homes or recommended they wait until prices come down a bit or have a larger down payment.

b) The Mortgage Broker. He is the expert in the home financing field and should have discouraged the couple from this much of a loan.

c) The Lender. They are the ones who set the guidelines and ultimately approve loans for people with high debt ratios and offer the creative financing options that allow people to qualify for loans that they can’t really afford.

d) The Couple. They should have been more responsible and not rushed into homeownership because ultimately they are the ones who will lose their home and ruin their credit.

e) All of the above

f) None of the above

“We are still falling !!! “

Yes indeed, this housing downturn will likely last longer than expected to rebound. Certainly, today’s economic scenario is unique and nothing from the past could 100% apply and rule out predictions for the future. We might well be experimenting the beginning of a world wide inflation or even worse stagnation. But lets go back to Florida.

This housing slump will last longer, at least in Florida, because of the high volume of foreclosures and the specific constraint in the credit markets for this particular area. So most likely, any buyer would ask himself: “Is this the right moment to buy or shall I wait a few more months for the prices to drop even further?”

As a Buyer, you might probably be nodding and scratching your head as you read this article, but beware to the actual figures of falling prices on an environment of tightening credit, and please read very carefully this Real Life scenario.

Please click here to download the Real Life Scenario.

After reading this scenario, you could conclude that even though prices are still failing, if credit guidelines tighten or interest rates increase, the bottom line result is that the your  monthly payment cash flow will remain unchanged.

The sites that are leading the trend - Prosper.com and Zopa.com say they have noticed a spike in activity since traditional lenders began restricting second mortgages and home equity lines of credit.  Prosper’s users register with the site, permit the company to pull their credit data, and then post a loan request along with an upper limit for the amount of interest they are willing to pay. Roughly 50% of the prospective borrowers with excellent credit get financing, with the percentage declining for borrowers with credit scores below 720.

The entire article is well worth your time to read.

Actually, just like you would on any other property. The fact that the property has been foreclosed upon or is being offered as a short sale has no bearing on the purchase money mortgage that you apply for to purchase the property. There are however, a few items that you should keep in mind:

1) If the property is in a state of disrepair it may not be eligible for conventional financing so a rehabilitation or construction loan may be in order.

2) The time frames of the negotiations and/or closing with the seller and/or bank can be protracted so keep this in mind when speaking to your mortgage planner about your interest rate lock and approval.

3) If the property is located in a “distressed” or “declining” market you may be required to make a larger down-payment.

And as always get pre-approved for financing first and if you already have but has been more than 30 days check with your mortgage planner and ask the he or she update your pre-approval.

With even the slightest uptick in rates, 30 years of mortgage payments can get substantially more expensive and one of the most substantial threats to mortgage rates is an economic event called inflation. Inflation’s influence on mortgage rates is so large that markets can get jarred on just the mention of it and that’s exactly what happened Wednesday when Fed Chairman Ben Bernanke uttered “inflation” 55 times in a 5-page speech The speech started at 2:45 P.M. ET and by 2:53 P.M., the damage was done.

Market players interpreted Bernanke’s remarks to mean that inflation may be worse that previously expected and mortgage rates moved up by 0.125 percent, or $8 per $100,000 borrowed. This equates to $2,880 in extra payments over 30 years.

If you’re actively shopping for a home loan and rapid rate movements make you nervous, consider locking in your mortgage rate today; rates have been especially jumpy all year and don’t look to smooth out anytime soon.

• Interest rates for conforming mortages between $417,000 and $729,750 have come down.
• Beginning June 1st borrowers who have good credit can get a mortgage with 3-5% down, even in areas with a declining market, which includes many counties in Florida.
• FHA’s loan cap has been raised through the end of the year so it is easier to get an FHA mortgage in expensive areas.
• FHA allows a lower credit score.

Although Congress is trying to make many of the changes permanent, Bush has said he will veto the legislation. The current higher loan limits will end January 1st so, if you are in an area of high home prices and have been waiting for the right time to buy, you might not want to wait much longer.