Tuesday, Jan. 6
Posted 4 p.m. EST
DOWN: Rates have fallen quite a bit today -- roughly a quarter of a percentage point, it looks like. Credit the government (everybody else is), which has been buying mortgage-backed securities, causing yields to fall and thus, mortgage rates.

LAID OFF: A reader who calls himself Stalin -- yes, Stalin -- asks: "My friend locked in a rate three weeks back and his closing is scheduled for next week and this week he came to know he is getting laid off. Would that impact the closing process in spite of him showing all sources of income?"

Yes, and he is legally obligated to notify the lender of this material change in circumstances.

SPEW?: I tell ya, I've been making people angry lately. Jesse writes, referring possibly to this article:

Holden, just curious on your thoughts. What percentage of people, do you think, are actually able to get the servicer to write a loan mod after reviewing a hardship letter? As a former homeowner removed by foreclosure, this gets me personally. If you knew that less than 1 percent of all requests for loan mods via letter of hardship were actually approved, would you still post this advice? With the numbers of people in trouble right now, and the numbers of people that see your spew -- do you understand that you are instilling false hope for these families? You should be telling people to "get prepared" -- get them ready for the eviction that will follow the denial letter and notice of sale. I may be wrong on this, but something is telling me that while the bailout sends execs to the holiday home in London on the private jet, the elementary school teacher and single mother of three who hasn't missed a payment in 15 years will get zero help. Do you see my point?

Jesse, I don't know how many people are helped by writing hardship letters. I would be surprised if it's under 1 percent, but not surprised if it's under 10 percent. There's a fine line between offering hope and teasing people with false hope, and I don't know precisely where to tread it.

As far as execs flying to London while teachers lose their homes, well, we see eye to eye on that. Foreclosures and layoffs radicalize some people. I'm lucky enough never to have suffered either of those indignities. But my mom was unfairly laid off 20 years ago in a case of age discrimination, and it forever changed the way I view power relations. High-level corporate executives have been waging unilateral class warfare for a long time. You're called a paranoid leftist if you point it out.

Definitely see your point, Jesse, and I think a story on how to prepare for foreclosure would be a good idea.

Friday, Jan. 2
Posted 2 p.m. EST
RATES: Rates dropped sharply in this week's survey, as the average rate on the 30-year fixed fell 20 basis points, to 5.64 percent. That survey was conducted Wednesday, and it looks as though rates have risen in the meantime. Perhaps the average has gone up as much as one-eighth of a percentage point.

APPRAISAL: A reader named Suresh has a question about an appraisal. He paid $600 to lock a good rate on a refinance. Then the bank hired an appraiser. "I received a copy of the appraisal, and it was off by $30,000 as compared to the recent (2008) city assessment," Suresh writes. "When I spoke to the person regarding this, he was saying that he had already done a good job and his estimate is the final, with no consideration to the upgrades that I have in my house."

Suresh adds that his house has upgrades that comparable houses in the neighborhood don't have, but that the appraiser told him that the upgrades don't matter. The upshot: "I either stand to lose the $600 or the rate I negotiated if I don't pay more to buy down the mortgage," he writes. "When I initiated the process, it was based on the last two years' city estimate, and this new estimate is cutting deeply into the city's assessment." He says the appraisal is unfair and wants to know if I think so, too.

I don't.

Not being privy to all the details, including where the house is, I tend toward the default position of believing the appraiser. By endangering this refinancing deal, the appraiser isn't necessarily endearing himself to the loan officer, so it's not like he's doing this to enhance his job prospects during a recession. My advice to Suresh is to assume that the appraiser has integrity and competence. Not exactly what Suresh wants to hear, but there it is.

As far as believing the city assessor over the appraiser -- well, I frequently hear from enraged readers who believe that their city and county assessors are numskulls who habitually overvalue property. Perhaps that's the case here. Also, government assessments tend to be tricky to interpret, anyway.

About upgrades: They seldom add more value than they cost. Sometimes upgrades don't add any value at all -- swimming pools are the best example. The appraiser is right when he says that the house is worth what an informed buyer would pay for it. Things like expensive countertops and flooring don't influence price much.

HELOC OPTION: Al writes:

In July of 2008, I refi'd for 6.25 percent at 80 percent loan-to-value. The house value dropped, but is now up again, according to Zillow. I am going through a divorce (why I refi'd -- I bought out my wife), but had intended to get a HELOC for around 35K in September or October to consolidate negotiated debt and some home improvement. As I'd need a HELOC LTV at around 90 percent, there weren't many offering until the last week or so.

However, talked to a bank that is willing to do one today, and he gave me an interesting option.

Take out a HELOC to pay off the mortgage, as well as the extra cash. Right now it would be at 4.25 percent. As the HELOC is interest-only, if I continued paying the difference between my current payment and new towards principal, I could do a number on the principal over the next couple of years (and yes, I am that disciplined that I would do it).

I'm generally pretty conservative about this stuff, figuring that rates will only go up, but if it takes two years to get to 6.25 percent, in that time I could take off in principal what the HELOC is, and then he says do a home equity loan if rates get too high, so I still avoid closing costs on the loan.

It seems like a good idea but just doesn't feel right -- like he's pulling a fast one on me. Am I missing something here?

No, you're not missing anything. You have a loan officer who listens to you and has come up with a solution that's tailored to your needs. Maybe that's what seems strange.

The downside to this plan is that you would be getting an adjustable-rate loan when just about everyone is getting a fixed-rate mortgage. Personally, I like the security of a fixed rate. But a fixed-rate loan might not be available or affordable in the form of a cash-out refi to 90 percent loan-to-value, and that could be why the lender came up with the HELOC option.

Ask your loan officer about the pros and cons of either getting the HELOC or getting a 30-year fixed and paying it off on a 15-year amortization schedule. (I say this because you're 51 and plan to retire at 67 or older.)

Tuesday, Dec. 23
Posted 2 p.m. EST
4.5?: Chuck asks:

You talked about refi a mortgage below 5 percent. You are right -- it would be tough to find a buyer for sub-5 percent, 30-year mortgage paper. So let me ask you this. Should the government buy 30-year mortgages below 5 percent (or the much ballyhooed 4.5 percent), what happens when inflation kicks into high gear and suddenly those 4.5 percent rates are underwater? What investor would buy them back from the government? My answer: No one. The government will be stuck with underperforming mortgage paper.

In this case, I think Chuck defines "underperforming" as "below market rates." Yes, it is true that if the Federal Reserve or Treasury ends up owning billions of dollars' worth of low-rate mortgages, it will end up lending low and (probably) borrowing high. But there's another dimension to this -- one that I don't understand very well, so maybe another reader can step in and set me straight.

A mortgage underwritten at 4.5 percent to 5 percent will stay on the books for a longer-than-usual time. All things being equal, it will perform well, too, because of affordable payments. The combination of longer duration and good credit quality means that servicers might compete to service these mortgages. That could make the loans more valuable.

Put yourself in the shoes of a mortgage servicer. Would you rather own the servicing rights to a bundle of mortgages averaging 10 percent, or a bundle of mortgages averaging 5 percent? You'd rather have the 5 percent mortgages, because the borrowers won't refinance out of those anytime soon, and they're a little less likely to choke on the monthly payments.

Ultra-low mortgage rates could have an unintended consequence that few people are talking about. They would decrease mobility. If you have a mortgage at 4.5 percent, and a job offer comes from another state when mortgage rates are averaging 7.5 percent, you'll think twice about taking the job. Multiply that reluctance by millions of homeowners, and you end up with a drag on growth when the economy recovers. Maybe the government should encourage people to rent, so workers can pull up stakes and move easily from job to job.

4.5!: Some folks have a lot of boasting to do. They'll go to a party, the talk inevitably will turn toward home values and mortgage rates, and they'll say casually, "Oh, we refied at 4.5 percent."

Christy writes, in an e-mail from Friday:

My husband and I enjoyed your article on "Benchmark mortgage rate at 4-year low." In fact we laughed all the way through it, especially the part where [Dan] Dowling says, "While rates are not 4.5 percent on a refi, you sure as heck can get a 5."

Because we know better. Yesterday around 8:30 a.m., I was quoted a rate of 4.75. At around 9:30, the broker I was trading e-mails with informed me, "We are 4.5!" After obtaining a GFE from that broker, we called the bank where we were currently locked at 5.25, and got the lender to match the 4.5 percent rate, no additional fees, 0 points. We close on Monday.

Here is some of our information: OK loan, approx. 800 credit scores, over $200,000 loan amount, loan-to-value ratio under 80, no cash out.

I think "OK loan" means she's in Oklahoma. Christy is savvy. She knows which information is pertinent. A credit score around 800, an LTV under 80 percent, and a refi that's rate-and-term only, without taking cash out: Those are the criteria that will get you the lowest rate. Plus another thing: Being willing and able to document income and expenses.

I'm happy for Christy and her husband, and I hope they won't be as smug as I would be, had I grabbed a 4.5 percent rate.