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In the summer of 2005, sub-prime mortgage lending was at its peak.  Rates were relatively low and lending guidelines were relatively loose.

At the time, the "standard" sub-prime mortgage product was the 3/27 ARM.

The 3/27 had a few basic traits:

• A fixed, 3-year "starter rate"
• Every six months thereafter, the mortgage rate changed
• The formula by which it changed was (4.999 percent + the 6-month LIBOR rate)

If the loan was interest only, it usually converted to principal + interest at the first adjustment, too.

Because the summer of 2005 was the peak of sub-prime lending, it makes sense that the summer of 2008 is the peak of sub-prime adjusting.

For homeowners with adjusting sub-prime loans, there is some (relative) good news out there.

Today, the 6-month LIBOR hovers near 3.15 percent, meaning that an adjusted mortgage rate will be in the neighborhood of 8.15 percent.

This is versus the rate of 10.30 percent that sub-prime borrowers faced last summer when LIBOR was much higher than it is today.

Adjustments of any size can strain a household budget, though, so if you're a sub-prime borrower and your pending adjustment will cause financial strife, be proactive -- talk to your lender before you miss a payment. 

Lenders are often more willing to talk with "current" borrowers than with delinquent ones.

(Image courtesy: Washington Post)

"Economic uncertainty" is turning into a 2008 buzzword and there's good reasons why.

On the one hand, there are precursors to inflation in the economy:

• Rising oil costs
• Rising food prices
• Higher Cost of Living

On the other hand, there are precursors to recession in the economy, too:

• Mounting job losses
• Less access to credit and/or loans
• Falling consumer confidence data

The pie chart at right illustrates just how uncertain the "experts" are about the state of the U.S. economy. They're evenly split, right down the middle.

This isn't good news or bad news for Americans, per se, but it does legitimize the idea that the economy's future direction is in doubt. This is one of the biggest reasons why there's been no clear direction for mortgage rates or stock markets since the start of the year.

Until the picture gets more clear, we can expect the volatility to continue.

(Image courtesy: Wall Street Journal)

A Home Equity Line of Credit is bank product that grants homeowners access to the equity in their home at anytime, usually using checks.

Often called a HELOC, these equity-based credit lines function very much like credit cards:

• The rate is adjustable, tied to Prime Rate
• There is a minimum monthly payment
• There is a pre-set spending/credit limit

But different from credit cards is that a HELOC is "guaranteed" by real estate and with real estate values in question nationwide, many banks are exercising a little-known clause in the HELOC contract. 

With alarming frequently, banks are reducing the pre-set spending limits on their active equity lines.  Via USPS, lenders are notifying homeowner with $100,000 HELOCs that their new HELOC limit is $25,000, for example. 

And the banks aren't being discriminate based on payment history or local real estate conditions, either -- it's happening everywhere with equal force.

The good news is that banks will accept appeals on HELOC reductions on a case-by-case basis. 

One way to appeal a HELOC reduction is:

1. Call your lender's Customer Service line.  Do not send an email.
2. Politely ask why the HELOC limit was reduced.  Listen carefully to explanation.
3. Explain why you would like your HELOC reinstated.  Acceptable reasons may include home improvement projects or improper home valuation by the lender.
4. Be prepared to write a formal letter, if asked.  Address the issues explained in #2.

Banks will typically not reinstate a HELOC if a borrower has been delinquent on payments, or lives in a severely depressed neighborhood.  However, because lenders rely on computer models to assess risk, it's always a good idea to ask.

Sometimes the Human Element of an appeal can work in your favor.

More commonly, it's called the "jobs report".

The jobs report is a sector-by-sector look into the U.S. economy and whether businesses are hiring -- or firing -- workers.  This is one of the reasons why its release is so hotly anticipated each month -- the jobs report can reveal a lot about the state of the U.S. economy.

Last month, the economy shed 62,000 jobs.

Now, many people will assume that job losses like this are terrible for the U.S. economy.  Sometimes, that's true.

This month, it's not. 

Given the ongoing tug-o-war between inflation and recession, markets are somewhat pleased with the June job loss figures because job losses reduce the likelihood of inflation in the U.S. economy.

Inflation is considered by many -- Ben Bernanke included -- to be among the top threats to the U.S. economy -- it devalues the dollar and leads to increases in the Cost of Living. 

Inflation also threatens home affordability because mortgage rates tend to rise when inflation is present.

June's job losses -- while bad for those impacted -- is helping to relieve inflationary pressures on the economy and that is boosting markets performance this morning.  Stocks are slightly up, and mortgage rates are slightly down. 

(Image courtesy: The Wall Street Journal)