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For the 4th consecutive year, the government has set the conforming mortgage loan size limit at $417,000.

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

The 2009 conforming loan limits, as released by the government, are:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

Loans in excess of conforming loan limits are more commonly called "jumbo", or "super jumbo" home loans, depending on their size. 

Out-sized mortgages like these are often more costly than their conforming-mortgage counterparts because jumbo loans are not guaranteed by the U.S. government like Fannie Mae loans are. 

There are exceptions to the loan limits, however.

Left over from the Economic Stimulus Act of 2008, specific, "high-cost" areas around the country have their own conforming loan limits, not to exceed $625,500.  There are 59 designated high-cost regions in the U.S., most of which are in California.

Loan limits are re-assigned each year, based on "typical" housing costs around the country.  Since 1980, as home prices have increased, so have conforming loan limits.  As home prices have fallen in recent years nationwide, however, the conforming loan limit has not.

The number of existing homes sold each month is tracked by the National Association of REALTORS.  The report is often used as a gauge for the health of the real estate market nationwide.

In October, nearly 5 million existing homes sold across the U.S.  This figure represents a slight drop from September's reading, and a equally slight drop from the October 2007 data.

But, October's Existing Home Sales figures marked the 14th straight month in which Existing Home Sales straddled 5-million units.  This is a remarkable statistic because 14 months of anything is a pattern, not a blip.  Despite what the news tells us, Americans are buying and selling real estate at a somewhat steady clip.

As we head into the Holiday Season, buyer activity should slow, reducing demand for homes.  At the same time, however, widespread foreclosure moratoriums should reduce the number of homes available to buy.  These forces should counter-act to help keep the market (and prices) in balance.

(Image courtesy: USA Today)

As the stock market retraced to its 1997 level, mortgage markets improved last week -- but not by much. 

Mortgage rates closed out the week slightly lower, but the week wasn't without fireworks.

1. Calls of deflation grew louder
2. The automakers left Washington without a bailout
3. Citigroup's stock price fell to the equivalent of its ATM fee

Separately, each of these elements would have created confusion on Wall Street.  Together, they created near chaos.  Stocks traded at a pace last week that has never been equaled.

As a result, mortgage rates were volatile, too.

Over the 5-day workweek, multiple mortgage lenders issued 11 distinct rate sheets, meaning that consumer mortgage rates changed every 3 hours, 38 minutes on average last week.

This is why home buyers should rate shop  quickly.  Wait too long and the mortgage rate is gone.  And this week doesn't figure to be any less volatile.

To start, it's a holiday-shortened week.  Fewer traders will be working as the week moves forward, making the Price Discovery process more difficult.  With fewer active buyers and sellers, wild price swings are likely and mortgage rates should feel the impact.

Next, markets will debate the Citigroup Bailout, wondering whether this will (finally) mark the market bottom.  It's a conversation about which Wall Street never tires and with each bit of optimism, money should flow into stocks to the detriment of mortgage bonds and mortgage rates.

And lastly, there are 9 economic releases crammed into Monday, Tuesday, and Wednesday of this week, including two housing reports and an inflationary gauge behind which the Fed puts a lot of credence. 

Signs of stabilization should buoy both stock markets and mortgage rates -- Wall Street is craving balance of some sort to carry it into the New Year.

There are no Fed speakers scheduled for this week so watch for data and market sentiment to lead the markets.  For rate shoppers, this means more rate sheets.

(Image courtesy: The Wall Street Journal)

Business television and newspapers have made deflation a hot topic this week and, since Monday, Google has tracked 13,000 mentions of it.

Deflation is a recurring cycle in which the prices of goods and services fall. Isolated to one industry or sector, falling prices is the natural result of competition.

For example, when DVD players were first introduced, they were tagged at $800.

Today, you can buy them for less than $20.

Across many industries, however, and happening at the same time, falling prices can shut down the economy. Rather than buy things on the cheap, people stop buying anything at all. And why would they? The same items will cost less tomorrow.

And this is the problem with deflation -- it halts consumer spending and consumer spending makes up two-thirds of the U.S. economy. When it stops, the economic result is dwindling corporate revenues which leads to:

1. Layoffs of the workforce, which leads to...
2. Less consumer spending, which leads to...
3. Dwindling corporate revenues, which leads to...

And the spiral continues.

Deflation can be much more insidious that its expansionary counterpart -- inflation. Inflation is when the prices generally rise over time and it's an economic condition through which governments can comfortably navigate. Deflation, on the other hand, is more rare and, therefore, fewer practical control measures exist.

Whether the U.S. economy will slip into deflation is a matter of debate.

The Fed has cut the Fed Funds Rate to promote economic growth and those changes can take up to 12 months to work their way through the economy. Deflationary pressures we're seeing today, in other words, may have already been addressed and corrected by Ben Bernanke's 10 rate cuts in the last 14 months.

Until the market figures it out, though, expect that each mention of deflation will hurt the stock market and help the bond market -- including the mortgage-backed variety. This should help lower mortgage rates and make homes more affordable.

(Image courtesy: The Wall Street Journal)

If the presence of inflation causes mortgage rates to rise, then the absence of inflation should cause mortgage rates to fall.  And, in most markets that's true.

Today, it's not.

Despite a deep, month-over-month dip in consumer prices not seen since 1947, mortgage rates are inching higher this morning.

The main reason why rates are rising today is that the Cost of Living didn't just ease last month -- it plunged. 

In fact, the monthly drop was so severe that Wall Street now questions whether this summer's record-breaking inflation will lead to equally-strong deflation this winter.

In economic terms, deflation is the opposite of inflation -- it's when prices and wages chase each other lower.  The two can be equally bad for the economy.  What's often best for Americans are moderate, steady readings.

Because of the rapid decline, markets fear that Consumer Prices may have swung way past moderate in October and started a downward spiral.  As always, however, market opinions can change quickly and when they do, they usually take mortgage rates with them.

(Image courtesy: The Wall Street Journal Online)

Foreclosure is a hot topic among the press lately.  It's hard to turn on the television or open up a newspaper without seeing a story about it.

But what's most interesting about foreclosures is that they appear to be concentrated in certain areas of the country. 

According to the foreclosure-tracking service RealtyTrac, 4 states accounted for more than half of nation's foreclosures last month.

And those 4 states -- California, Florida, Arizona, and Nevada -- share some very similar characteristics including:

1. Their respective popularity with retirees and real estate investors
2. Their large home value increases earlier this decade

In looking at the rest of the country's foreclosure data, the remaining 46 states combined accounted for just 48.8 percent of October's foreclosures. 

That's 1.06% per state on average.

Now, this isn't meant to diminish the impact of foreclosures on the economy -- quite the opposite.  Foreclosures harm to the national housing market because most mortgage lenders are national.  But, we highlight statistics like this to show that the foreclosure "problem" isn't so bad in most parts of the country, relative.

Furthermore, mortgage lenders are intervening to slow the flow of defaults nationwide.  Following the lead of JP Morgan and Bank of America, CitiMortgage just announced a sweeping plan to help homeowners avoid default and keep their homes.

In a way, for as good as this news is for homeowners, it's equally bad news for home buyers.  As the number of foreclosures decrease in any given market, it reduces the inventory of homes for sale.  Lower supply levels often lead to higher sale prices and less room to negotiate.  And this may be what the banks are trying to accomplish.

For the 4th consecutive year, the government has set the conforming mortgage loan size limit at $417,000.

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

The 2009 conforming loan limits, as released by the government, are:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

Loans in excess of conforming loan limits are more commonly called "jumbo", or "super jumbo" home loans, depending on their size. 

Out-sized mortgages like these are often more costly than their conforming-mortgage counterparts because jumbo loans are not guaranteed by the U.S. government like Fannie Mae loans are. 

There are loan limit exceptions, however.

Left over from the Economic Stimulus Act of 2008, specific, "high-cost" areas around the country have their own conforming loan limits, not to exceed $625,500.  There are 59 designated high-cost regions in the U.S., most of which are in California.

Loan limits are re-assigned each year, based on "typical" housing costs around the country.  Since 1980, as home prices have increased, so have conforming loan limits.  As home prices have fallen in recent years nationwide, however, the conforming loan limit has not.

Mortgage rates fell last week, marking just the second time since September that rates improved on a weekly basis.

The biggest news of the week was the U.S. Presidential Election.  Markets appeared to cheer the Republican-to-Democrat transfer of power, posting large gains Tuesday, Wednesday and Thursday.

This in spite of a spate of negative economic news:

• Auto makers are bleeding cash
• Jobless claims at a 25-year high
• Retail sales appear to be stalling

Instead, mortgage markets shrugged it off. 

The general consensus among traders last week was that the Democratic White House will make every effort to ignite the economy and, if those efforts fail, it will try again. This bodes well for businesses and for the banking system and is one reason why mortgage rates dropped post-election.

This week, without much new data, markets should move on corporate earnings and momentum.  It's been a while since corporate earnings meant so much to mortgage rates.

U.S. businesses are the backbone of the economy, spending money on goods and services and employing 144 million Americans.  When business is strong, more workers get hired who then, in turn, spend their money and force the hiring of even more workers. 

It's a self-reinforcing cycle so if retailers post better-than-expected numbers this week, expect stock markets to gain favor worldwide as investors chase returns.  This will money to pull out from bond markets of all kinds  -- including mortgage-backed bonds. 

Less demand for bonds causes mortgage rates to rise.

Also, look at Friday as a volatile trading day.  Not only will October's Retail Sales figures be announced, but Fed Chairman Ben Bernanke is sharing the stage with his European Central Bank counterpart, talking about monetary policy. 

Word choice is a delicate matter on Wall Street so if Bernanke's comments are viewed as too anti-inflation, or too pro-inflation, expect for mortgage rates to move by a lot.  If you're shopping for a mortgage right now, consider locking before Bernanke's 9:00 AM speech.

(Image courtesy: The Wall Street Journal Online)

The Federal Reserve confirmed what most of us already knew -- getting qualified for a "prime mortgage" is increasingly more difficult.

In a quarterly survey of 84 banks, 75 percent of respondent banks tightened mortgage guidelines over the last 3 months for the most qualified of home loan applicants.

"Prime" is a vague term when it comes to mortgages, but, historically, a prime borrower is one that can document:

• A well-documented credit history
• Very high credit scores
• Very low debt-to-incomes

Historically, banks bent over backwards to lend money to this class of borrower. Today, they're thinking twice.

The chart's steep ascent reinforces that members of all tax brackets face consequences from the current credit market turmoil. And, although some corners of credit looked poised to recover -- interbank lending, for one -- the mortgage market is yet unaffected and should be among the last to thaw.

All prospective home buyers should prepare for the likelihood that mortgage guidelines continue to toughen before they start to ease. Mortgage applicants on the cusp of being approved today will almost certainly be turned down for a mortgage in 2009.

Owning real estate can require a tremendous amount of advance planning and, sometimes, looking at the past is the best way to prepare for what's coming ahead.

According to the Federal Reserve's survey, what's coming ahead is more mortgage application scrutiny.

As global credit markets deteriorated in October, mortgage markets displayed an unnerving amount of volatility.

Last week was no different. 

But, unlike in previous weeks in which rates improved on some days and worsened on others, mortgage rates were mostly higher last week, finishing the month on a surge.

The biggest reason why mortgage rates rose last week is that hedge funds and other investors are still hard-pressed for cash and are dumping their mortgage-backed bond portfolios into the market. The excess mortgage bond supply drove prices lower last week, which, in turn, caused rates to rise.

However, forced selling by hedge funds wasn't the only force working against mortgage rate shoppers last week.

In a move meant to stimulate the economy, the Federal Reserve cut the Fed Funds Rate to 1.000 percent -- the same level widely attributed to starting the global credit crisis several years ago.  Low interest rates may stimulate the economy in the short-term, but long-term, they can lead to runaway inflation. 

This is terrible for home buyers because inflation causes mortgage rates to rise.

Looking ahead to this week, mortgage markets have a lot of information to digest. 

First, there will be four separate speeches from members of the Federal Reserve, plus one appearance by Treasury Secretary Paulson.  In each speech, each mention of the word "inflation" will cause mortgage markets to flinch and rates to tick higher.

In addition, Friday is the first Friday of the month which means that the Employment Report hits the wires. 

Because markets expect to see high unemployment rates, they're also predicting a slow holiday shopping season.  If the jobs data is stronger-than-expected, expect stock markets to gain and mortgage markets to lose, pushing rates higher.

And, lastly, Tuesday is Election Day.  Presumably, markets already priced in the likelihood of either candidate winning the election.  However, as the voter's President-elect becomes clearer throughout the day, expect volatility in rates as traders rush to change their positions. 

Mortgage markets should move lot Tuesday -- we just won't know in which direction until it happens.

(Images courtesy: The Wall Street Journal Online)