And please note: FHA loan limits have been raised to $729,750, but non-FHA Conforming loans are still capped at $625,500, and everything above $625,500 is a jumbo. Go here for current FHA, Conforming and Jumbo loan limits on 1-4 unit properties.

RECAP NOVEMBER 14-18 MARKET WEEK
Jobs Better: Claims for unemployment insurance dropped to 388,000 last week, a seven-month low and the third week below the 400k threshold considered to signal an improving jobs picture. The 4-week average dropped to 396,750, also a seven-month low and the start of an improving trend, which bodes better for stocks and worse for rates if the trend continues.

Inflation Flat: October’s annual producer inflation (PPI) was 5.9% total and 2.8% excluding food and energy. Annual consumer inflation (CPI) was 3.6% total and 2.1% excluding food and energy. All of these annual figures are creeping up, but the October monthly figures last week were resoundingly flat, so rates held lows as bonds liked this news.

Retail Sales Weak: Sales rose 0.5% in October following a 1.1% rise in September. Consumer spending is weak enough to lead to lower 4Q GDP and possible recession in first-half 2012. If jobless claims continue down, look for this to improve. Next big retail data will come after Black Friday kicks off holiday shopping this week.

Manufacturing Better: Better data from two key U.S. manufacturing benchmarks. Empire State was +0.61 in November, the first positive since May and a huge jump from October’s -8.48. Philly Fed was +3.6 in October, the second month of growth (September was +8.7) following three months of contraction. For both reports, 0 is dividing line between expansion/contraction.

Housing Starts Weak: Construction began on .3% fewer new homes in October; the annualized rate was 628k vs. the 1.5m needed to keep pace with population growth and the January 2006 peak of 2.27m. Too much of that excess was sold to people who couldn’t afford it. Recovery to a 1.5m pace unlikely before 2013.

PREVIEW NOVEMBER 21-25 MARKET WEEK
Here are next week’s economic calendar highlights with rate impacts:

Europe: There’s been some optimism the past 10 days as Italy’s prime minister Silvio Berlesconi (a politician) was replaced by Mario Monti (an economist) and Greece’s prime minister George Papandreou (a politician) was replaced Lucas Papademos (a central banker). But fear is moving back to center stage. The only consensus ‘solution’ is for the European Central Bank to print money and buy bonds of the most debt-strapped EU countries. Whether it’s actually a solution long-term isn’t being discussed yet. But short-term, such an ECB announcement might help stocks and hurt rates, while the longer-term outlook is worse for stocks and better for rates. Investors are right to be dubious on execution of an ECM bond buying program (what countries to target and how much to buy) and the ultimate impacts (does it really help these nations grow).

Washington Budget Debates: The U.S. bipartisan Congressional ‘super committee’ has until Wednesday, November 23 to propose how to cut the U.S. budget by $1.2 trillion over 10 years. It’s not going well. Same political paralysis theme as in Europe. If this continues in coming days, rates would benefit as investors seek shelter from uncertainty.

Existing Home Sales: Sales of existing homes dropped 3.0% in August-to-September but rose 11.3% from September 2011 to 2011. The telling stat was that 18% of contracts didn’t close in September (same as August), up from 9% in Sept 2010. This increase speaks to increasingly shaky buyers. This is the trend I’m watching. Rates usually neutral on this report unless it’s wildly outside expectations.

GDP: The second of three 3Q2011 GDP reports will show whether economic growth will hold at +2.5% as reported last month. The 2Q figure was +1.3% and 1Q was 0.4%. Rates even to down on flat or lower revision.

$99b in New Treasury Supply: $99b in Treasury Notes will be sold into markets as follows: $35b 2yr notes Monday, $35b 5yr notes Tuesday, $29b 7yr notes Wednesday. Sometimes supply uptake can rattle mortgage bond markets, pushing rates up, if Note demand is weak. But the theme next week is pointing toward U.S. bond demand. More below.

Technical Trading Factors:
Looking at stocks, the S&P 500 closed last week at 1216, down 48 points from the week before mostly on negative Europe sentiment. Charts suggest a bottom level of support at the 50 day moving average of 1207 if the mood stays dour. But bargain hunting after last week’s losses may push stocks up a bit, just don’t look for them to rise to the 200 day moving average of 1271. As for mortgage bonds—namely the 3.5% Fannie Mae coupon most lenders use to price consumer rate sheets—they closed the week just below their 50 day moving average for the second straight week, and are supported by the 25-day moving average. This suggests resilience in mortgage bonds and they could rise next week, pushing rates down bit.

Bottom Line For Rates:
My prediction last week of “a .125% to .25% rise above record lows” was correct. Rates rose .125% as noted in paragraph 1 above. For this Thanksgiving week, all the factors discussed above suggest rates even to slightly down, recapturing record lows at miscellaneous trading intervals during the week. I say it that way because big daily rate swings are the reality, and any rate you’re reading about in the news is already expired. So you have to target your rate and give your lender a standing order to lock when it’s there. Here’s more.

Happy Thanksgiving!

CONFORMING LOAN LIMITS
Tier 1-TRUE CONFORMING: Lowest rates for loans to these limits:
-$417,000 (1 unit)
-$533,850 (2 units)
-$645,300 (3 units)
-$801,950 (4 units)

Tier 2-HIGH-BALANCE CONFORMING: Rates .125% to .375% higher than Tier 1 for loans to these limits:
-$625,500 (1 unit)
-$800,775 (2 units)
-$967,950 (3 units)
-$1,202,925 (4 units)
-High-Balance limits vary by county: find yours here

Tier 3-JUMBO: Rates .25% to .625% higher than Tier 2 for loans to $2m.

FHA LOAN LIMITS
Tier 1-TRUE FHA: Lowest rates for loans to these limits:
-$417,000 (1 unit)
-$533,850 (2 units)
-$645,300 (3 units)
-$801,950 (4 units)

Tier 2-HIGH-BALANCE FHA: Rates .125% higher than Tier 1 for loans to these limits:
-$729,750 (1 unit)
-$934,200 (2 units)
-$1,129,250 (3 units)
-$1,403,400 (4 units)
-High-Balance limits vary by county: find yours here

As for Friday’s broad spending bill, here’s the excerpt that increased FHA loan limits:

Sec. 238. Notwithstanding any other provision of law, for mortgages for which a Federal Housing Administration case number has been assigned during the period beginning on the date of enactment of this Act and ending on December 31, 2013, the dollar amount limitation on the principal obligation for purposes of section 203 of the National Housing Act (12 U.S.C. 1709) shall be considered to be, except for purposes of section 255(g) of such Act (12 U.S.C. 1715z-20(g)), the greater of–

(1) the dollar amount limitation on the principal obligation of a mortgage determined under section 203(b)(2) of the National Housing Act (12 U.S.C. 1709(b)(2)); or

(2) the dollar amount limitation that was prescribed for such size residence for such area for 2008 pursuant to section 202 of the Economic Stimulus Act of 2008 (Public Law 110-185; 122 Stat. 620).

No wonder this is confusing to consumers. The full bill is 159 pages, and the tiny excerpt above on FHA loan limits is as clear as mud because, instead of explicitly stating loan limits, it references two other bills that made the higher loan limits law previously.

This post (and future posts) with explicit loan limits for 1-4 unit properties should clear things up.

The debate will continue as politicians and lobbyists try to raise Conforming to match the new higher FHA limits.

Stay tuned, but go by these limits until then.

See WeeklyBasis for rates in all tiers and commentary in plain English, and follow daily on Twitter and Facebook.

Any investor who owns pools of jumbo loans took careful note when Moody’s said, based on its analysis of mortgage-backed bond portfolios, homeowners with jumbos now constitute “greater strategic default risk” than any other type of borrowers, including subprime. “That’s because an exceptionally high number of jumbo owners – many in high-cost markets hit by real estate deflation over the past several years – are stuck with persistent negative equity. More than half of the jumbos analyzed by Moody’s where owners are still making payments have home market values lower than their outstanding loan balances.”

The October 20 vote was on an amendment to a larger spending bill that still must pass in the Senate, and if so, it would go to the GOP-controlled House, which may stop this effort by arguing that reducing loan limits helps shift mortgage market from government to private markets. CNBC reports that the whole bill “needs to be law by November 18″ so this debate will heat up.

I agree that private markets, aka Wall Street, won’t step in full force on buying mortgages from banks as long as loan limits are higher. And why would mortgage originators look to private markets when they have a more profitable government option to sell loans to?

But that said, it’s not as dire as politicians say. Consumers have great options for jumbo loans above $625,500.

I’m a mortgage lender here in the jumbo loan land of San Francisco, and I have very competitive jumbo products available to me and my clients. So do my competitors who are with other credible firms known on Wall Street for their quality of underwriting.

There’s always a market for mortgage securitization if the underlying loans—both borrowers and properties—have been scrutinized by origination teams who know what they’re doing.

The smart Wall Street money knows where to find quality originations to buy. And the quality originators have power to negotiate low pricing for consumers because they’re the source of that business for Wall Street.

Lots of powerful lobbies including the NAR are lobbying for higher limits. And if they get their way, I’m certainly not going to complain. Rates on jumbos are still higher than the super-conforming loans to $625,500.

But to make it out like it’s this macroeconomic catastrophe if we don’t again raise loan limits from $625,500 to $729,750 is just untrue. And silly actually. The market can—and does today—provide great opportunities for jumbo consumers.

IMPORTANT NOTE: Chatter in Washington over loan limits will create confusion, but the link below contains loan limits and rates available now with all U.S. lenders. End of story.
___
Reference:
-2011 Conforming Loan Limits & Rates
-CNBC: Loan Limits A Constant Volley

-Loan Limit Battle Looms In GOP House (WSJ Developments)
-LATEST: Will Loan Limits Increase Again? (TheBasisPoint)
-Why Greek CDS Market Is OK (FelixSalmon)
-Fatal Flaw In Europe’s Rescue Plan (TheAtlantic)
-Stocks Could Rally a Bit Longer (Ritholtz)
-Where Is S&P 500 Headed After This Rally (MacroMonitor)

Yesterday’s vote will create lots of chatter, but the link below contains loan limits and rates available now with all U.S. lenders. End of story.
___
Further reference:
-2011 Conforming Loan Limits & Rates
-Senate Votes To Extend Loan Limits

Late last week the Federal Reserve released its 2010 Home Mortgage Disclosure Act database that concluded that this loan limit drop will have only a “small” impact on mortgage originations going forward. Researchers at the Fed estimate that in 2010 just 1.3% of Fannie & Freddie mortgages fell between $625,500 and $729,750, but that an additional 2.1% of 2010 home-purchase loans and 2.4% of refis would “potentially” be affected by a decline in Federal Housing Administration (FHA) loan limits.

Government-backed loans—FHA, VA, Rural Housing Services loans, which Fed researchers call “nonconventional” loans—comprised 46% of purchase mortgages in 2010, compared to 48% the prior year. “The share of nonconventional loans in the home-purchase market peaked” in April 2010, per the Fed, when FHA raised its upfront fee by 50 basis points.

Below is a recap of last week and a preview of next week to see if rate lows will hold.

How Rates Dropped Below 4%
Markets got the expected Operation Twist announcement Wednesday—a Fed plan to sell short-term debt and replace it with long-term debt. But the real surprise was the Fed saying that, effective October 3, they’d start reinvesting cash flows from their mortgage bond holdings into new mortgage bonds.

And these cash flows are big: the Fed bought $1.25 trillion in mortgage bonds from January 2009 through March 2011. Previously cash flows were being reinvested into Treasuries.

The Fed’s renewed commitment to mortgage bonds causes investors to buy more, buying drives up prices of mortgage bonds, and yields (or rates) drop.

This happened in a huge way Wednesday and Thursday, and rates (on conforming loans to $417k) dropped to the high 3s.

Investors reversed course Friday and sold sharply enough to erase all of Thursday’s rate gains.

Still, the rate week ended with loans to $417,000 still around 3.875%—if you have great credit, a single family home with at least 20% equity, or a condo with at least 25% equity.

Market Preview September 26-30
Here are next week’s economic calendar highlights with rate impacts:

August New Home Sales Monday: New home sales last month were 298k annualized, a five-month low. No strong evidence to support a big August improvement. Rates even to down.

July Home Prices Tuesday: June Case Shiller home prices up 1.1% since May, the third straight monthly ’20-City’ gain after seven months of decline. But prices were down 4.5% since last June. Rates even to down.

2Q2011 GDP Thursday: The second reading of 2Q GDP was 1% and this will be the third and “final” reading—but 1Q was revised a fourth time on June 29, and cut massively from 1.9% to 0.4%. GDP. Rates even to down.

Consumer Inflation Friday: The Personal Consumption Expenditures Index (PCE) is the Fed’s preferred consumer inflation reading, and the Fed likes to see “core” inflation excluding food and energy below 2% annualized. Last month this fore PCE reading was getting close at 1.6%. Rates even to up.

$99b in Treasury auctions: $35b in 2yr notes Tuesday, $35b in 5yr notes Wednesday, and $29b in 7yr notes Thursday. New Treasury supply sometimes cause rates to rise as bond markets sell on over-suply concerns.

Europe: A permanent bailout fund will be discussed to stabilize the Eurozone debt crisis. If this is well-received by markets, rates will rise as bonds sell on stock optimism.

Rate Lock Strategy
Rates are stunningly low. People will be tempted to hold out for even lower because weak economic data might support it.

But rates also depend on mortgage bond trading patterns, and the charts (technicals) don’t support a run much higher.

Whether driven by economic data or technicals, rate lows are here and gone each trading day.

So pick a rate target you can’t or won’t go above, and give your mortgage advisor a standing order to lock when they see it.

That’s for refinancers. For homebuyers, you can’t lock a rate until you’re in contract to buy a home. Once you’re in contract, the same approach applies.

Further reading:
-2011 Conforming Loan Limits As Of October 1

-How The Fed’s Latest Plan Lowers Mortgage Rates

-Record Rate Lows Here & Gone. How To Deal With It

Tier 1-TRUE CONFORMING: Lowest rates for loans to these limits:
-$417,000 (1 unit)
-$533,850 (2 units)
-$645,300 (3 units)
-$801,950 (4 units)

Tier 2-HIGH-BALANCE CONFORMING: Rates about .125% to .375% higher than Tier 1 for loans to these limits:
-$625,500 (1 unit)
-$800,775 (2 units)
-$967,950 (3 units)
-$1,202,925 (4 units)
-High-Balance limits vary by county: find yours here

Tier 3-JUMBO: Rates about .5% to .625% higher than Tier 2 for loans to $2m.

-Tier 1 and 2 limits are the same for FHA loans.
-Recent efforts by lawmakers to extend the higher limits have failed.
-Read WeeklyBasis for rates and market recap/outlook every Saturday.