Wednesday, May 14
Posted 11 a.m. EDT
WRONG TALL SALLIE: I want to bring your attention to an exclusive article on Bankrate today -- a story that we're breaking before anyone else. Sallie Mae, the biggest servicer of student loans, has erroneously reported the payment histories of up to a million borrowers, causing some people's credit scores to plummet more than 100 points overnight.

If you have an extended or graduated repayment plan with Sallie Mae, and you're trying to get a home loan right now, please check your Equifax credit score immediately. You may have some cleaning-up to do. If you're planning to close on your mortgage within the next few days, you might even be forced to postpone. Don't panic, but if you fall into those categories -- you have an extended or graduated repayment plan with Sallie Mae, and you're closing on a home loan this week or next week -- you need to make this your top priority. Act fast and you might be able to stay on schedule.

Let's say you fall into this unfortunate bunch. I recommend that you notify your lender and the closing agent or title attorney today that your Equifax score might have dropped precipitously over the weekend because of Sallie Mae's coding error. I'm serious when I say that this is the top priority. Get moving on this as quickly as possible. Ask the lender to pull your Equifax score today. If a fix needs to be made, follow the advice you're given. I hope the loan officer or broker does the heavy lifting, and that all you'll have to do is sign a dispute letter.

I reiterate: Don't freak out, but move quickly.

And I hate to say it, but keep an eye on your credit card accounts. Credit card companies are notorious for raising interest rates on customers who get dings on their credit reports. This error by Sallie Mae could trigger rate escalations on millions of credit cards.

WELCOME NEWS ON PRICES: The Consumer Price Index rose 0.2 percent in April, and when you strip out energy and food, prices rose 0.1 percent.

That's good news for mortgage borrowers. The low-core CPI number will lessen any upward pressure on long-term mortgage rates.

There's still room for concern. In the last 12 months, overall prices have gone up 3.9 percent, and core prices (minus food and energy) are up 2.3 percent. Most people believe that the Federal Reserve would like that latter number to be below 2 percent.

Mortgage market participants will look kindly on this inflation report. Most expected the inflation numbers to be higher than this, so these results come as a pleasant surprise.

GOOFY PREDICTION OF THE DAY: Every Wednesday, Bankrate's research department conducts the weekly rate survey. I predict that the benchmark 30-year mortgage rate will rise 11 basis points in this week's survey, to 6.24 percent. I base that prediction on three factors, in declining order of import: Freddie Mac required net yields, mortgage bond prices and spitting in the wind.

The votes for next week's Rate Trend Index haven't all come in yet, but the votes cast so far suggest (by a narrow margin) that rates will rise over the next few weeks.

Monday, May 12
Posted 11 a.m. EDT
START YOUR CONFORMING JUMBOS: Lenders just might be getting serious about underwriting the new conforming jumbo mortgages for more than $417,000. Word is that the new conforming jumbos sport a rate about three-eighths to half of a percentage point higher than rates for conforming loans.

Before this year, mortgages were separated into two categories by loan amount. Conforming loans could be bought and guaranteed by Fannie Mae and Freddie Mac, and there was a maximum loan size, set by a formula, that changes in most years. At the beginning of this year, the conforming limit was $417,000. Loans above that amount were jumbo mortgages.

Californians and Americans want to refinance their jumbo ARMs into jumbo fixed-rate mortgages to escape escalating ARM rates. But high jumbo rates (which I'll get to in a sec) are deterring a lot of people. So this spring, Congress created a third class of loan: the conforming jumbo. These are loans for more than $417,000 and up to $729,750. The conforming jumbo limit varies by metro area. In most of the country, the limit remains $417,000, but it's higher in places where houses are expensive. In Southern California, the conforming jumbo limit is all the way to the max possible $729,750. In Medford, Ore., the jumbo conforming limit is $422,500.

Before last summer, jumbo loans typically had rates about a quarter of a percentage point higher than conforming mortgages. But an August meltdown in the jumbo loan market, and the resulting drying-up of money available to jumbo borrowers, pushed jumbo rates higher. Last week, in Bankrate's weekly survey, the 30-year fixed conforming loan averaged 6.13 percent and the jumbo averaged 7.35 percent. The difference between the conforming and the jumbo was 122 basis points, compared to about 25 basis points a year ago. We mortgage geeks like to say that the spread between conforming and jumbos almost quintupled.

The new conforming jumbo mortgages officially became available at the beginning of April. But they weren't priced differently from regular jumbo loans. The lack of a rate differential defeated Congress's purpose in creating the jumbo conformings. Teeth were gnashed.

On Friday afternoon, Fannie Mae announced that it would buy jumbo conforming mortgages for the same prices as conforming loans. Some investors, and therefore lenders, immediately dropped their rates on conforming jumbos. From what I hear, the new jumbo conforming rates are about three-eighths to half a point higher than conforming rates.

In real numbers, this means that if a conforming customer is quoted a rate of 6.125 percent for a 30-year fixed, a jumbo-conforming customer with the same excellent credit profile (and solid equity in the house) is quoted a rate of around 6.5 to 6.625 percent. That's still higher than the conforming rate, but it's a big improvement compared to the jumbo rate, which remains well north of 7 percent.