There was a very good article about the US economy in general–and mortgages in particular–in the Times this morning. No, not the New York Times or the Los Angeles Times. It was in the original Times, which was first published in 1785 in London, England. Maybe you need to view things from across the Atlantic to get some perspective on our current financial plight.

Anyway, I urge you to read the piece. It’s all about the Fed’s latest policy of ‘quantitative easing’. Never heard of it? Me neither, up until very recently. But bankers do tend to use dry language, even to describe their most radical initiatives.

And quantitative easing is sure radical. It is the printing of vast amounts of money to buy up long-term debt-mortgage securities and government bonds. And if there’s a grain of truth in Milton Friedman’s monetarist theories, that can only mean inflation.

Perhaps we could use a dose of inflation to kick-start the mortgage and real estate markets. Maybe the alternative, stagflation, is even worse. The Times isn’t so sure. It says:

Quantitative easing is, in essence, what you do as a central bank when you have run out of things to do to avert catastrophe. It is that moment in the horror movie when you are backed up into the kitchen by the intruder and you start pulling out the kitchen sink as your last weapon.

For once, “It’s a Great Time to Buy!” isn’t just a bunch of real estate industry hype. Remember, these people were crowing, “It’s a great time to buy!” right up to the moment the housing market crashed and proved that salespeople are not the best industry forecasters, duh. But current economic and market conditions are in fact creating an environment for buyers that may be extremely favorable but not long-lived.

Incentives created by the newly-signed housing bill HR 3221 are designed to provide a quick shot to the housing market and may not be around long. Effective immediately, there is a first-time buyer credit (which others not technically “first-time” buyers may qualify for as well) of $7500, but it expires July 1, 2009. Conforming, FHA, and VA loan limits, which were raised as part of the economic stimulus package, will drop in many areas, although the new law raises the limits somewhat higher than limits in place before the stimulus package passed.

In addition, interest rates have been inching up. While still relatively low, many economists feel that rates are far more likely to increase than decrease in the coming years. And while buyers can’t be absolutely certain that the housing market has completely bottomed out, most experts say that the only way you know prices have hit bottom is when they rebound–and at that point its too late to take advantage of it.

What today’s buyers can take advantage of are lower home prices, fairly low mortgage rates, tax relief, and higher loan limits (meaning lower prices and greater availability for financing). If you can afford it and home ownership makes sense, you may never find a better time than the present to make a solid investment.

One of many proposed changes to FHA lending is the implementation of risk-based pricing. Most of us are familiar with this practice if not the term for it. For example, when you get your car insurance, your rate is partially determined by your driving record, where you live, and the kind of car you drive. No one expects to pay the same for insurance as someone else. If you live in a quiet suburb, drive a 4-year-old station wagon, and the only ticket you ever got was for forgetting to feed a parking meter, your rate is lower than your big-city friend with the new ‘Vette who’s on a first-name basis with the traffic court judge. “Pay to Play” makes sense to most people in that context.

The same thing is happening with housing. Fannie Mae and Freddie Mac started the trend, charging more or requiring larger down payments for homes in declining areas, for borrowers with lower credit scores, and for financing certain types of property like manufactured housing and condo projects. The idea is to have the borrowers with the greatest chance of defaulting pay more instead of forcing everyone to absorb the cost of the rise in foreclosures.

So what does it mean to borrowers who choose an FHA loan?It depends. FHA’s costs have increased, in fact for the first time in its history the agency will be unable to cover losses caused by borrower defaults. So more money is needed, and it can come from either the taxpayers, from all FHA borrowers in the form of across-the-board fee increases, or in the form of a selective increase to those who are at higher risk of defaulting. So if you have good credit you won’t likely be hit with an increase in funding fees if this change goes through. Riskier borrowers with marginal credit histories would be expected to come up with a little more.

Home valuation conduct codes are rules that Fannie Mae and Freddie Mac are expected to put into effect in 2009. They will bring marked changes in real estate lending. Here’s what these changes may mean to a home buyer or home owner.

The Good:

No one who stands to gain financially from a real estate transaction — including loan officers, mortgage brokers, or Realtors — will be allowed to order an appraisal to get property financed or refinanced. Only the actual lender can order it, and those involved in the loan production area will be precluded from ordering an appraisal or communicating with the appraiser in any way. This effectively eliminates the chance of anyone having influence over an appraiser. No one involved gets to have any choice in who is hired to appraise the property. No one gets to communicate a desired valuation to the appraiser.

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