A sharp jump in mortgage rates was the week’s most significant development.

• 30-year mortgage rates rose to 6.32%, largely in response to growing inflation fears
• Federal Reserve officials may also respond to the inflation threat, as they’ve begun to hint at possible hikes in the Fed rate later this year
• The grim news on the interest rate front overshadowed what otherwise would have been a bright spot, a bounce back in mortgage application activity

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Even though stocks have rallied lately on improved economic news, mortgage foreclosures continue to hang like a cloud over the scene.

• An easing in unemployment gains and solid May reports from major retailers were the latest items that suggested the economy was continuing to avoid recession
• On the flipside, a mortgage report for the first quarter of 2008 showed that foreclosures and delinquencies continued to rise
• The foreclosure crisis was given its latest human face when it was reported that celebrity Ed McMahon was struggling to keep his mansion out of foreclosure
• Meanwhile, without fanfare, ten-year Treasuries ended May with a yield above 4.0% for the first time this year — a possible portend of higher mortgage rates to come

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A possible Senate compromise on a mortgage relief bill took most of the mortgage headlines this week, but potential borrowers would do well to keep their eyes on the inflation front, where a new surge in oil prices threatened to drive interest rates higher.

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If you have an adjustable rate mortgage (ARM) you have probably been bombarded with solicitations and exhortations to “fix it” before rates go sky-high. You are right to be concerned about the future but jumping into the nearest fixed rate mortgage could be a costly move.

Looking at recent ARM rate adjustments tells the story. Rates for many ARM borrowers have decreased lately. Before making any decision about refinancing to nail down a stable rate, get out your loan documents, find the Adjustable Rate Mortgage Rider, and look up the terms of your ARM. Locate the index that your rate is tied to (for example, the LIBOR, COFI, or T-Bill). The index is a published financial indicator and you should be able to look up its value easily online. This week’s 6-month LIBOR, for example, is 2.88%. Next, find the margin that your lender adds to the index to get your interest rate. If your loan is based on the 6-month LIBOR and carries a margin of 2.5%, your rate would be 5.38% if adjusting today.

OK, but what if a lender calls you up and says you can get a fixed loan at 6% right now? Should you go for it?

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It’s great that community services agencies, the government, and some lenders are working with homeowners who are having problems making their mortgage payments, or refinancing mortgages they can’t afford. Unfortunately, the scam artists are out to make a from borrowers facing foreclosure.

Foreclosure proceedings are a matter of public record. Scammers can get your name and property address from these records. Yes, folks, there are people who will send offers of quick help, no money required “solutions,” and they may also offer to pay you to stay in your home. These kinds of schemes can result in losing your home, your money, and your credit rating. Don’t get involved in any deal that seems too good to be true; it probably is!