Here’s an NYT op-ed with some useful history of the 30yr mortgage. It also discusses some ideas about flexible mortgages, where for example, a borrower can have a 30yr fixed that could have interim periods of interest-only when a borrower needs it. These ideas are not new. Robert Shiller, of Case Shiller home price index fame, has been talking about these concepts for years. But Shiller and the author of this post, a UCLA law professor, never discuss the fact that any ‘flexible’ mortgage would also have flexible pricing—meaning that rates will be higher on mortgages with more options. And let’s not forget the current regulatory wave is precisely to limit flexibility in mortgage products and pricing. So theory about a newer, better mortgage to replace the 30yr fixed is one thing. Market and regulatory reality is another.

Back in January, here’s what we said about rates and the economy:

“As we move through 2010, our outlook is for waning Fed support to push rates approximately 1% higher, and for a choppy economic recovery marked by modest GDP growth and minimal employment improvement.”

Conforming 30-year fixed rates were at 5% at the time. At this July 14 writing, rates are much lower at 4.57%. Clearly our rate view was conservative but at least our economic outlook is still accurate, and at least rates are lower.

Actually rates have never been lower since Freddie Mac began keeping official records in 1971. On May 27 and June 3, 2010, rates touched on previous record lows of 4.78% set in two other times in 2009. Since then, rates have dropped to a new record low of 4.57% as of July 8, 2010.

Below we explain how rates got this low, and why it’s unlikely rates can go lower. And here’s a post explaining which rates we are discussing, which will help you interpret the news you read daily.

Why Rates Are So Low
In an unprecedented rate stimulus exercise from January 1, 2009 through March 31, 2010, the Federal Reserve bought $1.25 trillion in mortgage bonds. Rates are tied directly to mortgage bonds, so when those bond prices rise on buying rallies, yields (or rates) drop. Fed buying was the reason new record rate lows were set in 2009, and rates were only about .2% above those lows when the Fed ended its program March 31.

Then about one month later on May 6, Greek parliament voted to increase taxes and cut spending (including wage cuts for about 20% of their workforce) in response to a severe debt crisis, and rioting on their streets ensued. That caused a brief 1000 point drop in the Dow stock index, and even though U.S. stocks recovered from that initial shock, European bonds have taken big losses as Greece’s debt crisis spread throughout Europe.

On top of this, the U.S. economy has been choppy. We’ve seen weaker new and existing home sales data for the past 2 months. The economy lost 125,000 jobs in June, and unemployment is at 9.5%. And the final reading for first quarter GDP (released on June 25) showed that the economy grew at 2.7%, which was .5% lower than the initial April 30 reading.

The market result of U.S. and European uncertainty has been heavy buying of mortgage bonds (and Treasury bonds) since they’re considered the safest investments relative to European bonds and other investment options globally.

Mortgage bonds have steadily risen from Fed-induced March 31 highs to staggering new heights. This is why rates are so low.

Can Rates Go Lower?
Back in January 2010 we got the economic call right but didn’t anticipate that European debt issues would push global investors into mortgage bonds, causing already record low rates to go even lower.

At the time, we noted that Bill Gross, head of PIMCO, the world’s largest bond manager, had been saying publicly since January 2009 that investors should buy mortgage bonds ahead of the Fed and sell before the Fed sells.

We thought the global selling of mortgage bonds might come sooner and push rates higher. For now though, mortgage bonds are viewed as the safe play. But even PIMCO, who directly benefits from this unprecedented historical rally in mortgage bonds, agrees it can’t stay like this.

“It’s gotten insane,” said PIMCO mortgage backed securities head Scott Simon when asked about mortgage bond price levels on June 24, 2010. “This is rarefied air.”

So can rates go lower from here? The short, and conservative, answer is No.

The longer answer is that rates could hover close to current levels for a few more months if the economy continues to stagger. But if we do see a few consecutive months of economic improvement, mortgage bonds will sell off from record levels, and rates will rise.

Rate Volatility Goes Two Ways
Markets are extremely volatile as we complete this third year of the financial crisis. For now, that volatility is working in the favor of rate markets, providing amazingly favorable loan terms for homebuyers who are ready to transact and homeowners who qualify for refinances.

But consider the simple dictionary definition of volatility: liable to change rapidly and unpredictably.

So if there ever was a time to capture market volatility when it’s working in your favor, this is the time.

Rate Snapshot
Conforming, Jumbo, and FHA rates ended last week at record lows again (see rates below), which makes a two-month streak of record lows. A significant rate spike is not expected in the near future, but it’s also not likely rates will stay this low. Here’s why rates could tick up next week.

How Bond Markets Affect Mortgage Rates
We will see June Retail Sales figures Wednesday, June business inflation figures Thursday, and June consumer inflation Friday. These reports are important, but will likely show continued tame inflation and tentative consumers, which won’t surprise rate markets.

So the biggest rate factor will be $69b in Treasury auctions as follows: $35b in 3yr notes Monday, $21b in 10yr notes Tuesday, $13b in 30yr bonds Wednesday. The Treasury Department auctions debt to raise money for ongoing government spending, mostly for stimulus plans implemented during the heat of the financial crisis of the past few years.

In the current unstable global investing landscape, Treasury securities are considered a safe, albeit low yielding, bet. Specifically the new issuance of 10yr and 30yr debt competes with 30yr mortgage bonds for investor dollars, and these long-dated mortgage bonds are what most rates are tied to. So if investors sell mortgage bonds to buy Treasuries, mortgage bond prices drop and rates rise.

Also, if the Treasury auctions aren’t well received, it can cause selloffs across all bond markets, including mortgages. Justifiably, the flood of Treasury debt into markets has caused oversupply concerns at different times in the past couple years, and rates rise as all bonds sell off. But while Europe has been in crisis much of this year (especially since early Q2), U.S. mortgage and Treasury securities are in favor.

This is the biggest reason rates are as low as they are.

But market favoritism can change quickly, especially given the run mortgages and Treasuries have already had.

Homebuyers and refinancers are well served to lock existing low rates as soon as they are ready to transact.

Daily Consumer-Friendly Commentary
In addition to this WeeklyBasis report, you can follow The Basis Point using Twitter feed at www.twitter.com/thebasispoint and/or you can ‘Like’ www.facebook.com/thebasispoint and headlines will flow into your Facebook stream.

CONFORMING RATES ($200,000 – $417,000) – 0 POINT
30 Year: 4.625% (4.74% APR)
FHA 30 Year: 4.75% (4.89% APR)
5/1 ARM: 3.5% (3.62% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 0 POINT
30 Year: 4.875% (4.99% APR)
FHA 30 Year: 4.75% (4.88% APR)
5/1 ARM: 3.875% (3.99% APR)

JUMBO RATES ($729,751 – $2,00,000) – 1 POINT
30 Year: 5.375% (5.49% APR)
5/1 ARM: 4.25% (4.37% APR)

Every Thursday, Freddie Mac releases its Primary Mortgage Market Survey (PMMS). This is the official record on mortgage rates and source material for the overwhelming majority of rate reports in the media—reports that very often exclude critical details rate shoppers need to know. Since the one-day market crash May 6, mortgage bonds have rallied to insane levels and mortgage rates have dropped to new record lows several times. So news stories about record low rates hit at the end of each week, but they are for rates that were available the previous week. And only if you have a single family home, and a loan of $417,000 or less, and lots more fine print. Below is a checklist of characteristics used in the Freddie Mac PMMS survey, so you know if these rates apply to you or not.

PMMS rates reported in the press each Thursday are for the week leading up to (and not including) Thursday. Mortgage rates are tied to mortgage bond trading, and as such, rates change all day everyday. The Thursday PMMS report on rates is for rates that are long expired, so it’s critical to get market-relevant quotes from a mortgage lender, not a news source. Also below are some other useful links for understanding rate quotes and rate locks.

• PMMS rates are on Conforming loans up to $417,000. Super-Conforming loans up to $729,750 are excluded. Jumbo loans above $729,750 are excluded.
• PMMS rates are on Conventional loans, and exclude FHA loans.
• PMMS rates are for single family homes, and exclude other property types like condos and duplexes.
• PMMS rates are for borrowers with at least 20% equity in their homes.
• PMMS rates are for owner-occupied homes.
• PMMS rates always include points to buy down the rates. Many press reports exclude this fact. This is the source that shows the points.
• PMMS rates are national averages based on survey responses from 25 lenders located in Freddie Mac’s 5 regions.

Here are some other links on the topic of rate quotes and rate locks. You can also click the Topics links in post footer to dive in deeper to current rate perspective.

• Why Locking A Rate Is Like Buying A Stock
• How Are Rates Derived?
• A full archive of Rate History
• WeeklyBasis rate market report (published Saturdays), commentary and also Conforming, Super-Conforming, Jumbo & FHA rates.

Rate shoppers and watchers should note that the lowest rates on official record are here now. The chart below shows rates from June 2010 back to April 1971, when Freddie Mac started officially tracking 30 year mortgage rates. The high was in October 1981, when then Fed chairman Paul Volcker was hiking rates to battle inflation (more on this below). At that time, borrowers paid an average of 2.3 points to buy a rate down to 18.45%. The low was May 27, 2010 when borrowers averaged 0.7 points to buy a rate down to 4.78%—note that 4.78% with 0.7 points was also achieved three times in 2009: April 2, April 30, and November 25. These are national average rates on loans up to $417,000 for single family homes with 20% or more equity in the property. Rates change daily as mortgage bonds trade.

FULL SIZE CHART

In 1981, Volcker and his FOMC pushed the Fed Funds Rate to an average of 19% (compared to .25% today) in order to beat the 14.6% average inflation of the day (compared to 2.2% full and 0.9% ex-Oil&Energy now). This inflation battle caused two back-to-back recessions. The first one began in January 1980 and unemployment peaked at 7.8% in August 1980. The second one began in July 1981 and unemployment peaked at 10.8% in December 1982 (compared to 9.9% now).

Which Bonds Are Mortgage Rates Tied To?
Rates on mortgage loans up to $417k and up to $729k are tied to trading in “agency” mortgage-backed bonds—meaning bonds issued by Fannie Mae, Freddie Mac, and Ginnie Mae. So while many look to the 10yr Treasury Note for clues on mortgage rates, they should be looking at mortgage bonds. And specifically, there are different duration mortgage bonds to watch during different times in the market to predict what rates might do, and how to properly lock a rate at the best time.

Prices on agency mortgage bonds have been slightly abnormal lately, so we have to look at the security price difference between a 4% and a 4.5% security to see what’s going on. Historically, on average, price differences between .125% for a 30-yr mortgage is about .5 in price, or 2 points for .5%. This relationship, however, has gotten out of whack with the latest volatility and prepayment fears in the mortgage-backed security sector. Currently the price difference between a 4.0% security and a 4.5% security is now 2.75 in price (instead of 2.00), so therefore the difference in price between a 4.75% loan, which would typically be slotted into a 4.50% security, and a 4.625% loan, which would go into a 4.00% security, same impounds, same LTV, same credit score, is now much greater.

With FNMA 4.5′s around 102 (a 2 point premium) and FNMA 4′s trading near par, everyone is in uncharted territory – and the mortgage market is roiled. Low coupon product, now trading near par, has not yet been originated in any kind of volume that helps liquidity. News yesterday out of Spain, that Spain’s central bank had to prop up a regional bank, did not help the stock market, and stock prices are back down to early February levels. Bond prices also worsened, with traders attributing that to some profit taking by investors. And this morning the markets are not only spooked by Europe, but now also by some tension coming out of Korea – just what we need. The 10-yr is down to 3.11% ahead of the $42 billion 2-yr auction ($40 billion 5-yr’s tomorrow, $31 billion 7-yr’s Thursday) and mortgages are better by about .250.

Debate On Loan Officer Pay
In 1930, during the Great Depression, Babe Ruth was earning a salary of $80,000 a year. A reporter suggested that perhaps he was overpaid, since Herbert Hoover, the president of the United States, was only earning $75,000. Ruth replied, “Why not? I had a better year than he did.” If Congress can set loan officer compensation on a per loan basis, many are asking, “Why shouldn’t they set the pay for doctors, lawyers, title company officers, etc.?” Some expect the ability for Congress to set maximum compensation levels to be challenged in court, since the government is not setting limits on Realtors, heart procedures, dog grooming fees, boat rigging work, etc., etc.

FDIC Sells $233m In Commercial Notes
Helped by Barclays, the FDIC closed a sale of notes backed by commercial real estate loans from twenty-two financial institutions, the fourth such sale of structured notes by them since the early 1990′s and the fourth backed by the full faith and credit of the United States. The $233 million of notes are backed by performing and non-performing commercial real estate loans with a related aggregate unpaid balance of approximately $1.0 billion. The FDIC still retains its 60% equity interest issued by the LLC, and ColFin DB Funding, formed by entities affiliated with Colony Capital, still owns the 40% equity interest sold to it by the FDIC in January 2010. The notes don’t pay interest, but were sold at a discount like a T-bill.

Primer On Case Shiller Home Price Index
What Is the Case-Shiller Index? The Case-Shiller Index, which showed mixed results this morning, was developed in the 1980s by three economists: Allan Weiss, Karl Case and Robert Shiller, and distributed by Standard & Poor’s. The index includes foreclosures and is actually not one index, but 23! The national home price index, which covers nine major census divisions, is calculated quarterly and published on the last Tuesday of February, May, August and November. The 10-city composite index covers Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, DC. The 20-city composite index includes all of the above cities plus Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland (Oregon), Seattle and Tampa. Twenty individual metro area indexes for each of the cities listed above. The indices, aside from the national index, are published on the last Tuesday of each month at 9AM EST. There is a two-month lag time in the data that is reported, so the report issued in May only covers home sales through March. Each index measures changes in the prices of single-family, detached residences using the repeat-sales method, which compares the arm-length sale prices of the same properties over time (so there is no new construction).

NAR: Existing Home Sales Up 7.6%
Yesterday we learned from NAR that Existing Home Sales data for April 2010 rose 7.6% due to the tax credit, improving consumer confidence and favorable affordability conditions. The pace of sales is almost 23% higher than April 2009. Is the housing market going to be saved by a strengthening economy and improving labor market? Honestly, I kind of doubt it – but what do I know? The inventory of existing homes for sale in April jumped 11.5 percent to 4.04 million units, the highest since July, and over an 8 month supply although the national median home price rose 4 percent from April last year to $173,100 — the highest since September.

Market Early Close Friday
Pre-Memorial Day bond market note: this Friday is the last early close for the bond market until Thanksgiving.

Daily Basis
Nancy and her husband Peter went for counseling after 43 years of marriage. When asked what the problem was, Nancy went into a passionate, painful tirade listing every problem they had ever had in the 43 years they had been married.

She went on and on and on: neglect, lack of intimacy, emptiness, loneliness, feeling unloved and unlovable, an entire laundry list of unmet needs she had endured over the course of their marriage.
Finally, after allowing this to go on for a sufficient length of time, the therapist got up, walked around the desk and after asking Nancy to stand, embraced her, and proceeded to eventually “have his way with her” for 30 minutes all the while kissing her passionately, as her husband Pete watched with a raised eyebrows!

Nancy shut up, buttoned up her blouse, and quietly sat down while basking in the glow of the event.

The therapist turned to Pete and said, “This is what your wife needs at least three times a week. Can you do this?”

Pete thought for a moment and replied, “Well, I can drop her off here on Mondays and Wednesdays, but on Fridays, I play golf.”

Zero-point rates on 30yr fixed Conforming loans (up to $729k) ended last week at their lowest levels since official records began in 1971, and Jumbo 30yr fixed loans (above $729k) touched the low-5% range. By the time last week’s rate levels are officially announced by Freddie Mac on May 27, rates are likely to be higher. Below is a recap of how rates got here and rationale for why rates may rise next week.

Why Rates & Stocks Have Dropped
The Dow dropped 1000 points before closing down 348 points on May 6. The press has dubbed it a “Flash Crash,” but let’s go beyond the clever label to understand what happened that day, why the Dow is down 675 points since that day, and why mortgage rates are down .25% since then.

May 6 Stock Crash
Europe’s troubles started with Greece facing default on its bonds due to insufficient tax revenue, so they were granted a $140b bailout package by the IMF and fellow members of the European Union. As a condition of the bailout, they were forced to cut salaries of Greek citizens and raise taxes, measures which Greek parliament voted into law May 6. The vote caused rioting and death on the streets near the Greek parliament in Athens, and it tipped off the so-called Flash Crash here in U.S. stock markets.

Sidenote: there’s been lots of talk that the stock selloff was caused by automated program trading errors (for example, Accenture traded to $.01 momentarily then bounced back and closed at $41.09 which is in line with its normal trading levels), but few question that the impetus was unrest in Greece.

May 9 To Present
U.S. and non-U.S. stock markets continued down Friday May 7, on fears that more EU countries were in similar trouble. On Sunday May 9, the EU announced a nearly $1t bailout (similar to the U.S. TARP program) to support the debt of all member countries. But since then, investors have been unconvinced, so they’ve been heavily shorting European stocks and government bonds even if they don’t own the securities. This ‘naked shorting’ was banned by Germany last week to little effect, as the market still finds ways to punish securities it deems overvalued.

Rate Impact
As investors have sold out of (or shorted) stocks and European debt, they have purchased safer U.S. Treasury and mortgage bonds, driving prices on both to 2010 highs. When mortgage bond prices rally like this, yields (or rates) drop, and that’s exactly what has brought us to record lows on conforming 30yr fixed rates. We touched these same record lows once in April 2009 and again in November 2009, but these three dips are the lowest rates have gotten since official records began in 1971.

Why Rates May Rise May 24-28
Whenever there’s talk of a “stock market crash” or “record low rates,” we can be sure volatility is the central theme. As such, those phrases can quickly change to “rally” or “rate spike.” On top of ongoing Eurozone issues and U.S. regulatory reform, there’s a full slate of economic data contributing to the volatility mix next week. The biggest market movers are highlighted below.

Tuesday is the March S&P Case Shiller existing home price report. Last month’s report showed year-over-year home prices going positive for the first time since December 2006. If this trend continues, rates would likely rise.

Thursday is the second of three Q1 GDP readings that will show us if +3.2% GDP growth holds from the first reading in April. If it does, this will solidify a third consecutive quarter of positive economic growth, fueling positive stock sentiment so bonds would sell off, pushing rates higher.

Tuesday through Friday, bond markets will get $113b in new Treasury auctions—$42b in 2yr notes, $40b in 5yr notes, $31b in 7yr notes—and this will be a big test for whether the Treasury and mortgage safe haven from Europe will continue, or new supply will spook bonds and push rates up.

Friday is the Fed’s favorite inflation measure, the Personal Consumption Expenditures Index, and also April Personal Income and Spending will show us whether consumers, who account for two-thirds of GDP, are gaining strength. Tame inflation and better spending could be a net neutral for rates.

Daily Consumer-Friendly Commentary
In addition to this WeeklyBasis report, you can get daily updates in simple terms by visiting www.TheBasisPoint.com. You can follow using Twitter feed at www.twitter.com/thebasispoint and/or you can ‘Like’ www.facebook.com/thebasispoint and headlines will flow into your Facebook stream.

CONFORMING RATES ($200,000 – $417,000) – 0 POINT
30 Year: 4.75% (4.87% APR)
FHA 30 Year: 4.75% (4.89% APR)
5/1 ARM: 3.25% (3.37% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 0 POINT
30 Year: 5.0% (5.12% APR)
FHA 30 Year: 5.0% (5.13% APR)
5/1 ARM: 4.25% (4.37% APR)

JUMBO RATES ($729,751 – $2,00,000) – 1 POINT
30 Year: 5.375% (5.49% APR)
5/1 ARM: 4.5% (4.62% APR)

How Lenders Create Rate Sheets
Zero-point rates on loans up to $729k held at record lows for the second week last week even though mortgage bond levels might suggest rates would have dropped further. Jumbos also held steady at very attractive levels. Mortgage bonds benefitted as the EU/IMF’s $140b Greece bailout caused investors to sell European debt and buy more conservative U.S. mortgage and Treasury bonds. When bond prices rise on these buying rallies, rates drop.

But it’s not actual mortgage rates that drop when mortgage bond prices rally, it’s mortgage bond yields (the rate of return on those bonds) that drop. Then lenders re-price mortgage rate sheets based on those lower yields. This lowering of mortgage rates didn’t happen to quite the extent that lower mortgage bond yields might suggest because last week was wildly volatile. Mortgage bond prices swung more than 100 basis points Thursday and Friday—in the bond world, this is similar to the massive swings we saw in the Dow Thursday (when it was down 1000 at one point).

And when lenders see this kind of volatility, they sometimes hold the line on rate sheet re-pricing. This is what lenders did Thursday and Friday so they can wait to see if the mortgage bond rally can sustain itself or if it washes out. Nevertheless, current low rates still speak for themselves.

European Debt Issues To Drive Markets May 10-14
Next week is light on economic data with Trade Balance Wednesday, Retail Sales Friday, and Consumer Sentiment Friday being the three biggest reports. We also have 7 public speeches by senior Fed officials throughout the week.

Market movement next week will continue to be dominated by the European debt situation. To keep the Greece debt crisis from spreading throughout the 16-country Euro zone, the EU announced today that they will “defend the Euro, whatever it takes” by creating a fund. By Sunday, before Asian markets open, the EU will roll out further details of their plan.

And since government debt issues are front and center, next week’s Treasury auctions will strongly influence the direction of trading—and rate levels. Treasury will auction $78b in new debt as follows: $38b 3yr notes Tuesday, $24b 10yr notes Wednesday, $16b 30yr bonds Thursday. Logic would suggest strong uptake on these auctions since this debt is a better credit risk than other government debt options, but as we saw Thursday and Friday, logic can be fleeting.

Where To Get Daily Consumer-Friendly Market Updates
In addition to this WeeklyBasis report, you can get daily updates on this fluid situation (written in terms consumers can understand) by visiting www.TheBasisPoint.com. You can follow using Twitter feed at www.twitter.com/thebasispoint and/or you can ‘Like’ www.facebook.com/thebasispoint and headlines will be added to your Facebook stream. Also you’ll see Twitter and Facebook boxes on the right side of this site—can click ‘Follow’ for Twitter, or ‘Like’ for Facebook right here on the site.

CONFORMING RATES ($200,000 – $417,000) – 0 POINT
30 Year: 4.875% (4.99% APR)
FHA 30 Year: 4.875% (4.99% APR)
5/1 ARM: 3.25% (3.37% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 0 POINT
30 Year: 5.25% (5.37% APR)
FHA 30 Year: 5.125% (5.26% APR)
5/1 ARM: 4.25% (4.37% APR)

JUMBO RATES ($729,751 – $2,00,000) – 1 POINT
30 Year: 5.5% (5.62% APR)
5/1 ARM: 4.625% (4.74% APR)

In the past week, we’ve seen promising economic and home price data, but many homeowners are still strained to the point where foreclosure is inevitable—or perhaps “viable” for those deeply underwater homeowners considering strategic defaults. So the often repeated question is: what do late mortgage payments, foreclosures and bankruptcies do to your credit score? A couple weeks ago, Les Christie at CNNMoney did a great job of answering this question, and since the story got a bit lost in the SEC/Goldman Sachs lawsuit hysteria, we just wanted to highlight it again.

Excerpted below are some estimated credit score hits a borrower would take by being late on their mortgage, and eventually going into foreclosure and/or bankruptcy. These are based on models from Fair Isaac, one of the three major credit bureaus … in other words, these aren’t real consumer scores. But it’s still a useful ballpark for debt-strained consumers who need scenarios of what might happen to their credit score. Every profile will be different based on overall credit profile, and the recovery time to get back to a favorable score vary based on credit history prior to the derogatory filings. Derogatory reports remain on the credit scores for 7 years (and in the case of bankruptcy, it’s 7 years from the time of discharge), but if an otherwise top-tier credit score consumer is hit by default, foreclosure or bankruptcy, their score can rebound in less than half that time if they resume a well-maintained credit profile immediately.

Recently, Fair Isaac, which developed FICO scores, pulled back the curtain a bit, revealing some estimates of point-score declines following mortgage delinquency problems.

Here are the average hit your credit will take:

30 days late: 40 – 110 points

90 days late: 70 – 135 points

Foreclosure, short sale or deed-in-lieu: 85 – 160

Bankruptcy: 130 – 240

To come to these figures, Fair Isaac created two hypothetical consumers, one who starts out with a fair-to-middling score of 680 and the other with a very good one of 780. (FICO scores range from 300 to 850.)

The hypothetical person with the 780 FICO has 10 credit accounts versus six for the 580, plus a longer credit history, lower utilization of total credit limit and no missed payments on any account. The other consumer has two slightly damaged accounts. Neither have any accounts in collection or adverse public records.

This picture on ‘How To Complete The New Good Faith Estimate’ was making the email rounds this week. Laugh-out-loud funny for most mortgage professionals, but also any borrowers who’ve seen this new form effective January 1, 2010 will see the humor.