Treasuries opened weaker this morning on news from China that its manufacturing pace has increased. The reaction sent the stock indexes screaming higher, at 9:15 the DJIA +107, the 10 yr note -15/32 at 2.53% +5 bp; mortgage prices holding but down 3/32 (.09 bp) frm yesterday’s close. China’s Purchasing Managers’ Index rose to 51.7 last month from 51.2 in July, the Federation of Logistics and Purchasing said. The median forecast of 17 economists in a Bloomberg News survey was for an increase to 51.5. Not a huge improvement but with negative sentiment having increased recently the data was seen as a relief and sent global equity markets higher. Australia also reported better economic news, although it was the Chinese improvements that lead the move higher in stocks and weaker rate markets. Last month the same Chinese PM report was very soft, this month some reprieve.

At 8:15 the ADP August private jobs estimate hit and surprised with a decline of 10K private jobs in the month with markets expecting an increase of anywhere from +13K to +40K new jobs. The report didn’t help the bond market however, it didn’t dent the strong trade in the stock index futures trading.

At 9:30 the DJIA opened +130, the 10 yr -15/32 2.53% +5 bp and mortgage prices holding well down just 4/32 (.12 bp) frm yesterday’s close.

The MBA today released its Weekly Mortgage Applications Survey for the week ending August 27, 2010.  The Market Composite Index increased 2.7% on a seasonally adjusted basis from one week earlier.  The Refinance Index increased 2.8% from the previous week and is at its highest level since May 1, 2009. The Purchase Index increased 1.8% from one week earlier. The unadjusted Purchase Index was 37.0% lower than the same week one year ago. The four week moving average Market Index is up 5.2%. 
The refinance share of mortgage activity increased to 82.9% of total applications from 82.4% the previous week and is the highest refinance share observed since January 2009. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.43% from 4.55%, with points increasing to 1.34 from 0.89 (including the origination fee) for 80% loans. The contract rate is a new low for this survey. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.88% from 3.91%, with points decreasing to 1.45 from 1.64 (including the origination fee) for 80% loans. The contract rate is a new low for this survey.

More data at 10:00; July construction spending, expected to be down 0.6%, was down 1.0%, the lowest in 10 years. The Aug ISM manufacturing index was expected to be weaker than in July but came in better at 56.3 frm 55.5; new orders at 53.1 from 53.3 and employment increased to 60.4 frm 58.6. The ISM data coincides with the data out of China this morning. The DJIA was up about 130 points and immediately jumped to up 233; the 10 yr note yield jumped to 2.60% +12 bp and mortgage prices fell to -11/32 on the day (-.34 bp) frm yesterday’s close and -7/32 (.22 bp) frm 9:30.

A Brick Wall? The bellwether 10 yr note, the driver for long term rates, has hit the wall, at least for now. Six times in the last six days the 10 yr has run headlong into resistance when its yield has fallen to 2.48%, it did again yesterday. As we have noted, the huge selling that occurred last Friday has given us cause to reflect on how much lower rates might fall. Friday’s jump ion yield on the 10 yr note (17 basis points) was the largest move for the 10 this year and generated technical concerns that a temporary end may be at hand. Still depends heavily on the economic outlook; on the flip side the 10 yr yield shows little signs of increasing, the recent range is tight and rates are so far holding well.

The past two sessions have been confusing technically; rarely do we see the 10 yr note move 17 basis points up in one session as it did last Friday, then the following day rally back to erase almost all the rate increase. The selling on Friday did serious damage to the note but with no follow-though yesterday and a firm opening this morning taking the 10 yr back to its low yield at 2.48%, we are somewhat at a loss to explain what happened Friday and yesterday. Fundamentally, the equity markets were very weak yesterday sending buying back into safety at the long end; Friday the DJIA gained 165, yesterday -141. Bernanke’s speech on Friday, saying he is ready to execute more quantative easing if necessary, that the economy is growing slowly, really sent mixed signals. It is tiring to continue to hear Bernanke with his upbeat talk about the recovery when he fully knows that isn’t the case. The bond and mortgage markets acted rationally on both days, but still the magnitude of Friday’s rate increase remains hard to define from a technical perspective. Friday mortgage prices crashed 18/32 (.57 bp), yesterday prices increased 19/32 (.59 bp).  

This morning at 9:00 the 10 yr +16/32 at 2.48% -5 more basis points while mortgage prices were up 6/32 (.18 bp); the DJIA down 36 points. The June Case/Shiller home price index was expected to be up 3.1%, increased 4.2% yr/yr for the 20 city read and +5.0% for the 10 city data. The increase is totally a result of the tax credit that has expired; July sales prices are expected to fall again. 

At 9:30 the DJIA opened -28, the 10 yr note at 9:30 was sitting on the low rate at 2.48% that has stopped any rallies so far. Mortgage prices at 9:30 +6/32 (.18 bp). 

More data at 10:00; the August Chicago purchasing mgrs index, expected at 56.0, hit at 56.7 down from 62.3 in July; the new orders component fell to 55.0 frm 64.6, employment declined to 55.5 frm 56.6 and the prices pd component at 57.2 frm 58.1. Any reading over 50 is considered expansion. The reaction was positive in the equity markets because the data was expected to be soft, but came in slightly better than some were thinking; the DJIA went from -40 to unchanged on the initial reaction (see below for 10:10 levels). 

August consumer confidence index was expected at 51.0 frm 51.0 (rev’d from 50.4), was stronger at 53.5. The expectations component also increased, from 67.5 to 72.5. The reaction turned the stock market indexes up and is pushing rates higher from early lows at 2.48%—-another failure at that level. 

The long end of the curve (10 yr note) is having difficulty at its recent past low rate of 2.48%. Last Friday’s strong selling and yesterday’s equally strong gain has significance; if the 10 yr fails to push new low yields the likelihood of more treasury selling and lower mortgage prices remains an issue yet to be resolved. 

Bonds and mortgages got spanked hard last Friday, rocked around all week…again with the market given back all the week’s gains and then some on the shorter dated stuff. The data, the Bernanke, the technical, all played into the beat down and got some added help as markets in general decided to put risk back into play, consequences be darned. The 10-yr was able to take out a batch of key levels fairly easily with thinned Fri in Aug volume not helping any while traders reported mortgage players were not in as a presence. 

This morning, after the strong selling on Friday, the bond market is opening better with those key equity market indexes trading weaker after their strong rally Friday. Churning, churning; that is what we have in the equity markets. The key indexes are trendless, every time it looks like a trend will develop it is thwarted by uncertainty whether traders to sell or buy. The bond market is running out of steam with the 10 yr note finding resistance at the 2.50% area. Bernanke last Friday continued his windmill tilting; comments that the economy is continuing to improve but very slowly; that the Fed stands ready to do more quantative easing if necessary (using unconventional means). The Fed is relatively helpless now; the Fed can talk the talk, walk the walk but it is out of bullets. How many times? The US economy is stuck and won’t loosen until the housing markets stabilize and job security increases; neither is on the horizon until at least the end of 2011. 

July personal income and spending was out at 8:30; income up 0.2% in line with estimates, spending was slightly better, up 0.4%. Not any noticeable reaction to the report. At 9:00 the DJIA -37, the 10  yr note +16/32 (-46/32 on Friday) at 2.59% +7 BPs (+17 BPs on Friday). At 9:30 this morning mortgage prices were +8/32 (.25 bp) after falling 18/32 (.56 bp) on Friday. The DJIA opened at 9:30 -30, 10 yr +15/32. 

This week has a lot on the plate of data culminating on Friday with the big bopper, the August employment report. Reports on the August manufacturing and services sectors, weekly jobless claims and July pending home sales.    

This Week’s Economic Calendar: 

          Tuesday; 

              9:00 am Case/Shiller 20 City index (+3.1%) 

              9:45 am Chicago Purchasing Mgrs index (57.0 frm 62.3 

             10:00 am Aug Consumer confidence index (50.0 frm 50.4) 

              2:00 pm FOMC minutes from 8/11 meeting 

         Wednesday; 

             8:15 am ADP Aug private sector job estimate +13K 

             10:00 am July Construction spending (-0.7%) 

                            ISM Manufacturing index (52.9 frm 55.5 in July 

             2:00 pm Aug auto and truck sales (N/A) 

         Thursday; 

             8:30 weekly jobless claims (+2K to 475K) 

                    Q2 productivity revision (-1.7% frm -0.9% initially) 

                    Q2 unit labor costs revision ( +1.1% frm +0.2% initially) 

            10:00 July pending home sales (unch frm June which were down -2.6%) 

        Friday; 

            8:30 am August unemployment at 9.6% +0.1%) 

                         Non- farm jobs -120K but private sector jobs +44K) 

            10:00 am August ISM Services sector index (53.0 frm 54.3) 

Last Friday’s strong selling should not be ignored; the magnitude of the price declines and yield increases in treasuries suggests investors and traders are increasingly fearful that long term rates may struggle to decline more from their recent lows (2.48% on the 10 yr) and mortgage rates at their recent lows. However; there is still no longer term evidence that rates will increase with the economy struggling just to hold on. This week will likely see continued volatility in the financial markets (stocks, bonds and mortgages). Short staffed street and Fed statements produced second largest %change this year on the 10 yr note Friday. 

Treasuries and mortgages are under pressure this morning with the revision of Q2 GDP, expected to have declined from +2.4% in the advance data last month to +1.4%, as released GDP was reported at +1.6%. The equity market rallied on the better than expected growth and sent the interest rate prices down. 1.6% is nothing to shout about but with most big investors still sitting out traders have a field day moving prices around with little overall changes when seen from a wider perspective. Wages and salaries increased by a revised $6.5B in the first three months of 2010 from the fourth quarter, compared with $18.8B initially reported. The figures incorporate new, more comprehensive data from the Labor Department and show why consumer spending will be hard-pressed to accelerate in coming months. The trade gap in the second quarter widened to $445B, compared with an initial estimate of $425.9B, subtracting 3.37% from growth, the biggest reduction since record-keeping began in 1947. Imports grew at a 32.4% pace, the most since 1984.

The 10 yr note is churning between 2.48% and 2.55%, rotating every other day so far this week. Mortgage prices follow, yesterday 30 yr MBS prices increased .34 basis points, this morning at 9:00 am down .28 basis points. At 9:00 this morning the 10 yr back to 2.55%. At 9:30 the DJIA opened +75, the 10 yr 2.54% +5 BP and mortgage prices -.18 bp (-6/32).

St. Louis with comments that the second half of the year should show moderate growth. Using words like moderate tells very little; one man’s moderate is another man’s recession. We remind that the Fed like every other economists’ forecasts has missed reality; early this year the overwhelming consensus was 2010 would be a growth year and in 2011 a growth of 4.0% GDP. That kind of growth isn’t likely and the Fed is finally beginning to admit it. Bullard, questioned on more quantative easing said the Fed stands ready to do whatever is necessary, however he went on to warn the Fed has little wiggle room saying it is a fiscal problem that should be dealt with by Congress—-he didn’t say this Administration—-but between the Congress and the Administration they have collectively fumbled the ball and are seeing the results of economic decline. Fed Pres Bullard on CNBC this morning trying to put a positive spin on the economic outlook

The final data point this week at 9:55, the U. of Michigan consumer sentiment index; it was expected to have shown a little improvement to 70.0 frm 69.6. The sentiment index fell to 68.9 with the 12 month outlook remaining unchanged at 69.0. The sentiment index put some pressure on the equity markets but didn’t generate any noticeable reaction in the bond and mortgage markets.

Ben Bernanke is about to speak, opening the Jackson Hole conference; all week markets have been looking forward to his remarks hoping he has something of substance to say about the economy and possibly some more help from the Fed. The Fed is out of bullets; there is not much more to expect. Lower interest rates won’t help; rates are at historic lows, that hasn’t dented the housing depression, it hasn’t helped revive consumer spending it hasn’t stopped job losses. Driving rates lower would likely cause more harm by weakening the dollar that already is in free fall against the yen, lower rates forced by the Fed will drive the dollar lower and be counter-productive to any recovery.

Weekly jobless claims hit at 8:30 and were better than expected, down 31K compared to the estimates of down 15K. 473K new filings for unemployment isn’t good but in this paranoid market environment it did put a bid in stock indexes and turned the treasury markets from early price gains to unchanged at 9:00. Last week new claims were at 500K, in the data this morning that was revised to 504K, Continuing claims fell to 4.456 mil to 4.518 mil. The better claims is nothing to celebrate, at 473K new unemployment claims and no real increase in new job creation the outlook for increased employment remains bleak as the economy struggles along in what will be a very long period of recovery. The likelihood that job growth is on the horizon is wishful but hopeful thinking.

At 9:30 the DJIA opened +33, the 10 yr note -2/32 at 2.55% +1 BP and mortgage prices at 9:30 holding minor gains, +3/32 (.09 bp) frm yesterday’s close.  

As long as the housing sector is still declining as was evident in this week’s July data on existing and new home sales and consumers unwilling to spend the economy will at best muddle along. Almost every measurement of the economy that has hit over the past six weeks has been soft; manufacturing is slowing, consumers are holding back, there is no market of consequence for home purchases, and businesses uncertain how all the actions out of Congress will impact their business (heath care, FinRegs). While the outlook has changed from exuberance over the recovery to one of uncertainty, markets are adjusting to that “new normal” that was so roundly ignored by most analysts. Still don’t expect that double dip that seems to surface any day the equity market declines, but it is unlikely economic growth and lower unemployment is on the radar. 

Tomorrow’s revision of Q2 GDP and Bernanke’s comments opening the annual Jackson Hole Conference of economists should limit any significant moves in either the stock or bond markets today. Bernanke will open the conference with what is anticipated to be some additional clarity as to what the Fed is expecting and what the Fed’s sketchy plans might be to support the economy. Very low interest rates are going to be with us for at least another year, the Fed has little ammo now other than to keep interest rates low. There is some chatter the Fed will begin to ”punish” banks that are stashing huge sums at the Fed instead of using it to stimulate borrowing and investments. Whatever Bernanke has to say tomorrow it will likely be couched with Fedspeak and clouded with unrealistic positives about economic improvement—-the Fed can’t openly say what most of its officials are now worrying about. 

The MBA said this morning that 13.97% of all mortgage loans are delinquent or in foreclosure; a huge number but a little better than last month. No silk purses out of that pigs ear.

At 1:00 this afternoon Treasury will auction $29B of 7 yr notes to complete this week’s borrowing to fund the growing federal deficit. Yesterday the 5 yr note auction was not the best, it came with a higher yield than what traders were expecting yesterday morning but overall still not  bad. The rate the 5 yr got was about 2 basis points higher than trading in the WI market. Today’s 7 yr should do better as investors are moving farther out the curve on strong belief that recovery will be moderate at best, that the Fed will have to maintain low rates at least through 2011, and deflation might be brewing. Tuesday’s 2 yr auction and yesterday’s 5 yr auction are both underwater based on what the yields were at each auction, but only slightly. 

We are not expecting much change in stock indexes or the rate markets today ahead of tomorrow’s GDP report and Bernanke’s comments from Jackson Hole. The rate market remains bullish, the equity market bearish. Looking for the DJIA to decline to 9000 before the end of the year and long term rates to decline another 25 basis points on the 10 yr note but mortgage rates down another 15 basis points frm present levels.

World equity markets are taking a huge hit this morning; the US key indexes are under heavy selling. at 9:00 the DJIA -110, money running head long into safe havens. The 10 yr note yield sliced easily through the resistance that has stopped recent rallies at 2.55%, the 30 yr bond yield is down to 2009 lows at 3.59% -7 basis points so far this morning. Mortgages are being dragged along but not much as the port in the storm now is the treasury market.

The DJIA opened down 100 at 9:30, the 10 yr at 9:30 2.53% -8 bp and mortgage prices +7/32 (.22 bp).

In Europe there has been increasing talk out of key officials that a double dip cannot be ruled out, in China its recovery has slowed and now questions arising about its health, and here in the US recent economic data has been weak with growing pessimism. We don’t like being right when being right is a dismal outlook for the US recovery, but we have been concerned for months that this so-called economic recovery was being built on sand and had no real fundamental support. It is increasingly becoming apparent that the US and global economic slump is far from bottoming. Last week’s Philly Fed data, weekly jobless claims, and housing starts and permits were the most recent nails.

I am not going to kick the horse again but we continue to drive home the point, until now however we had been on the fringes with our negative outlook. There is no magic bullet here; we can’t grow out of this recession by building inventories that generated profits for the handful of investors and traders; someone has to buy the inventory and that someone isn’t buying (consumers). In every recession since the Depression it has been housing that has led the way out of it; this time the Fed, the Administration and the Congress made a huge mistake by not making housing its sole concern (after saving the greedy banks and the Street that caused it all). The stimulus has failed; now the leaders of the House and Senate have been advised to never use the word stimulus again, they are told to call it “the recovery plan”. The Federal Reserve is lost; based on all the officials and Bernanke when we read between the lines they have no answers or plans and are riding the slide just as we all are, the only answer from the Fed is to drive interest rates lower. Low rates are welcome but by now it should be very apparent that low rates are having little impact except making money for banks. Banks won’t lend, businesses won’t borrow or hire, the purchase markets for homes is in depression, big banks won’t admit their losses, and above all the job markets are now worsening based on recent data. And, leadership? There is no leadership.

At 10:00 July existing home sales were expected to have declined 13%; as released sales cratered; down 27.2% the lowest sales since June 1995! June sales were revised lower, to 5.37 mil annualized units to 5.26 mil units. Yr/yr sales are down 25.5%; with that pace there is a whopping 12.5 months supply now on the market. This data doesn’t need any further comments.

At 1:00 this afternoon Treasury will auction $37B of 2 yr notes; likely it will be well bid.

Treasuries and mortgages opened unchanged this morning after another failure Friday on the 10 yr note not able to break its rock solid resistance at 2.55% on Thursday when weekly jobless claims jumped to 500K and the August Philly Fed business index went negative for the first time in months with the overall index registering -7.7 and the new orders component at -7.1 and employment contracting to -2.4%. Thursday and Friday the DJIA fell 202 points yet the 10 yr note yield increased. Markets are left with the question; has the rate market totally discounted the economic stagnation in the current levels of rates? Mortgage rates hardly moved last week.

At 9:30 the DJIA opened +25, the 10 yr note traded unchanged on the session and mortgage prices were slightly better (+0.6 bp).

There is no economic meat to chew on today. Treasury will auction $7B of 30 yr inflation indexed bonds at 1:00; not much attention to it however—-there is no inflation now and likely not for a long time to come, with the economy faltering there is literally no pricing ability from manufacturers or the service sector.

July existing and new home sales this week are likely to confirm what we all know; that the housing sector has very little life. Treasury will borrow $102B with the monthly 2, 5 and 7 yr auctions. Demand for US debt has been strong over the past 18 months and we see little reason to that this week will be no different, but if there is any decline in demand with rates at these levels we would expect treasuries and mortgage rates to edge higher.

Weekly jobless claims on Thursday will draw a great deal of attention. Unemployment claims have been increasing for the past month, defying those that still believe jobs are being created. Last week claims were once again expected to have declined but jumped 12K to 500K, the level thought to be pivotal and up 50K a week from the averages in May and June. Another increase this week would signal once and for all another round or firings is underway.

This Week’s Economic Calendar:

            Tuesday;

                10:00 am July existing home sales (-13% at 4.65 mil units ann..)

                 1:00 pm $37B 2 yr note auction

           Wednesday;

                 7:00 am Weekly MBA mortgage applications

                 8:30 am July durable goods orders (+3.0%, ex transportation orders +0.5%)

                10:00 am July new home sales (+3.0% to 340K units ann..)

                 1:00 pm $36B 5 yr note auction

          Thursday;

                8:30 am weekly jobless claims (-15K to 485K)

                1:00 pm $29B 7 yr note auction

          Friday;

               8:30 am Q2 GDP revision (+1.4% frm +2.4% in the advance report last month)

               9:55 am August final U. of Michigan consumer sentiment index (70.0 frm 69.6)

The equity markets are on a treadmill; going nowhere but running hard. A traders delight with not many large investors making bets in this uncertain outlook. As is the case, the bond and mortgage markets ebb and flow as the stock indexes cavitate with no trend. The DJIA index opened better this morning after two consecutive declines last week, the rate markets about unchanged but with a slight negative bias at 10:00 with equity markets stronger. Unlikely there will be any decline in interest rates today ahead of the auctions and with stocks better; however, we don’t expect any major increase in rates either. Technically we are concerned that the 10 yr note and 30 yr mtgs are looking as if momentum is waning; still longer term bullish at the moment but the near term shows the markets losing their momentum.

This week has treasury borrowing a total of $102B in 2 yr, 5 yr, and 7 yr notes; the total is $2B less than last month’s series. On the economic calendar July existing home sales are thought to have plummeted 13% while new home sales are expected to be up 3.0%. Existing home sales in June dropped 5.1%, following a 2.2% decline the month before. Sales for the latest month (June) came in at a 5.37 million annual rate and are up 9.8% on a year-ago basis, compared to up 19.2% in May. New home sales made much more of a comeback than expected in June, rebounding 23.6% after plunging 36.7% in May. The June pace recovered to an annualized 330,000 from a revised 267,000 for May. The June percentage was large and that primarily was due to coming off a record low base.

The week also has those weekly jobless claims; as of this week-end the expectations are for claims to decline 15K frm 500K to 485K. Markets will also get the Q2 GDP revision expected to be at +1.4%, down frm 2.4% reported last month in the advance release. Look for the rate markets to continue testing current low yields with the potential of some back up with the levels of rates now at such low levels investors may be backing off. The demand for this week’s auctions will be a measuring stick; weak demand for the three auctions will likely send rates up a little. Over the past two weeks mortgage rates have settled in a narrow range while the yield on the bellwether 10 yr note has fallen 20 basis points over the past two weeks.

Treasuries opened better this morning with the key stock indexes pointing to a lower 9:30 open. No economic releases to think about today so markets will be left in the hands of traders. A technically critical day, the 10 yr on every rally recently has not been able to move below 2.55%; this morning at 8:30 it traded at that level but unable to break through. The same situation exists in the mortgage markets, Wednesday the 30 yr FNMA coupon tested and held its very key 20 day moving average that has held any price declines since mid-April. Yesterday mortgage prices jumped, probably more on technicals than fundamental rationale.

It is all about chasing higher yields these days with investors shying away from equities and looking for safety and the best rates possible. The 30 yr bond is the focus; its yield continues to decline, last Friday the 30 closed at 3.86%, this morning the rate is 3.62% down 24 basis points while the bellwether 10 yr rate has declined just 11 basis points and mortgages are unchanged on the week.

Stock markets in Europe this morning are under pressure and trading at the lows of the past month. Weak economic data in the US and Europe are keeping investors away and looking for safety with some potential to earn some returns, driving some into the 30 yr US bond. This is the time of the year when most investors sit out ahead of Labor day, August Dog days; traders dominate and exaggerate any moves in both directions.

At 9:30 the DJIA opened -33, the 10 yr note traded at 2.58% +1 BP and mortgage prices -4/32 (.12 bp).

Yesterday’s two data points, weekly jobless claims and the Philadelphia Fed business index, broke the back on the view that the US economy is recovering. Nevertheless, all we heard yesterday was ‘don’t worry-be happy’ comments from the heads CNBC chose to interview. Jobless claims hit one half million last week and have been climbing steadily for the past month after declining for a couple of months. The Philly Fed index went negative in August (-7.7) with new orders and employment components also reading contraction levels. Retail sales of chain stores have been less than expectations, the housing sector—-we don’t need to repeat ourselves, and consumers are rightfully increasing savings and paying down debt—-deleveraging.

We would dearly love to have a more optimistic outlook but unlike the media and many Street people, the Fed, and politicians that have no other alternative but to preach the good news or lose their jobs, we have to do our job. The US economy isn’t headed to a double dip, but the outlook going forward is for the economy to struggle along; a little better but no return to low unemployment or significant increases in consumer spending or a return to the kind of housing sector we were used to until 2008. It is that new normal that Mohammad El Erian at PIMCO coined and was roundly criticized by many. The new normal isn’t really new, it is more a return to an economy that will expand but with less leverage and more prudent spending by consumers.

No data on the calendar today. The Treasury markets opened a little better this morning but mortgages sitting about unchanged. The bond market got a little ahead of itself on the recent strong rally and is now consolidating and giving more thought to how aggressive the Fed will be on its announcement last week to buy more treasuries. The Fed’s plan; drive rates so low that homeowners will step up and re-finance their homes (assuming they can with appraisals and tight underwriting). So far that plan appears to be working based on today’s MBA mortgage applications data released early this morning. That said, treasury rates have made a major move lower but mortgage rates, although lower, haven’t had the move lower much.

Yesterday the stock market rallied after five consecutive days of declining; interest rates increased on treasuries and slightly on mortgages. Both the stock and bond markets had run out of gas on their respective moves, becoming oversold on equities and overbought on rates. Likely a couple of more days of consolidation before the longer term trends resume. At 9:00 this morning the DJIA index traded +29, the 10 yr note +10/32 and mortgage prices -2/32 (.06 bp) on 30s. At 9:30 the DJIA opened -30, the 10 yr +13/32 at 2.59% -5 bp; mortgage prices +2/32 (.06 bp) on 3.5 coupons and +6/32 (.18 bp) on 4.0 coupons.

The MBA today released its Weekly Mortgage Applications Survey for the week ending August 13, 2010.  The Market Composite Index increased 13.0% from one week earlier.  The Refinance Index increased 17.1% from the previous week and was the highest Refinance Index observed in the survey since the week ending May 15, 2009. The Purchase Index decreased 3.4% from one week earlier. The four week moving average for the seasonally adjusted Market Index is up 2.6%. The refinance share of mortgage activity increased to 81.4% of total applications from 78.1% the previous week, which is the highest refinance share observed since January 2009. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.60% from 4.57%, with points increasing to 0.92 from 0.89 (including the origination fee) for 80% loans.  The average contract interest rate for 15-year fixed-rate mortgages increased to 3.99% from 3.95%, with points decreasing to 1.05 from 1.08 (including the origination fee) for 80% loans.  The average contract interest rate for one-year ARMs decreased to 6.90% from 7.00%, with points decreasing to 0.21 from 0.22 (including the origination fee) for 80% loans.

Game On. Yesterday began the long debate on what mortgage financing will look like two years from now—-the time we expect it to take to actually implement any overhaul of how mortgage markets will function. Yesterday Treasury Sec Geithner and HUD head Donovan began discussions seeking input on what to do with the two giant agencies. Many Republicans want to abolish Fannie and Freddie, maybe a good idea but to expect US mortgage financing to be totally a private sector business is not only likely, but not realistic unless we want double digit mortgage rates. The mortgage finance industry is too large for anyone to expect it can be totally privatized. Geithner has promised a comprehensive plan by next January, in the meantime there will be a lot of balloons floated. In the end there will likely be some government support in the form of guarantees that will encourage privatizing by providing a backstop for losses. The idea that government can be totally eliminated is not very likely.

If equities resume their fall the bond market will benefit today; mortgages however are likely to continue to lag the decline in treasury rates. The recent low on the 10 yr note was 2.55%, our target remains for the 10 to fall to 2.50%. Tomorrow markets chew on weekly jobless claims, likely that will determine whether rates fall more or continue to chop higher in the otherwise longer term bullish patterns.

100% Financing In AZ

The United States Department of Agriculture (USDA) allows for individuals to purchase a new home without the home buyer putting any money down. This is not a new loan, this loan has been in existence for some time, but not used until recently.  Due to the current climate of our market in Phoenix AZ and its surrounding areas, this loan is being utilized more frequently by those individuals that have the ability to offer this loan.  Many communities throughout the state of Arizona are approved to use this loan for new home purchase financing. This loan works similar to FHA or VA as far as what it requires for a new home buyer in the Phoenix AZ area to qualify. However, you are subject to income restrictions and only certain geographical areas qualify. Not every community in the state of Arizona is approved for USDA financing.

This loan is now one of the most popular ways to finance a home in the qualified areas. This loan provides 102% financing which allows you to finance the 2% Funding Fee that is required on all USDA loans.

Typically, you are required to have a minimum of a 620 credit score to qualify. You can have past bankruptcies and foreclosures and still qualify to buy a home for sale in the Phoenix AZ area with a USDA mortgage loan. Many of the lenders offering USDA will require that your DTI ratios are 31/43, but exceptions can and will be made based on the overall strength of the file.

There is no limit to the amount a seller can contribute to your closing costs and pre-paid items. Typically, lenders allow a maximum of 6% seller concessions.

There is no PMI. This makes the payment usually lower than an FHA loan.

There is no cash reserve requirements.

There is no sourcing or seasoning of cash required to close. Most lenders will require a paper trail, but will allow gifts. (Sourcing of funds)

If you want to check the area’s that are approved or check to see if your income qualifies then visit USDA Income and Property Eligibilty Site.

If you wish to speak with me directly about this unique loan product, please complete the quick contact form below.

Top 10 Mortgage Financing Questions

1) Do I need 20% down to buy a home?

No. You are able purchase with as little as a 3.5% down payment. In certain instances, you can buy with no money down.  If you choose to finance more than 80% of the purchase price, you will most likely be required to have mortgage insurance.

2) Can the seller pay my closing costs?

Yes. The seller can pay for your closing costs and pre paid items (taxes and insurance).  Lenders will have guidelines as to how much a seller can contribute to your closing costs.  Most lenders allow between 3%-6%.  Please check with your lender prior to making an offer. The seller is not permitted to give you your down payment.

3) How is my interest rate determined?

Your interest rate is determined by a variety of factors. The most critical are your credit score, down payment %, property type and upfront closing costs paid. Typically, the more closing costs that you pay upfront, the lower your rate will be.  Your seller concessions will be valuable in this area.  Always ask for options from your lender/broker about rates and fees.  Your lender/broker will give you the necessary information to make an intelligent informed decision.

4) Do I need perfect credit scores to be able to buy a home?

No. With certain types of loans you can have a credit score as low as a 530. Credit scores range from 300-850.

5) What is Pre-Approval and does it cost money to get Pre-Approved?

A pre-approval is free and highly recommended. A pre-approval helps you establish an amount that you are able to qualify for when purchasing a home. Once you are       pre-approved you can make an offer on a home. The pre-approval letter shows the seller that you are able to purchase their home and have already pursued financing.  Most sellers will not entertain offers without a pre-approval from a bank/broker.

6) Do interest rates change daily?

Yes. Interest rates changed daily and sometimes hourly based on the positive or negative activity in the mortgage bond market. Mortgage bonds trade a lot like stocks on Wall Street, this is why rates change so frequently.

7) When can I lock my interest rate?

You can lock your interest rate once you have the property you wish to purchase under contract. Once your interest rate is locked the rate cannot change.  This either works for you or against you.  You will either avoid a market crash or miss out on the market improving.  Rule of thumb is to lock your rate if you like it.  The market is too volitale currently to take a risk looking for a lower rate.  Every .125% on the interest rate on a $100,000 loan amount equates to approximately $8 per month.  In most cases, it is not worth the risk to wait.  “If you like it, lock it!”

What is an FHA loan?

An FHA loan is a government insured loan.  This type of loan requires a minimum of 3.5% as a down payment.  Gifted funds for a down payment are allowed.  You may also have a co-signer that does not intend on occupying the property if this helps you to qualify.  FHA loans tend to be a little more flexible on their underwriting guidelines.

9) Does the $8,000 dollar first time home buyer credit expire?

Yes. The tax credit is set to expire on December 1st, 2009.  Please anticipate lenders getting inundated with loans in the months of October and November.  This will slow down underwriting and loan closings.  Do not miss out due to procrastination.  Weigh your options, is making an offer on this short sale or bank owned property to save $5,000 of the purchase price worth not being able to take advantage of the first time home buyer tax credit?

10) What am I looking for when I chose a lender?

Cost isn’t everything! Look for experience.  With the market changing constantly, you will need an experienced mortgage professional to assist you in making the biggest purchase of your life.  Loan products change daily and lenders are going out of business, so you need to make sure that the lender/broker you chose will be there and be able to deliver the financing on your new home purchase or refinance.  What good is a slightly lower rate or slightly lower fees if you never get the loan?  Too many potential homeowners end up paying unnecessary fees or losing purchase opportunities due to choosing a lender/broker that wasn’t experienced and able to deliver.  Don’t bargain hunt for financing on the biggest purchase that you will ever make.  Be prepared to spend a little more if need be to insure that you get you a quality loan, it will be worth it!

Home Purchase Assistance in AZ

Did this title get your attention?  I thought it would.  The title is correct, there is a home purchase assistance program available in the State of Arizona.  Please do not confuse this program with down payment assistance.  This is a common misconception with various state programs that are available to potential buyers looking to buy the homes for sale in Phoenix AZ and the rest of the state.  All programs of this type are home purchase assistance programs, not down payment assistance programs.

Funding has been made available through the U.S. Housing and Urban Development (HUD) Neighborhood Stabilization Program (NSP) for potential homeowners in the state of Arizona.  This is a financing tool that will make it easier for eligible, credit-worthy homebuyers to obtain mortgages.  The Your Way Home AZ Program has been created in order to help homebuyers purchase foreclosed homes for sale in the State of Arizona.  The potential home owners and properties must meet certain requirements, including income level, location and purchase price of the property and other conditions.

The program is administered by the Arizona Department of Housing (ADOH).  ADOH has designated $20,000,000 of the NSP funds for the Your Way Home AZ Program.  Many of the programs requirements are directly mandated by HUD and are non negotiable.

Under the federal legislation and NSP regulations, these funds may be used to “establish financing mechanisms, … including such mechanisms as soft seconds,” to assist in purchasing homes that have been foreclosed upon.  Potential home buyers of these homes for sale in the State of Arizona must have a household income no greater than 120% of the median income for the area they intend to purchase a home in.  HUD is requiring that the purchase price of the home be at least 1% lower than the appraised value of the home.

Your Way Home AZ will provide a second mortgage to eligible home buyers for up to 22% of the purchase price of the property.  The second mortgages will have a term of 5 to 15 years depending on the amount of assistance and will be forgiven at the end of the term if all program requirements have been met and the borrower continues to occupy the property.

If you would like to learn more about this program and if you or your customers qualify, please complete the contact form below.

Reverse Mortgage Basics

What is a reverse mortgage?

If you are over the age of 62 and have paid off more than 35% of your mortgage balance, a reverse mortgage will allow you to borrow against the equity in your home. Instead of continuing to make mortgage payments, you get paid back the money you already have in it—that’s the “reverse” part.

How do I get my money?

The reverse mortgage program provides the widest array of cash-advance choices, giving you “flexibility for life.” You can take your money in several ways:

• Take a single, lump sum of cash (tax-free).
• Establish a “credit line” account that you control.
• Have the lender send you a monthly payment for life.

In addition, you can choose any combination of these options, and even have the ability to “change your mind” later. You can modify these options at any time down the road, and will not be charged to do so. Remember, the choice is always yours to make.

What can I do with the money?

This is the best part! Once you receive your money, it is totally up to you. Some seniors will choose to save the money, some will establish an emergency fund for long-term care, and many will simply “enjoy life to the fullest.”

What about my children?

Many children of reverse mortgage borrowers are pleased that their parents are able to use their equity and remain living in their homes. Often it is a great relief to these children, that their parents are able to take care of their own needs; many even encourage their parents to do so.

Whether or not you decide to discuss this matter with your children or other Heirs, depends on a variety of personal and family factors. You may value their advice or want to know what they think. Or, you may think it best not to discuss it before making a decision, or not to tell them after you have closed a loan.

On the other hand, to avoid future misunderstanding, you may want to make a note of your decision in your will. Whatever you decide, the important thing is to give some thought to your heirs. We believe you should.

Who should NOT get a reverse mortgage?

A reverse mortgage is not right for you if you have:

• Low home equity (still owe 70% of home’s value) For example, if you own a $100,000 home but still owe $70,000, we do not recommend a reverse mortgage
• Short time left in home (less than 2 years) You wouldn’t buy a house if you planned to move out in just 2 years. The same is true of a reverse mortgage. The closing costs of a reverse mortgage get spread out over time making the reverse mortgage quite inexpensive due to low interest rates. However, in two years there is too little time to spread out the costs.

Pima County Bond Program

Pima county has a unique mortgage revenue bond program that assists First Time Homebuyers in obtaining 100% financing when purchasing a home inside the county limits.  Please see a brief description of the program below:

Qualifications:

Borrower has to be considered a First Time Home Buyer.  This means that you can’t have purchased a home within the last 3 years (NO EXCEPTIONS). You must meet the income level qualifications.  Combined income for 1-2 individuals can’t exceed $66,000 per year.  Combined income for 3 or more individuals can’t exceed $77,000 per year.  The individuals per household and home ownership in the last 3 years will be verified through tax returns.  The borrower will need to have acceptable credit to qualify for a loan. The maximum purchase amounts are as follows:

1 – Unit $374,506 2 – Unit $479,427

Loan Types:

Allowable programs include FHA, but conventional and VA loans are acceptable too.  In the case of an FHA loan, the down payment and/or closing costs can be covered by a 2^nd loan of up to 7% of the purchase price on a 30 year fixed rate. This is especially valuable at this time when DPA has been legislated out of the business for the immediate future.  If a VA loan is used, there is no First Time Home Buyer requirement.  The property must be a primary residence and not an investment property.

Collateral Types:

As long as the residence is in Pima County, it qualifies.  This means any new or existing SFR, town home, condominium or permanently affixed manufactured home are acceptable.  If you utilize FHA financing, the collateral must meet FHA guidelines (especially important with MFG homes and condo’s ).  2 unit properties are also eligible as long as they are 5 years or older and the borrower is occupying at least 1 of the units.

Valuable info:

This is not a Grant program.  This program is funded with tax exempt mortgage revenue bonds, it allows FTHB to purchase homes with no money down.  You can finance 100% of the purchase price AND closing costs if needed.  Earnest money can be refunded at the time of close.

An escrow account doesn’t just protect you, the borrower, it also protects the lender’s vested interest in your property.

Think of an escrow account as a safety net for your home. It financially safeguards both you and your lender against liens and property damage.

Since most of us do not have the means to buy a home outright, we rely on lenders and mortgages to help fulfill our dreams of homeownership. In turn, lenders rely on escrow accounts to ensure property taxes are paid on time and home insurance policies are kept up to date. Without the assurances provided by an escrow account, a lender’s financial risk could increase significantly.

To fully appreciate the benefits of escrow for lenders, let’s first review what escrow is, and how it works for borrowers.

What is an escrow account?
An escrow account is an account held by a third party agent who represents both the borrower and lender. The borrower makes regular deposits into the account — usually as part of a regular mortgage payment. Then, when property taxes and insurance premiums become due, the third party agent releases the funds to cover the payments.

Rather than paying your taxes or insurance in a large lump sum, many homeowners prefer the idea of spreading their property taxes and insurance premiums evenly over 12 monthly payments. Plus, with escrow, you don’t have to remember to send your payments on time. This means there’s less risk of missed payments or lapses in your insurance coverage.

The benefits of escrow to the lender
If your down payment is less than 20 percent of the property value, your lender will likely insist that you open an escrow account at the time of your mortgage closing. Even if your down payment is greater than 20 percent, your lender may recommend or require that you have an escrow account.

 The reason is simple: Escrow accounts provide lenders with added security and peace of mind that their collateral — your home — is protected in a couple of important ways:

1. Your property taxes will always be paid on time, which ensures tax authorities will have no reason to place a lien on your home or foreclose on it.

2. Your home insurance premiums will always be up to date, which means your property will be covered in the event of damage or destruction caused by a fire or natural disaster.

Lenders need these assurances just as much as homeowners.

Imagine if your property taxes fell into arrears and a lien was placed on your home. It goes without saying that it would be an unfortunate experience for you and your family. But your lender would also suffer because without the collateral of your home, it may not be able to get its money back should you default on your loan.

In another scenario, let’s say your property insurance has lapsed due to a few unpaid premiums. And then, during a storm, your house is destroyed. Just as you’re left without a home, your lender is left without any collateral, since there’s no insurance to cover the loss.

You can see why so many lenders insist their borrowers use escrow accounts.

For many new homeowners, escrow accounts are the norm. Even though the funds in escrow typically do not earn interest, the account provides a convenient, hassle-free way to ensure your taxes and premiums are always paid on time. And that can offer peace of mind to you and your lender.

Things to know about an FHA Streamline Refinance:

With the number of REO properties increasing, Fannie Mae has decided to follow Freddie Mac in offering the HomePath Mortgage. HomePath financing is available for Fannie Mae REO’s with the HomePath logo found on http://www.homepath.com.  Here is a quick synopsis of the HomePath Mortgage:

• Minimum 5% down for primary residence, 10% down for investment properties
• Borrower can own up to 10 financed properties (but need 25% down if they own more than 4)
• NO APPRAISAL NEEDED
• NO MORTGAGE INSURANCE
• High balance (jumbo) and interest only products available
• Seller contributions can be 6-9% on primary residence (the larger the down payment, the larger the allowable contribution), only 2% on investment property
• This loan does price with a higher rate than your average 30 year fixed conforming loan.  If you want an equivalent rate to the going 30 year fixed, this loan would price with an additional approx 1.5% to 2.5% discount points.  Keep in mind, much of this can be covered by the seller and there is no mortgage insurance.  Of course one can just opt for the higher rate in lieu of the discount points.
• Same basic underwriting requirements of a conforming loan, but without the property issues (appliances missing – no problem)

This program is especially perfect for seasoned investors or even first time investors. For anyone who has been in investing knows that guidelines for investment properties tightened greatly over the past few years. Now, you have the opportunity to buy very reasonably priced homes with as little as 10% down with fantastic interest rates and NO MI. I personally think this is a fantastic program that will help you take advantage of a wonderful market to buy your first home or buy your next home! Take advantage of a down economy and invest in your future.

Reverse Mortgage Myths & Facts

“The lender will own your home.” FALSE!
You and your family or your estate continues to retain ownership of your home. The lender does not take control of the title. The lender’s interest is limited to the outstanding loan balance.

“Reverse mortgage lenders just want to sell your house.” FALSE!
Our lenders are in the business of helping you keep your home and maintain your financial independence. Reverse mortgage customers may remain in the home as long as they wish.

“Your heirs will be saddled with the loan.” FALSE!
The reverse mortgage is a non-recourse loan. This means that the lender can only derive repayment of the loan from refinance or sale of the property.

“You need a certain level of income, good credit or good health to qualify.” FALSE!
A reverse mortgage has no income, credit or health requirements.

“You have to make monthly payments on your reverse mortgage.” FALSE!
There are never any monthly payments. Payment of taxes, insurance and upkeep of the home are the only responsibilities of the homeowner.

“Your home must be debt-free to qualify for a reverse mortgage.” FALSE!
You may have a mortgage or other debt on your home. The mortgage must be paid off first with the proceeds of the reverse mortgage.

“The borrower could ending up owing more than the home is worth.” FALSE!
Two of the great safeguards for reverse mortgages are that they are structured so that the borrower or his estate can never owe more than the value of the home upon repayment.

“Once the proceeds are received, taxes will need to be paid.” FALSE!
The cash proceeds from a reverse mortgage are tax free because it is already your money.

VA Funding Fee

On VA Loans, the VA funding is a fee paid by Veteran home loan borrowers when they use the VA’s home buying program. It is paid upfront and is allowed to be included in the final loan amount itself. VA loans do not have monthly mortgage insurance – sometimes called PMI or Private Mortgage Insurance. This VA funding fee goes directly to the VA and allows them to continue to offer veterans home loans. This funding fee in essence “takes the place” of that mortgage insurance. The VA guarantees the loan to the lender and the fee varies depending on the type of loan, if it is a first time use, manufactured home, disabled veteran and so on.

The Funding Fee is paid by nearly every veteran home buyer.  The only exception is for veterans who collect disability from the VA.  The fee is waived in that case. It is paid on all VA home loan transactions unless VA disability is received by the veteran.  The VA funding fee can vary based on the type of service, whether you have been active duty or reserves and if the loan is a purchase, streamline refinance or cash out transaction.

Purchase & Construction Loans

Cash-Out Refinances

* The higher subsequent use fee does not apply to these types of loans if the veteran’s only prior use of entitlement was for a manufactured home loan.

Other Types of Loans

Understanding a VA Good Faith Estimate (GFE)

Veterans must understand how to read and interpret a good faith estimate (GFE).  This is probably one of the most important documents when deciding what company to choose to handle the financing on the VA LOAN.  This GFE disclosure IS REQUIRED by the Real Estate Settlement Procedure Act (RESPA).  If you don’t get one then the broker or lender is not adhering to laws that govern the mortgage industry.

WHAT IS A GFE?

In a nutshell this disclosure should list all the costs associated with the VA loan.  It will show the new monthly payment, payoff amount or purchase price amount, taxes and insurance and funds required to close or funds the VETERAN is getting back (refinance) and debts being paid off if applicable.  There are specific costs and they are broken down into categories or numbers. Some of these costs are as follows:

800’s – ITEMS PAYABLE IN CONNECTION WITH LOAN

These are all the charges that the lender or broker will charge.  In this section, would be listed the ORIGINATION or DISCOUNT FEE.  The appraisal and other broker or lender fees will be listed here too.  Please remember the veteran will not pay the “junk fees”.  The DEPT of VETERAN AFFAIRS will not allow an originating company to charge these fees which in return should benefit the veteran.  Here is a list of the NON allowable charges.  NON allowable means that the Veteran cannot pay them; on a refinance the broker or lender must pay them or not charge them at all, and on a purchase the seller can pay them.

NON Allowable Fees/Charges

• Attorney Fees
• Brokerage Fees
• Prepayment Penalties
• HUD/Inspection Fees
• Signing Fees
• Escrow/Closing Fee

813 – COMPENSATION TO BROKER

Yield Spread Premium (YSP) is the fee the bank or lender (the entity lending the money and who you will make first payment to) has the ability to pay the broker a fee or premium for sending your loan to their company.

1100 – TITLE CHARGES

All of the Title Charges will be listed here.  They are title insurance, title exam, wire and endorsements.  Just like the broker there are fees here that the title company cannot charge a Veteran.

1200 – GOVERNMENT RECORDING & TRANSFER CHARGES

The fees listed under this section would be recording fees, city and state tax stamps.  The recording fee is what the county recorder will charge for recording the new Deed of Trust.  State and City tax stamps are state specific.  Some states have tax stamps and other do not.

1300 – ADDITIONAL SETTLEMENT CHARGES

This area would list any pest, termite inspections and home inspections.

900 – ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE

This heading makes it sound like the VETERAN must pay for these before the loan can close.  This is not the case.  Is simply is referring to monies collected before the first payment.  The charges listed here are the interest that needs to be collected before the first payment is due.  With VA loans interest is billed in what is referred to as “arrears” which means when a payment is made in June the Veteran is paying for the interest accrued in May.  So let’s say you close on the 20^th of the month.  You will have 10 or 11 days of interest collected in this section.  With VA LOANS the VA FUNDING FEE is listed in this section.  If the veteran is receiving VA disability then there will be no funding fee.  Veterans should pay close attention to this.  An experience broker knows not to charge a VAFF when disability is being received by the veteran.

1000 – RESERVES DEPOSITED WITH LENDER

With VA loans your taxes and insurance will need to be collected with your monthly payment.  An escrow account is used to hold the money that is owed for taxes and insurance.  When a Veteran makes a payment a portion of the payment gets deposited into an account.  This account will continue to build payment after payment until the taxes or insurance are due.  The lender will make the payment for the Veteran.  This is very helpful because it will prevent unforeseen expenses on the home owner and delinquent taxes and insurance.  The amount collected upfront varies and is based on the dates that your taxes and insurance are due.  For example, let’s say that taxes are due in December and the Veteran is refinancing and their first payment is due in March.  The Veteran will have made 10 payments before taxes are due, but you must have enough for the year plus 2 months as a cushion.  So in this section we would collect 4 months.  This same principle applies to the insurance.

TOTAL ESTIMATED FUNDS NEEDED TO CLOSE/ TOTAL ESTIMATED MONTHLY PAYMENT

This just gives the overall costs and details of the transaction and the total new monthly payment.  This is a very important disclosure and should be looked at very carefully.  Remember also, that this is just an estimate.  Usually this will never be 100% accurate to the final costs.  Those are listed on the HUD 1 or Settlement Statement, however, the GFE should be as close as possible and should give Veterans a good idea what to expect cost wise when buying or refinancing a home.

Veterans-Why do you Need Title Insurance on a VA Loan?

Between home owners insurance, property taxes, flood insurance, the VA funding fee and your mortgage payment, you may think to yourself, “What is title insurance and why do lenders require veterans to have it on VA loans?” Title insurance is a policy that protects your mortgage lender against problems relating to the property’s title prior to the date when you purchased your home. Because your home may have gone through several ownership changes, it is important to be protected against anything that could have gone wrong with your title prior to your ownership.

Title insurance insures the lender against a financial loss in case the title has any unknown judgments, outstanding liens against the property including foreclosure, unpaid real estate taxes on the property and the title insurance protects you and your lender if a lawsuit is filed against the title. An example of what title insurance protects the lender against would be if someone who previously owned the property had forged a signature in transferring title. Instead of the lender or you having to pay for this problem out of pocket, title insurance covers the insured party for any claims and legal fees that arise from such problems.

Before issuing a title insurance policy, the title insurance company will search the public land records for matters affecting title to the property. The purpose of this examination is to determine ownership of the property and to identify any possible problems and all liens against the property. If problems are revealed by the title search, frequently they can be resolved so that clear title can pass to you.

Title insurance is required in most states to close on a mortgage for both a purchase and a refinance. On a VA refinance you will need to purchase a new title insurance policy so that the new lender can be protected the same way that the old lender was.

So even though title insurance may seem like a useless expense it actually will save you and your lender in the long run in case you end up having any problems with the title on your home.

SHORT SALE NEGOTIATIONS

 The biggest obstacle with most short sale negotiations has little to do with the buyer’s agent and quite a bit to do with the listing agent. If the listing agent is inexperienced with short sales and makes a mistake when pricing the home, coupled with minimal to no short-sale negotiation skills, the process will be time consuming and a very frustrating.

Short sales involve asking the existing mortgage note holder(s) to accept less on a sales price than the amount(s) currently owed. They are typically accepted by the bank due to the fact that the customer is what is commonly referred to as ” upside-down”  in their home. This means that more is owed to the bank(s) than the home is worth in today’s market.

Be advised that the seller is not required to be in default for a short sale to occur; however, the credit ramifications can be exactly the same for a short sale as a foreclosure. The impact to your credit will be negative. This will negatively impact your ability to obtain credit in the future especially as it pertains to mortgage loans.

Short Sale Negotiation Potential Obstacles

Many lenders do not like return phone calls in a timely manner or at all. Banks will place a call to the listing agent when it’s convenient or when they are ready to proceed with working on your request.

• If your file is incomplete, your request for a short sale will not be accepted and will further delay your short sale negotiations.
• You will start with the loss mitigation department and talk to numerous individuals each time you call. (take notes and write down names)
• If foreclosure is looming, ask for the file to be escalated to a negotiator immediately, but do not expect them to have a sense of urgency. (follow up daily)
• The seller must be facing a hardship. If you can’t substantiate the hardship, it is likely that your short sale will not be approved. Short sales are not intended for homeowners who want out of a bad investment decision or want to purchase another house cheaper due to the current climate of the market.
• Send comparable sales with your offer that support the offering price because if the bank feels that it can get more money through foreclosure proceedings, it won’t entertain offers at a list price too far below market value.  The banks goal is to minimize their loss on the loan.

Negotiating With the Short Sale Negotiator

Expect to be dealing with multiple negotiators throughout the short sale negotiations. There is no explanation as to why you will deal with multiple negotiators, so I strongly encourage you to keep detailed notes and make sure that your conversations are accurately annotated in the banks system. 

Here are a few tips on what you should do throughout short sale negotiation process:

• Get the name, phone number (and, if possible, email) of the negotiator you speak with
• Find out the bank’s objectives. Ask “yes/no” questions such as “Is this offer feasible?” “Does your bank ever do short sales?”
• Don’t take “no” for an answer. Ask for a supervisor.  Ask for options.   Be persistent.
• Be prepared to discuss your situation in extreme detail so that the bank will understand your situation and view the short sale as the best solution to the problem (have conviction)
• Do everything they ask quickly and accurately (don’t take shortcuts)
• BE HONEST AT ALL TIMES

Be Relentless in Short Sale Negotiations

The bank will be relentless, so you need to be prepared to cooperate with their requests. Be polite, be firm, be honest and don’t be intimidated. Most likely, the bank will want to negotiate the real estate commissions paid to the realtors involved prior to approving the short sale offer.

• Be aware that the bank isn’t forced to agree to anything.
• Request that every agreement to be in writing.
• Make notations and keep a record of every conversation, who you spoke to and the date and time of the conversation. You may need it in the future.
• Ask the bank for a timeline for their decision and when would be a good time to call back for an update. Place a call a few days prior to the date suggested.
• If you repeatedly receive voice mail when calling, leave a message and call again just before lunch, right after lunch, just before the day ends and again in the morning before the day begins.  Try not to call at times that may be considered high volume times.  The banks received many calls, timing is everything.

The short sale negotiation process can be very frustrating, but don’t let the day-to-day frustrations annoy you or your agent and stop you from making the necessary calls to the bank.  Many short sales do eventually close and help numerous homeowners out of difficult situations.  The end result will be worth the hard work and frustration that you may endure through the process.

Quotes that Motivate

 My intent of this blog is not to brag or give the perception that I am better than others, but I just want to share some information that may help others.  I was recently asked by a new business associate, “what motivates you to work so hard in these difficult times and keep a positive attitude?’.  My initial response was, “I don’t think we really have any other choice”.    I was initially very flattered by what I viewed as the highest compliment that I can be paid by a business associate.  While I stand behind my initial response, I decided to take a step back to self evaluate and figure out why I am working hard in these difficult times and what motivates me.  A little background on me, I am a former college football player that has achieved varying degrees of success in the business world.  I have been in the mortgage industry for approximately 11 years and do not plan on leaving the business.  Aside from the obvious motivators in my life like: children, wife, house payment, bills and etc. (no particular order of importance), I have a strong desire to compete and succeed.  That seemed to explain to me the “who”, “what”, “when”, “where” and “why” of the question I was asked.  The part that I was still searching for was the “how” as it pertained to the positive attitude.  Being a former athlete, I realized that I still use some basic forms of motivation daily that impact my attitude like:  music, motivational stories, speeches, movie scenes and quotes.  I have compiled a few of my motivating quotes that I refer to frequently, I hope you enjoy them as much as I do:

• Blake: We’re adding a little something to this month’s sales contest. As you all know, first prize is a Cadillac Eldorado. Anybody want to see second prize?
  [Holds up prize]
  Blake: Second prize is a set of steak knives. Third prize is you’re fired.

 – Glengarry Glen Ross 

• Life is not a matter of having good cards, but of playing a poor hand well.
  -Robert Louis Stevenson

• Don’t let the fear of the time it will take to accomplish something stand in the way of your doing it. The time will pass anyway; we might just as well put that passing time to the best possible use. 

- Earl Nightingale

• You must take personal responsibility. You cannot change the circumstances, the seasons, or the wind, but you can change yourself. That is something you have charge of. You don’t have charge of the constellations, but you do have charge of whether you read, develop new skills, and take new classes.

-Jim Rohn

• The future is literally in our hands to mold as we like. But we cannot wait until tomorrow. Tomorrow is now. 

-Eleanor Roosevelt

While I am sure that some will find this silly and useless, I hope that others will see it for what it is.  It is just merely another tool to assist all of us in making our days that much more productive and successful.  I use some quotes to help motivate me to make a tough sale and others to help motivate me to push hard through tough times and stay positive.  Whatever works for you, go with it!  We all have the same goals, we just go about accomplishing them in different ways.

“Flipping” and FHA Loans

 Property “flipping” has become a very popular trend in the real estate market due to our current state of affairs.  In most cases property “flipping” occurs when a property is resold for a considerable profit at an artificially inflated price shortly after being acquired by the seller.  The subject of property “flipping” is extremely popular in the real estate community amongst realtors, investors and lenders.  More and more properties are falling into the category of “flipping” and it is important that everyone understands exactly what it is and how it can negatively impact the financing of the property.  FHA has implemented regulations to specifically address this issue.  Below is a brief overview of the regulation and how it applies to any individual looking for FHA financing on one of these properties.

The Department of Housing and Urban Development (HUD) has a federal regulation designed to protect consumers from the predatory real estate lending practice called “flipping” on mortgages insured by the Federal Housing Administration (FHA).

How the regulation works

The regulation, “FR-4615 Prohibition of Property Flipping in HUD’s Single Family Mortgage Insurance Programs,” makes recently flipped properties ineligible for FHA mortgage insurance. It also allows FHA to better manage its insurance risk by requiring additional support for a property’s value when a significant increase between sales occurs.  This means that you must prove through receipts any money that was invested in the property for the purpose of improving it and increasing the value from when the property was originally purchased.

Sale by Owner of Record

Only the owner of record is eligible to sell a home to an individual who will obtain FHA mortgage insurance for the loan; it may not involve any sale or assignment of the sales contract, a procedure often observed when the homebuyer is determined to have been a victim of predatory practices.

Time Restrictions on Re-sales:

• Re-sales occurring 90 days or less following acquisition will not be eligible for a mortgage to be insured by FHA. FHA’s analysis disclosed that among the most blatant examples of predatory lending was on “flips” that occurred within a very brief time span, often within days. Thus, the “quick flips” will be eliminated.
• Re-sales occurring between 91 and 180 days will be eligible provided that the lender obtains an additional appraisal from an independent appraiser based on a re-sale percentage threshold established by FHA; this threshold would be relatively high so as to not adversely affect legitimate rehabilitation efforts but still deter unscrupulous sellers, lenders, and appraisers from attempting to flip properties and defraud homebuyers. Lenders may also prove that the increased value is the result of rehabilitation of the property.
• Re-sales occurring between 90 days and one year will be subject to a requirement that the lender is required to possibly obtain additional documentation to support the value to address circumstances or locations where HUD identifies property flipping as a problem. This authority would supersede the higher expected threshold established for the above-mentioned 90 to 180 day period and will be invoked when FHA determines that substantial abuse may be occurring in a particular locality.

When you are considering purchasing a new home, please make sure that you and your realtor due your due diligence.  Any deviation from the above mentioned requirements will typically result in your loan being denied.  It should be noted that these requirements only pertain to properties not owned by banks and is intended to deter investors from engaging in predatory practices and to protect the consumer.

Buy a HUD home with as little as $100 down and finance the repairs needed!

Believe it or not, you can buy a home in this market for as little as $100 down and finance the repairs that may be needed through the loan.  The U.S. Department of Housing and Urban Development (HUD) has numerous homes to sell on a daily basis.  These homes are for sale at drastically reduced prices and are commonly referred to as “HUD Homes”.

HUD homes are homes that have been acquired by the U.S. Department of Housing and Urban Development.  The properties are usually single family residences or condos and can be in different states of disrepair.  This is why you are permitted to finance some of the repairs needed in your loan.  

HUD homes attract a variety of potential home buyers.  Investors purchase HUD homes because they can find a distressed property that can be rehabilitated and resold for a profit.  Teachers, law enforcement officers, firefighters and emergency medical responders qualify to purchase HUD homes at 50% off of the sales price (Good Neighbor Next Door Program) in designated areas.  Others chose to purchase HUD homes because they are able to buy a larger home at a lesser price typically.

If you are a First Time Buyer it is strongly recommend that you work with individuals that have experience with purchasing and financing HUD homes previously.  HUD homes are generally sold “as is”, this means that they will not warrant the condition of the property and rarely make any requested repairs.

HUD requires that all individuals making an offer be pre-approved by a FHA approved lender to purchase the HUD home or be an “all cash” buyer.  If you are paying “all cash” for the property you will need to provide HUD sufficient evidence to prove that you have the necessary funds to purchase the home. Sufficient evidence that HUD may ask for may include a bank statement, deposit slip, or a letter signed by a banker.

HUD has classified potential purchasers into two separate categories:

1) Owner-occupied buyers: An owner-occupied buyer is a person that will occupy the property as his or her primary residence within 30 days of the close of escrow

2) Investors. . An investor is essentially everybody else—people looking to buy real estate as an investment, someone looking for a second home

How does HUD get the homes to sell?

The United States Department of Housing and Urban Development (HUD), is the federal agency that oversees the resale of “HUD homes“. HUD homes are HUD foreclosure properties that have been transferred to HUD because a homeowner failed to make the payments on their FHA insured mortgage and the property was foreclosed on.

If you are interested in learning more about HUD homes and your financing options, please feel free to contact me directly.

HUD’s new Neighborhood Stabilization Program (www.hud.gov/nsp) provides emergency assistance to state and local governments to acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight within their communities. The Neighborhood Stabilization Program (NSP) provides grants to every state and certain local communities to purchase foreclosed or abandoned homes and to rehabilitate, resell, or redevelop these homes in order to stabilize neighborhoods and stem the decline of house values of neighboring homes. The program is authorized under Title III of the Housing and Economic Recovery Act of 2008.

To view what city specific programs are available throughout the state of Arizona, click on the city of your choice below:

State of Arizona

Maricopa County

Pima County

City of Avondale

City of Chandler

City of Glendale

City of Mesa

City of Phoenix

City of Surprise

Pacific Funding Group, Inc is an approved lender/ broker with the Arizona Department of Housing (ADOH) to participate in the “Your Way Home AZ” home purchase assistance program.  For additional information, please contact me directly at 480-650-9274.

Follow Up or Follow Through?

When working with others on business transactions, do you expect them to follow up or follow through?  Webster’s dictionary defines these two actions the following way:

Follow Up: to pursue in an effort to take further action

Follow Through: to press on in an activity or process especially to a conclusion

Through the course of my working career, I have found it necessary to clearly define the difference between the two in order to get the desired results.  For many years, I would end my business conversations by asking someone to follow up on something.  To me this meant, make sure that the job gets done and quickly.  Little did I know that it meant, make a few attempts to get the job done and be able to say you tried when asked.  After dealing with this frustration too many times, I decided that I needed to clearly define what was expected, but in a manner that was not overly bossy or controlling.  Being perceived as bossy or a control freak in certain business settings can be detrimental and potentially cost you business and referrals in the future.  That is when I began using the phrase follow through when discussing business needs instead of follow up. Here are some examples of the changes in wording that I made:

Old Request

Please follow up with the customer regarding the remaining documents that we need in order to submit the loan to underwriting.

New Request

Please follow through with the customer and insure that we have the remaining documents that we need in order to submit the loan to underwriting.

Old Request

Please follow up on the appraisal order and find out when it is expected to be returned.

New Request

Please follow through on the appraisal order and find out when we can expect it to be returned.

Old Request

Can you please follow up and see when we will have the final fully executed purchase contract.

New Request

Can you please follow through and make sure we get the final fully executed purchase contract.

Even though there is a slight change in wording, the tone and message of the statement changes the meaning drastically and calls for action to be taken immediately. You can use this type of requesting with all parties involved in a business transaction without offending anyone. Following up tends to conjure a more laid back approach to getting something done.  Following through formulates a mental image of urgency and accomplishment. I found that changing a few words allowed me to be more assertive in my requests without being blatantly obvious about it.

In today’s real estate market, we all need to have a sense of urgency.  Houses have multiple bids being made, so showing properties and making an offer quickly is important.  Underwriting guidelines, rates and turn times are changing hourly, so we need to get the file submitted, approved and to docs as quickly as possible.  I have found that making the slight change in wording has improved my business relationships and allowed me to set clearer and more concise expectations for the business transaction and ultimately experience a higher level of success and be more effective.

Remember, it is not always what you say, but how you say it!

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HUD’s “Good Neighbor Next Door” Program (GNND)

There is a terrific program available for potential home buyers who are employed in certain professions.  This program is designed to assist these individuals purchase a home at a reduced price and as little as a $100 down payment in some instances.

HUD’s Good Neighbor Next Door program offers law enforcement officers, firefighters, emergency medical responders, and school teachers the opportunity to purchase HUD real estate-owned properties (REO) in designated revitalization areas at a 50 percent (50%) discount from the purchase price.  HUD also offers an FHA insured mortgage with a down payment of only $100.

Here are some of the eligibility requirements for the GNND program:

• Borrower can’t have owned any residential real property for one year prior to the date of submitting an offer on a home through this program
• Borrower must agree to live in the property as a primary residence for a minimum of 3 years
• Borrower must be in good standing with their current employer
• Employment Requirements are limited to:

• Law enforcement officer as defined by HUD:
  • Employed full-time by a law enforcement agency of the federal government, a state, or a unit of general local government (county or parish, city, town, township, or other political subdivision of a state).
    • Must be sworn and have power to arrest for violations.
    • Officers employed by federal, state or local agencies (such as public housing authority) or public or private colleges and universities or businesses are not eligible.
• Firefighter and Emergency Medical Responders, as defined by HUD, include
  • Full-time firefighter or emergency medical technician by a fire department or emergency medical services responder unit of the federal government, a state, or a unit of general local government.
• School teacher, as defined by HUD:
  • Only full-time teachers employed at state-accredited public and private schools.
    • Other persons employed by an accredited public or private school are not eligible to participate in this program.
  • Participant’s school must serve the school district/jurisdiction in which the home they are purchasing is located.

It is important to understand that this program is only available in HUD designated revitalization areas.  Revitalization areas are typically in low and moderate income neighborhoods.

The following are eligible/ineligible property types:

Eligible:

• 1 unit only
• Condominiums
• PUD’s

Ineligible:

• 2-4 units
• Triplex
• Condotels
• Recreational Condos
• Model Home Leasebacks

This program is an excellent way for potential home buyers who qualify for the GNND program to purchase a home at a drastically reduced price.  This program may not be right for everyone, but it definitely has its place in today’s constantly changing market.  Please contact me directly if you want any additional information on the GNND program.

FHA announces new appraisal guidelines

On Friday, the U.S. Department of Housing and Urban Development (HUD) announced new appraisal guidelines regarding appraisals. In a series of Mortgagee Letters, dated Sept. 18, 2009, HUD provided new guidelines affecting the independence, portability and validity periods of appraisals used in its Federal Housing Administration (FHA) program. These guidelines will take effect on Friday, Jan. 1, 2010.  Here are some of the more important facts of the Mortgagee Letters and the changes to the existing FHA appraisal process taken directly from the Mortgagee Letters.

Independence (ML 09-28)

This Mortgagee Letter provides clarification and reaffirms Federal Housing Administration (FHA) appraisal requirements related to appraiser independence and announces new requirements pertaining to entities that are eligible to order appraisals for FHA insured mortgages.

FHA has long advised lenders and appraisers of the importance of appraiser independence in the context of generally accepted prudent lending practices.  In this mortgagee letter, FHA reiterates the importance of appraiser independence, and advises of new requirements regarding who is eligible to request an appraisal from an FHA Roster appraiser.  The new requirements set forth in this mortgagee letter will be effective for all case numbers assigned on or after January 1, 2010.  The existing requirements will remain in effect.

New requirements
▪ Prohibition of mortgage brokers and commission based lender staff from the appraisal process
▪ Appraiser selection in FHA connection
▪ Appraisal and appraisal management company (AMC)/third-party organization fees

Reiterating existing requirements
▪ Prevention of improper influences on appraisers
▪ Appraiser independence safeguards
▪ Appraiser engagement: knowledge of market area, geographic competency

New requirements

FHA prohibits “appraiser shopping” where lenders order additional appraisals in an effort to assure the highest possible value for the property and/or the least amount of deficiencies and/or repairs are noted and required by the appraiser.   However, a second appraisal may be ordered by the second lender under the following limited circumstances:

1. The first appraisal contains material deficiencies as determined by the Direct Endorsement underwriter for the second lender.
2. The appraiser performing the first appraisal is on the second lender’s exclusionary list of appraisers.
3. Failure of the first lender to provide a copy of the appraisal to the second lender in a timely manner would cause a delay in closing, posing potential harm to the borrower.

In the first two scenarios, the lender must ensure that copies of both appraisals are retained in the case binder. In the third scenario, the first appraisal must be added to the case binder when received. In all cases, the lender documents why a second appraisal was ordered and retains it in the case binder.

Additional requirements
▪ Appraisal transfer and change of client name in appraisal report is required
▪ Appraiser selection in FHA connection
▪ Lender compliance: Lenders who fail to comply with the requirements are subject to administrative sanctions.

New requirement

Validity period for all appraisals on existing, proposed and under construction properties will be 120 days. This change is consistent with industry practice and revises the current validity periods of six months for an appraisal of an existing property that is complete and 12 months for proposed and under construction properties.

To get additional information on all FHA updates, please use the link listed below:

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

What is a 4506T?  How Can It Ruin My Mortgage Transaction?

Recently, I was anxiously awaiting the final approval from underwriting on a purchase money loan when I received the phone call that no one in the real estate/mortgage industry wants to receive, “your file has been denied”.  Of course, I asked “why”.  The underwriter then proceeded to inform me that they received the results from the 4506T and my borrower had not filed taxes in 2007 or 2008, so they were unable to validate my income and approve the loan.  Without being able to validate the income documentation that we submit through the IRS, lenders are left no other option.

What is a 4506T?  I have been getting this document signed for years and have never given any serious thought to what is was being used for and how it could negatively impact my loans.  IRS From 4506T is a Request for Transcript of Tax Return. This form is used to assist the lender in evaluating a borrower’s creditworthiness to obtain any type of loan, but it is used mainly for mortgage loans. It is an IRS transcript summary of an individual’s tax information used to validate the income furnished to the lender. Lenders use this form to validate the information provided to them by loan officers and borrowers.  It is especially helpful with detecting fraud. If you included 1040’s & W-2’s or 1099’s in the file, the 4506T is used to request a print-out which summarizes your tax returns for the years requested. This summary transcript validates the paperwork submitted to the lender. If this transcript does not match what was supplied to the lender or is not available, your loan will be denied unless you can furnish them with a reasonable explanation for the difference and further action may be taken against those individuals that furnished the documentation to the lender.

I strongly recommend that you start requesting 2 years tax returns on every file and emphasize to your borrowers that the lender will be verifying their tax returns as part of the loan process.  This will help you avoid the situation that I recently dealt with.  The rules have changed and we all need to make sure that we are aware of them and play by them.  It is minor improvements in the validation process by lenders that will hopefully improve the overall quality of the loans approved and continue to expose those individuals in our industry that lack ethics and integrity.

What are FHA’s Property Requirements?

The purpose of this blog is assist potential buyers about what FHA requires as it pertains to the condition of a property being purchased when utilizing an FHA loan for financing.  The guidelines may vary slightly depending on the lender or your geographic location.  It should be noted that the lender has the ability to have additional requirements and many do.   As a result of the different lender requirements, currently there are multiple misconceptions about what FHA’s actual minimum property standards are.  Please keep in mind that FHA is not a lender, they are an insurance company that the lender utilizes to insure their loan.  Here is a breakdown of what FHA actually requires taken directly from HUD’s website and other publications:

Repairs Required

Section 1103 – “FHA has shifted from its historical emphasis on the repair of minor property deficiencies and now only requires repairs for those property conditions that rise above the level of cosmetic defects or normal wear and tear.”

As Is Appraisals

Section 1103 – “FHA now permits “as-is” appraisals [on property] when minor property deficiencies, which generally result from deferred maintenance and normal wear and tear, do not affect the safety of the occupants or the security and the soundness of the property. FHA no longer requires repairs for these types of minor cosmetic deficiencies.”

Examples of conditions not necessitating repair include but are not limited to:

- Missing Handrails
- Cracked or damaged exit doors that are otherwise operable
- Cracked window glass
- Defective paint surfaces in homes constructed post 1978
- Minor plumbing leaks (such as leaky faucets)
- Defective floor finish/covering
- Evidence of previous (non-active) Wood Destroying
Insect/Organism damage
- Rotten or worn-out countertops – Damaged plaster,
sheetrock or other wall and ceiling materials in homes
- Poor workmanship
- Trip hazards
- Crawl space with debris
- Lack of all-weather driveway surface

Examples of property conditions that the FHA will require repair include but are not limited to:

- Inadequate access/egress from bedrooms to exterior of
homes
- Leaking or worn out roofs
- Evidence of structural problems
- Defective paint surfaces in homes constructed pre-1978
- Defective exterior paint surfaces in homes post
- 1978 where the finish is otherwise unprotected

“If the appraisal reports a potential property deficiency that may pose a threat to the safety of the occupants or the security and soundness of the property the lender will require an inspection of the condition to determine whether repairs are necessary to resolve the problem.”

Examples of conditions that will continue to require inspections include but are not limited to:

- Standing water against the foundation and/or excessively
damp basements
- Hazardous materials on the site or within the improvements
- Faulty or defective mechanical systems (electrical, plumbing
or heating)
- Evidence of possible structural failure (e.g. settlement or
bulging foundation wall)

Appliances

FHA states that the property must have a “Space” for cooking.  There is no specific requirement as to how the food is to be cooked or stored.  So they do not have any special requirement for the type or presence of appliances.  However FHA does defer to local law to ensure that appliances meet local code regarding proper amperage.

FHA requires that if the property does have appliances they must be in working order.  If your clients are purchasing a home that contains appliances that do not work and the seller is not willing to fix, it would be best to ensure the removal of the non-working appliances prior to the appraisal.  This would be in compliance with FHA guidelines.

Air Condition and Other Utilities

FHA defines the Heating/Air Conditioning unit as a utility and NOT an appliance so different rules apply.  FHA only requires that the heating unit works and is able to heat the house.  They do not require that the A/C unit work.  Most appraisers will test the unit and make comments in the appraisal report.

Pools

FHA requires a home with a pool to have a working pool pump that is able to circulate the pool water.  They also require that the pool has enough water in it so that the pump can effectively circulate the pool water.

FHA does not specifically test the water nor does it have a certain requirement as to the clarity to the water.  They do however open up a gray area by stating that the level and quality of the water in the pool must not pose a health or safety risk.  I.E. no mosquito infestations or algae!!

Home Inspection Requirements

Section 1103 – “FHA no longer mandates automatic inspections for the following items and/or conditions in existing properties:”

- Wood Destroying Insects/Organisms – TERMITES
- Well (individual water system)
- Septic
- Flat and/or unobservable roof

Most properties listed will state what type of financing is available for the property.  Please make sure that they list FHA as an option.  For additional information on FHA loans, please visit http://mortgageloansaz.com or http://hud.gov.

What is FHA?

I would like to clear up one of the biggest misconceptions in the mortgage industry. FHA is not a lender, they are an insurance company. I can’t tell you how many people do not know this.  Here is a basic acceptable working definition:

Federal Housing Administration (FHA): Federally sponsored agency chartered in 1934 whose stock is currently owned by savings institutions across the United States.  FHA is a federal agency that provides mortgage insurance for residential loans with very low down payments (3.5% or $100 depending on the loan program). The borrower is required to pay the insurance premium monthly and the lender is the beneficiary. In the event of a borrower defaulting on their loan, FHA will pay the lender an amount covering some or all of the outstanding loan balance. Although FHA does not lend the mortgage money, it does set underwriting and construction standards for the lenders.  The lenders can and usually will have additional underwriting standards.

It is important that everyone associated with the real estate industry understand this definition.  This will give some insight into the constantly changing underwriting guidelines that we have encountered as of late.  Many people are frustrated with lenders raising their FICO/overall credit requirements and often point out to me that FHA doesn’t have a fico requirement or that the automated underwriting decision was an “accept”.  I realize this, but we must understand that FHA doesn’t lend money.  That is why the argument that FHA doesn’t require a specific guideline is not as effective as it used to be.  The lenders still need to guard against high levels of delinquency and default.  They do this by adding additional requirements to the basic standards to reduce the risk based on their past experiences with a borrower profile.

The next time you begin to argue about FHA guidelines with a lender or your mortgage professional, remember, they are just an insurance company!

1. Thou shalt not change jobs, become self-employed or quit your job.

2. Thou shalt not buy a car, truck or van.

3. Thou shalt not use credit cards excessively or let your accounts fall behind.

4. Thou shalt not spend money you have set aside for closing.

5. Thou shalt not omit debts or liabilities from your loan application.

6. Thou shalt not buy furniture or any other big ticket item that requires financing.

7. Thou shalt not authorize any inquiries into your credit.

8. Thou shalt not make large deposits without first checking with your loan officer.

9. Thou shalt not change or close bank accounts.

10. Thou shalt not co-sign a loan for anyone.

First Time Home Buyer Tax Credit Fraud

There are many of us involved in the real estate industry that have been signing petitions and writing blogs about extending the First Time Home Buyer Tax Credit.  We have been stating how great it is for the housing market and all kinds of other positive aspects of the credit.  Well, the IRS dropped a major bomb on us this week, the IRS is investigating more than 100,000 “doubtful” claims of the tax credit intended for First Time Home Buyers.  The IRS is also investigating 167 “criminal schemes”.  Lawmakers are concerned that a significant number of the First Time Home Buyer Credits may be fraudulent (IRS News).

 A Jacksonville tax preparer has already pleaded guilty to falsely claiming the First Time Home Buyer Credit on customer’s tax returns (Busted!).  If you read the article, you will find out that the tax preparer was on probation for forgery and indicted on 35 counts of tax fraud (15 of those for FTHB tax credit).  The preparer took $1000 from each customer, entered a false address and told them they qualified because they worked two jobs.  For those of us who pay attention, this scheme is laughable, but at least 15 people fell for it!

More than 19,000 people filed 2008 tax returns claiming the credit and had not yet purchased a home.  74,000 people claimed to fit the FTHB credit criteria, but had previous ownership in the last 3 years.  The examples of fraud with this credit are numerous (Disturbing).

I get really irritated when I read these types of articles because I had supported the idea of extending the credit because of the First Time Home Buyers that I have worked with that are looking forward to using the credit to make improvements to their homes.  Now I am second guessing myself, is the risk worth the reward?  Is there another way?  I am not naïve enough to think that fraud will stop if the credit is not extended, I would just hope that better control mechanisms would be put in place to minimize future fraud.  DPA anyone?

$8,000 First-time Home Buyer Tax Credit at a Glance

• The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The tax credit applies only to homes priced at $800,000 or less.
• The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
• For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
• For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance

• To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.
• The tax credit applies only to homes priced at $800,000 or less.
• The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010.
• Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

What is Truth-in-Lending (TIL)?

Mortgage professionals receive more calls with regard to the Truth in Lending Disclosure than any other disclosure in the large packet furnished at the beginning of the loan process.  The Federal Reserve Regulation Z was authorized by the “Truth-in-Lending” Act of 1969.  The purpose of the law was to agree to a uniformed formula for calculating the true cost of credit by developing an APR (Annual Percentage Rate).  The APR is intended to weigh the monthly payments of the loan against the non-interest finance charges of the loan.  This ACT also allows the borrower to cancel a transaction within 3 days (excluding Sundays and holidays) of signing a loan that results in a lien against their primary residence (refinance only).  This is known as the Right of Rescission.

Another purpose of this law was to provide applicants with an “early disclosure” of the APR.  This requires the TIL to be delivered to the applicant within 3 business days.  The logic behind this early disclosure is permit the applicant to comparison shop and avoid settling for a loan that has hidden fees due to improper verbal disclosure by a mortgage professional.  Delivering this disclosure typically causes the applicant to call the mortgage professional and question them about the change in interest rate from what was previously discussed.  Those of us who have been there, know that the applicants do not know the difference between the interest rate and the APR and it is our job to clearly explain the difference.

The issue is that APR and interest rate mean the same thing to the applicant, but refer to two different concepts.  The APR will be higher than the interest rate and will confuse applicants when they review the TIL.  Most applicants are familiar with consumer loans, credit cards, car loans which typically have a simple interest rate with no fees.  Likewise, the phrase “Amount Financed” that appears on the TIL is lower than the amount applied for in the initial application.  On the surface, these two items give the perception of deception on the mortgage professional’s part, but it isn’t.  It is actually detailed disclosure intended to help the applicant make an informed decision. 

There are 4 boxes on the TIL Disclosure; the APR, Finance Charge, Amount Financed and Total of Payments.  Below these 4 boxes is a Payment Schedule which is followed by various other disclosures detailing the loan terms.Here are some very basic working definitions for the boxes.  There is more to it, but you can get the basic concept from the following:

Total of Payments- Computes the total of payments by multiplying payment schedule, including PMI by the amount of payments

Amount Financed- is the loan amount, less points, prepaid interest, PMI and lender fees.

Finance Charge- is the Total of Payments less the Amount Financed

APR- Compute the APR by dividing the Total of Payments by the number of payments and apply that against the Amount Financed, as if it were the loan amount.

These definitions can be confusing and very difficult to explain to applicants.  That is why it is important to have a knowledgeable mortgage professional working with your customers.  A lack of knowledge typically gives applicants the perception that that are being mislead.  If you referred the applicant to this person, what does that say about you?  Will it change your customer’s perception of you?  Out of ignorance, customers are unfortunately misled frequently.  This practice is against the spirit of the law in the first place.  We all need to take the time to make sure that we can explain the disclosures in our chosen profession.  There is a reason for them and no it is not to make our lives difficult!

Short Sale Kickbacks

Recently, CNBC aired a report about Short Sale Kickbacks.  The report shares information regarding 2^nd lien holders requesting to be paid outside of escrow and off of the HUD-1 in order to agree to the short sale.  The report discusses how the 2^nd lien holders are upset with the lack of funds received through the short sale and are trying to get additional funds.  The report claims that they are requesting these funds from the buyer or the realtors involved in the transaction.  Not disclosing funds associated with a transaction is a clear violation of RESPA rules and a fraudulent practice.  The report proceeds to say that the 2^nd lien holders claim that this illegal practice is approved by their legal department so they will continue.  The report claims that the banks involved in this practice are some of the major players in the industry.  How can this be possible?  How can a bank be permitted to knowingly commit fraud and operate in a manner that says that the rules do not apply to them?  I continue to be amazed.

Does this attitude of the banks bother anyone else?  To view the CNBC report, click on the link below:

http://www.cnbc.com/id/15840232?video=1386877150&play=1

Fannie Mae recently announced incentives for buyers of their Fannie Mae-owned HomePath properties.  Any individual purchasing an owner occupied Fannie Mae-owned HomePath property before May 1, 2010 may be eligible to receive up to 3.5% of the final sales price to be used towards closing costs (not down payment) or new appliances. 

Below is the actual news release from Fannie Mae regarding seller assistance on Fannie Mae-owned HomePath properties.  To see if a property qualifies, please visit:

http://www.homepath.com/

January 28, 2010

Fannie Mae Announces 3.5 Percent Seller Assistance on HomePath® Properties

Incentive Part of Ongoing Effort to Stabilize Neighborhoods

WASHINGTON, DC – Fannie Mae (FNM/NYSE) announced today that people purchasing a Fannie Mae-owned HomePath® property will receive up to 3.5 percent of the final sales price to be used toward closing cost assistance or their choice of appliances. The offer is available to any owner-occupant who closes on the purchase of a property listed on HomePath.com before May 1, 2010.

“Attracting qualified buyers to the market and reducing the inventory of vacant homes is critical to stabilizing neighborhoods and helping the market recover. Many families are taking advantage of the federal home buyer tax credit to buy a new home so this is a great time for Fannie Mae to offer some additional help,” said Terry Edwards, Executive Vice President of Credit Portfolio Management. “Home buyers have the option to choose between financial assistance toward closing costs or new appliances for their home.”

Properties eligible for this incentive are listed on HomePath.com and most listings include detailed property descriptions, photographs, community and school information and more. In addition, many Fannie Mae-owned properties are eligible for special HomePath Mortgage and HomePath Renovation Mortgage financing which offers home buyers an opportunity to purchase with as little as 3 percent down.

Please contact me directly is you have any additional questions.

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the day is:

“What we think or what we know or what we believe is, in the end, of little consequence. The only consequence is what we do”
- John Ruskin

“I have learned that the greater part of our misery or unhappiness is determined not by our circumstance but by our disposition.”
- Martha Washington

“Always make a total effort, even when the odds are against you.”

“Enjoy life. This is not a dress rehearsal.”
- Author Unknown

“Enthusiasm spells the difference between mediocrity and accomplishment.”
- Norman Vincent Peale

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the day is:

“All blame is a waste of time. No matter how much fault you find with another, and regardless of how much you blame him, it will not change you”
- Wayne Dyer

“If we all did the things we are capable of doing, we would literally astound ourselves.”
- Thomas Edison 

“The secret of getting started is breaking your complex, overwhelming tasks into small manageable tasks, and then starting on the first one.”
- Mark Twain

“The belief in a thing makes it happen.”
- Frank Lloyd Wright

“What lies behind us, and what lies before us are small matters compared to what lies within us.”
- Ralph Waldo Emerson

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the day is:

Success isn’t how far you got, but the distance you traveled from where you started.
- Proverb

“Enthusiasm spells the difference between mediocrity and accomplishment.”
- Norman Vincent Peale

“Many of life’s failures are people who did not realize how close they were to success when they gave up.”
- Thomas Edison

“Adversity is another way to measure the greatness of individuals. I never had a crisis that didn’t make me stronger.”
- Lou Holtz

“The greatest mistake you can make in life is to be continually fearing you will make one.”
- Elbert Hubbard

“I long to accomplish a great and noble task, but it is my chief duty to accomplish small tasks as if they were great and noble.”
- Helen Keller

“For every failure, there’s an alternative course of action. You just have to find it. When you come to a roadblock, take a detour.”
- Mary Kay Ash

“Always bear in mind that your own resolution to succeed is more important than any other one thing.”
- Abraham Lincoln

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else. I find that these quotes pop up everywhere. I see them in articles, at the bottom of emails, on advertisements, websites and etc. My goal is to update this blog throughout the course of the day. Please feel free to add to it if you like. Hopefully, one of the quotes will motivate someone throughout the course of the day. The first quote of the day is:

“All life is a chance. So take it! The person who goes furthest is the one who is willing to do and dare.”
- Dale Carnegie

“Be not hasty to believe flying reports to the disparagement of any.”

-George Washington

“Yesterday is not ours to recover, but tomorrow is ours to win or to lose.”
- Lyndon B. Johnson

“Do not let what you cannot do interfere with what you can do.”
- John Wooden

“It’s time to start living the life you’ve imagined” 
- Henry James

“Success is not to be pursued; it is to be attracted by the person we become.”
- Jim Rohn

“And in the end it’s not the years in yourlife that count. It’s the life in your years.”
- Abraham Lincoln

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the day is:

“A journey of a thousand miles must begin with a single step.”
- Chinese Proverb

“People rarely succeed unless they have fun in what they are doing.”
- Dale Carnegie

“Most of our obstacles would melt away if, instead of cowering before them, we should make up our minds to walk boldly through them.”
- Orison Swett Marden

“Life is like a combination lock; your job is to find the right numbers, in the right order so you can have anything you want.”

“Remember there’s no such thing as a small act of kindness. Every act creates a ripple with no logical end.”
- Scott Adams

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the week is:

“The lure of the distant and the difficult is deceptive. The great opportunity is where you are.”

-John Burroughs

“Come to the edge, he said. They said: We are afraid. Come to the edge, he said. They came. He pushed them, And they flew…”

- Guillaume Apollinaire

“Nothing in the world can take the place of persistence…Persistence and determination alone are
omnipotent.”

- Calvin Coolidge

“Only those who dare to fail greatly can ever achieve greatly.”

- Robert F. Kennedy

“He, who every morning plans the transactions of the day, and follows that plan carries a thread that will guide him through a labyrinth of the most busy life”

- Victor Hugo

Always make a total effort, even when the odds are against you.”

- Arnold Palmer

“You can’t cross a sea by merely staring into the water.”

“You have to believe in yourself when no one else does. That’s what makes you a winner.”

- Venus Williams

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the day is:

“You must take personal responsibility. You cannot change the circumstances, the seasons, or the wind, but you can change yourself”
- Jim Rohn

“You are the average of the five people you spend the most time with.”
- Jim Rohn

“Achievement seems to be connected with action. Successful men and women keep moving. They make mistakes, but they don’t quit.”

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the day on this fine St. Patrick’s day is:

“To forgive is the highest, most beautiful form of love. In return, you will receive untold peace and happiness.”
- Dr. Robert Muller

“I find that the harder I work, the more luck I seem to have.”

- Thomas Jefferson

Short Sale Fraud!!!

Beware, there is fraud taking place on short sales.  I would like to say that this comes as a surprise, but it doesn’t.  Our industry continues to be infected by unscrupulous individuals who only care about making a buck.  The latest and greatest is fraud being committed on short sales.

The fraud that I am referring to has to do with realtors setting up LLC’s to purchase a property for sale at a drastically reduced price.  Here is how the scheme is working.  The current home owner speaks with their existing mortgage company and they agree that short selling the home would be the best option for their current situation.  The lender advises the owner to find a local realtor and list their home for sale and submit them offers for approval.  The owner then contacts a local agent and lists the home for sale.  The agent or company that the agent works for either currently has or immediately sets up an LLC to purchase the property they are listing.  Where the fraud part comes into play is when the realtor receives offers from interested buyers that never get forwarded to the owner and ultimately the lender.  Time passes as the owner and lender become very nervous because no offers are being submitted.  Nervousness eventually turns to desperation.  Now desperate, the owner gets a low ball offer from the agents/companies LLC.  They accept the offer and forward it on to the lender that also accepts the offer out of desperation.  The LLC purchases the property substantially lower than the legitimate offers that were made and never disclosed.  The LLC knows what interested buyers are willing to pay because they are receiving offers, so they know their profit on the purchase when they make the offer.

What are the repercussions of this practice?  It hurts the values in the neighborhood, costing everyone equity in their home.  It costs the lenders money, which means it costs all of us money.  It may cause the borrower to have a greater deficiency on the sale and possibly cost them money out of pocket.  It taints the reputation of realtors and home owners trying to sell their property. It is another huge black eye for our industry!

Why is it that people spend so much time trying to manipulate the system for personal gain?  It may be extreme, but we need to lock these people up!  Get them out of society, so we can move forward.  Every time our industry takes a step forward, issues like this force us to take 2 steps backwards.

Has anyone seen this practice in your area?

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the day is:

“We first make our habits, and then our habits make us.”

- John Dryden

Don’t be afraid of the space between your dreams and reality. If you can dream it, you can make it so.”

 - Belva Davis

“It has been my philosophy of life that difficulties vanish when faced boldly.”

- Isaac Asimov

” A man who lives in the past deprives himself of the future”

- author unknown

“The greatest things ever done on Earth have been done little by little.”

- William Jennings Bryan

“Success seems to be largely a matter of hanging on after others have let go.”

- William Feather

“Long-range goals keep you from being frustrated by short-term failures.”

- James Cash Penney

“Yesterday is not ours to recover, but tomorrow is ours to win or to lose.”

- Lyndon B. Johnson

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the day is:

“Successful and unsuccessful people do not vary greatly in their abilities. They vary in their desires to
reach their potential.”
- John Maxwell

“He, who every morning plans the transactions of the day, and follows that plan carries a thread that will guide him through a labyrinth of the most busy life”
- Victor Hugo

“Adversity is the state in which man mostly easily becomes acquainted with himself, being especially free of admirers then.”
- John Wooden

“To guarantee success, act as if it were impossible to fail.”
- Dorothea Brande

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the week is:

“Whatever you can do, or dream you can begin it. Boldness has genius, power and magic in it.”
- Goethe

“The only limit to our realization of tomorrow will be our doubts of today.”
- Franklin D. Roosevelt

“The first requisite of success is the ability to apply your physical and mental energies to one problem without growing weary.”
- Thomas Edison

“The first wealth is health.”
- Ralph Waldo Emerson

“Long-range goals keep you from being frustrated by short-term failures.”
- James Cash Penney

“Never worry about numbers. Help one person at a time, and always start with the person nearest you.”
- Mother Teresa

“Remember there’s no such thing as a small act of kindness. Every act creates a ripple with no logical end.”
- Scott Adams

New FHA Refinancing Options

HUD recently announced a new FHA program intended to assist current homeowners that are currently underwater in their home.  This new program will be funded with TARP funds that have been allocated specifically for the new loan program.  This is another effort to try and assist homeowners with refinance options at a time when they are currently underwater.  Not all homeowners that are underwater qualify.  Here are a few of the key criteria of the new FHA loan program:

• This is a voluntary option of both the current lender and homeowner with mortgages not insured by FHA (can’t have an FHA loan)
• Current lender must write down at least 10% of the current unpaid balance of the existing loan
• New FHA loan can’t exceed 97.75% LTV and 115% CLTV
• Must reduce the homeowner’s current monthly mortgage payments
• Maximum debt ratios of 31/50
• Homeowner must be current on their mortgage payments
• Homeowner must have a minimum of 500 credit score
• Must qualify under current FHA underwriting guidelines
• The short refinancing will be reflected on the homeowners credit report

Please keep in mind that the current lender must voluntarily agree to the principal write down. It is still too early to know exactly what lenders will do.  They are not obligated to participate.  The easiest way for homeowners to find out if their lender is willing to participate in this new FHA program, will be to contact them directly and discuss it.  HUD will be releasing the details of this new loan in the near future.    

Key Information

Following are key points that prospective home buyers should be aware of when considering a home purchase under the tax credit program.

• A tax credit of up to $8,000 is available for first-time home buyers purchasing on or after January 1, 2009 and on or before April 30, 2010. In cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
• A tax credit of up to $6,500 is available for repeat home buyers who have owned a home for five consecutive years out of the prior eight years. The repeat home buyer tax credit applies to houses sold after November 6, 2009 and on or before April 30, 2010. In cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
• Income limits of $125,000 for individuals and $225,000 for married couples filing jointly apply to all sales occurring after Nov. 6, 2009.
• The income limits for sales occurring on or after January 1, 2009 and on or before November 6, 2009 are $75,000 for individual taxpayers and $150,000 for married couples filing jointly.
• Homes priced above $800,000 are not eligible for either the first-time home buyer tax credit or the repeat home buyer tax credit.
• Expanded tax credit benefits apply to members of the military, the foreign service and the intelligence community.
• Home purchases in 2010 may be claimed on an amended 2009 income tax return.
• Persons who are claimed as dependents by a taxpayer or who are under age 18 do not qualify for a tax credit.
• Home purchases from relatives of the taxpayer or the taxpayer’s spouse do not qualify for the tax credit. The IRS defines relatives as ancestors (parent, grandparent, etc.), lineal descendants (child, grandchildren, etc.) and spouses.
• Married couples are not eligible to claim the first-time home buyer tax credit if either spouse has previously owned a home. They may, however, qualify for the repeat home buyer tax credit.
• Neither the first-time home buyer tax credit nor the repeat home buyer tax credit have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.
• Taxpayers must submit a copy of the HUD-1 settlement statement and IRS Form 5405 to claim either the first-time home buyer tax credit or the repeat home buyer tax credit.

Top 10 Home Buying Mistakes

• Going solo-Buying a house is a complex transaction. It should be a team effort. You’ll need a real estate agent, lender, inspector, insurance agent and perhaps a lawyer. Have your team in place prior to beginning your start search.
• Love at first sight-If you believe in fairy tales you probably shouldn’t be buying a home. You won’t live happily ever after if you buy a home based on emotions. Buy a home that fits your budget and your lifestyle. Be sure the home is in a community and neighborhood you want to live in. Visit neighborhoods several times before you buy to check out schools, noise and traffic patterns.
• Shopping without a loan-Being pre-qualified gives you a general idea of how much you can afford to borrow. It’s better to be pre-approved for a loan prior to shopping for a new home. Sellers will take you more seriously and typically require proof of pre-approval. You will also stay on budget.
• Overbuying-Home buyers buying more than they could truly afford, in part, led to the collapse of the housing market. Buy more than you can afford and your dream home will become the same nightmare. Analyze all your monthly costs including debts, food, transportation, entertainment, and savings. Your total monthly debts, including your mortgage, should not exceed 33% of your income before taxes. Don’t forget to budget closing costs (often two to five percent of the home’s purchase price), plus moving, redecorating and maintenance. Be proactive and allow for increases in ongoing expenses such as utilities and taxes.
• Misplaced trust-You are engaged in what’s likely your most valuable acquisition ever. It’s a business transaction. Ask family, friends, co-workers, professionals and others you trust for referrals, but don’t take their word for it. Interview your team members.
• Accepting oral agreements-Get it in writing. The rate lock, the home inspection, disclosures, the contract. Always. Should a dispute arise, you have documentation to support you.
• Skipping the fine print-Understand what’s really in any document before picking up a pen. Get documents in advance, take time to read them and ask questions. Get copies of your mortgage and closing papers a few days ahead of closing if possible.
• Forgetting or betting on resale-Avoid buying a home that costs 50% more than neighboring homes. Reconsider buying the most expensive home on the block. Neighbors’ lower home values will weaken yours. Buy intending to flip your investment only to have the market fail means when it’s time to sell your price may not cover your costs.
• Making an unconditional offer-Protect yourself with these contingencies:

• Mortgage financing. You may be preapproved but is the house? A formal appraisal confirms — or not — that there is sufficient value in the home to warrant the loan. If the house appraises lower than the sales price, will they lower the purchase price?  Will they make the necessary improvements to satisfy the lender?

• Inspection. Never buy an existing or new home without a thorough home inspection. Walk through the home with the inspector to learn more about the house and any concerns he or she may have.

• Insurance. Confirm you can get adequate insurance coverage. In some areas, or following certain disasters, it can be difficult to get types of hazard insurance.

• Start decorating the home-Don’t move into the home mentally until the deal is done.  Also remember that your financing was based on certain debts on your credit report, do not increase them, it may get your financing denied.

 Market Snapshot

Friday the bond and mortgage markets were driven lower in yields on the announcement from the SEC that it was filing civil fraud charges against Goldman-Sachs, implying the firm allowed Paulson& Co. to select sub prime loans that went into a CDO security that Goldman was putting together to sell to investors. Paulson, according to the SEC was openly going to short the CDO and picked the worst possible mortgages to put in the CDO. Investors including Royal Bank of Scotland Group Plc and Germany’s IKB Deutsche Industriebank AG lost about $1 billion from the trade. Goldman Sachs denies wrongdoing. Goldman has indicated it did nothing wrong and will defend itself “vigorously”. The suit may also strengthen political pressure for more regulation of derivatives and similar complex financial structures, threatening earnings.  The SEC is investigating transactions by Deutsche Bank, UBS and the former Merrill Lynch in the mortgage securities market, the New York Post reported today, without saying where it obtained the information.

This morning the G/S fraud suit remains the hot topic with various outlooks as to implications for the financial markets in terms of regulatory reform. No doubt whatever comes from new regs will be more stringent that if the Goldman thing hadn’t happened. The SEC and now the British government are increasing scrutiny now and will look closely at other firms that sold the junk to unsuspecting investors. Large investors and central banks bought the junk without looking at the details in the prospectuses and simply relying on the AAA ratings that were issued by the rating agencies. We wonder when the SEC will take on the rating agencies, the three agencies (S&P, Moody’s and Fitch) have greased through all of this without much focus. Who paid them what, and how much? It was then, and even more so now, a question that never has been answered; AAA ratings on junk that was doomed to fail needs explanation.

At 9:00 this morning the DJIA futures was off 41 points, the 10 yr note -3/32 at 3.77% +1 bp and mortgage prices at 9:00 were trading -2/32 (.06 bp). Both the 10 yr treasury and the 4.5 FNMA May coupon are testing and holding so far at their respective 40 day moving averages. To break through those key averages the bond market will need another heavy sell-off today. At 9:30 the DJIA opened -20; 10 yr -2/32 and mortgage prices -2/32 (.06 bp).

At 10:00, the only economic data today, March leading economic indicators expected  +1.0%, was up 1.4%. Feb LEI was revised to +0.4% frm +0.1%. No immediate reaction but it is one more data point that is better than forecasts.

This Week’s Economic Calendar:

          Wednesday;

                7:00 am MBA weekly mortgage applications

          Thursday;

               8:30  weekly jobless claims (-29K to 455K; continuing claims -39K)

                       Mar PPI (+0.5% overall, ex food and energy +0.1%)

              10:00 March existing home sales (+5.2% to 5.30 mil units annualized)

                       FHFA Feb home price index (-0.2%)

              11:00 Treasury announces the auctions of 2, 5, and 7 yr notes and 5 yr TIPs next week

         Friday;

              8:30 Mar durable goods orders (+0.2% overall; ex auto sales +0.6%)

             10:00 Mar new home sales (+5.2% to 325K units annualized)

President Clinton was on “This Week” on ABC on Sunday; he made the statement that Robt Ruben his Treasury Sec and Larry Summers were wrong in the advice they gave him about regulating derivatives when he was in office. “I think they were wrong and I think I was wrong to take” their advice, Clinton said. The two argued that derivatives didn’t need regulating because they were expensive and sophisticated that only a handful of investors would be involved in them. Clinton said  “the flaw in that argument was that first of all, sometimes people with a lot of money make stupid decisions and make it without transparency.”  Meantime back at the ranch of  crow eating, Robt Ruben who left Clinton to become vice chair of Citi, testified on April 8 before the Financial Crisis Inquiry Commission, said “derivatives should be subject to collateral and margin requirements, standardized derivatives should be exchange traded, and customized derivatives should have a clearinghouse or, at least, greater disclosure requirements.”

President Obama is headed to New York on Thursday to talk about the unraveling of the dirty secrets that Wall Street is a fixed game when it comes to the bond market and all things associated with the huge bond markets. The equity markets have many checks and balances making that sector generally a safe arena; but the bond market which dwarfs the equity markets is no game for outsiders. The Goldman thing and the bailing out of the banks that were complacent in the mortgage market meltdown are finally going to be dragged out in the open and the stench will be stronger than many imagine now.

Crude oil continues its recent sell off this morning, down $2.00 to $81.00; it is a temporary decline triggered by the Iceland volcano ash that has halted most flights in Europe that lessens the need for jet fuel. That is the headline, but the rake away is that crude oil continues to be a speculators paradise for big moves in either direction. Once the ash goes away crude will start back up again.

Treasuries and mortgages opened soft this morning but by 9:00 the 10 yr and mortgage prices climbed back to unchanged. There is no economic data to deal with today, most of the chatter remains about G/S and the SEC fraud charges filed against them. This morning comments from G/S legal counsel. “We would never intentionally mislead anyone, certainly not our clients or our counterparties,” Goldman Sachs Co- General Counsel Greg Palm said today on a conference call with analysts. “We have never condoned and would never condone inappropriate behavior by any of our people. On the contrary, we would be the first to condemn it and take all appropriate action. ‘‘Our responsibilities as a financial intermediary require it and our commitment to integrity and the firm’s business principles demand it,’’ Palm said. Palm said Goldman Sachs had ‘‘no incentive’’ for the deal to fail, and lost more than $100 million on the transaction. G/S reported Q1 earnings that surpassed analysts’ estimates on record fixed- income trading revenue. According to a story on Bloomberg this morning, the SEC vote to sue G/S was 3 to 2 and was split on party lines. Two Democrats voted to charge G/S while two Republicans voted against the suit, the tie was broken by Independent Chairperson Mary Schapiro siding with Democrats. The SEC case signals the regulator could eventually target other banks over how much they told investors about at least $40 billion of CDOs that turned toxic as mortgage defaults soared to the highest level since the 1930s. Robert Khuzami, the SEC enforcement chief, said last week that the agency will aggressively pursue deals “that share similar profiles.” Looking over every news wire this morning, I can’t find much that is of immediate interest to the bond and mortgage markets. As for the G/S suit, it isn’t going to have much of an impact on the direction of interest rates. The original announcement of the suit last Friday has been digested and regurgitated; the stock market caved on Friday and a rush to safety into treasuries sent yields lower. By yesterday the shock had worn off; the DJIA rallied and the bond and mortgage markets gave back half of the improvements from Friday. This morning with little news the rate markets are flat with the stock index futures aiming for a solid opening. At 9:30 the DJIA opened +35, the 10 yr at 9:30 -2/32 and mortgage prices -2/32 (.06 bp) on 30s and -3/32 (.09 bp) on 15s. At 11:00 Bernanke and Geithner will go before Barney Frank’s Committee to talk about the failure of Lehman Bros. Yesterday the prepared statement from Bernanke was released so markets have a good idea what will occur at the hearings. Likely nothing that comes from the testimony will have any direct impact on the present rate markets. Bernanke will remind Barney that the Fed was not responsible for regulating Lehman and detail the steps the Fed didn’t take to save the firm. Many blame the Fed for not saving Lehman and believe if Lehman were rescued the financial crisis would have been much less of a trauma. Should be a quiet market today; the equity markets opened better than expected at 9:30 but going into 10:00 the indexes have settled down. The bond and mortgage markets, with nothing to digest will trade quietly today.

Treasuries and mortgages started generally unchanged this morning ahead of two economic releases, the stock market in early futures market trade were pointing to a weaker open at 9:30. The DJIA at 8:30 was off 39 points, the 10 yr unchanged and mortgage prices +1/32 (.03 bp). This week there has been no data points to focus on except Monday’s Mar leading economic indicators that don’t get a lot of attention. At 9:30 the DJIA opened -87; 10 yr note +3/32 3.73% -1 BP and mtgs +3/32 (.09 bp).

Greece New data out puts Greece’s budget deficit at 13.6% of GDP and higher than what was thought, making a bailout more of a problem. Greece’s benchmark 10-year bond yield rose to 8.49%, the highest since 1998 and more than twice the comparable German rate. The cost of insuring government debt against default climbed to a record today. Greece’s widening deficit and questions about the accuracy of its economic data have undermined the credibility and enforcement of the EU’s budget rules. Greece’s shortfall last year was more than four times the EU limit, though it wasn’t the region’s biggest. Ireland’s budget gap was revised up to 14.3%, the largest for any country since the start of the euro in 1999.    debt problems are back roiling markets.

At 8:30 weekly jobless claims were spot on, down 24K to 456K new unemployment claims; continuing claims were slightly lower to 4.646 mil frm 4.686 mil last week. Also at 8:30 Mar producer price index, thought to be +0.5%, was up 0.7%. The core rate (ex food and energy) was right on estimates, up 0.1%; yr/yr the overall PPI +6.0% the core yr/yr +0.9%. PPI continues to support the view inflation isn’t a factor so far—-and in our view not a concern as businesses have no pricing power to increase prices. The Fed will continue to keep the FF rate low until there is evidence the economic recovery is on more solid footing and inflation remains a non-factor.

At 10:00, March existing home sales were expected to be up 4.5% to 5.25 mil units annualized, sales increased 6.8% to 5.35 mil. Single family sales were up 7.3% with 44% of the sales to first time homebuyers. The inventory of homes on the market increased 1.5% to an 8 month supply as banks continue to unload inventories of foreclosed properties onto the markets. There was no noticeable reaction to the report on stocks and bonds.

Pres. Obama will speak today in NY, lambasting the Wall Street firms and banks for trying to block financial reform that is being debated in Washington. “A free market was never meant to be a free license to take whatever you can get, however you can get it,” Mr. Obama will say, according to speech excerpts released Wednesday night. “That is what happened too often in the years leading up to the crisis. Some on Wall Street forgot that behind every dollar traded or leveraged, there is family looking to buy a house, pay for an education, open a business, or save for retirement. What happens here has real consequences across our country.” As he has done several times in the year-long debate, the president will implore industry executives to call back the lobbyists engaged in “furious efforts” to thwart or water down his legislation. “I am sure that many of those lobbyists work for some of you,” he will say, according to the excerpts. “But I am here today because I want to urge you to join us, instead of fighting us in this effort. I am here because I believe that these reforms are, in the end, not only in the best interest of our country, but in the best interest of our financial sector.”

The main fight on financial reform is focused on regulating the derivatives markets, one key reason the system almost broke down completely. Legislation being debated is focused on how to regulate trading and make it more transparent on derivatives of all types. In our view derivatives (credit default swaps, interest rate swaps and other synthetic devises)  that led to extreme leverage that The Street itself didn’t understand, should to be traded on an exchange and with a clearinghouse in the middle. Big banks and Wall Street firms want to thwart it because that kind of control would eliminate much of the leverage used by the firms that about sunk this country, and would limit the types of swaps and derivatives that could be created. Big banks and financial firms want to continue operating without transparency as they have for generations. Since they have proven they can’t control themselves it is time to shine a bright light on what they do under the radar, not to say everything done in the derivatives markets is bad; there are good reasons to use various derivatives, but transparency should be increased.

Stocks being hit this morning on the Greece problems and some concerns about Obama’s speech coming up.

Treasuries and mortgages opened strong this morning as the debt concerns spread in Europe. It is Greece leading the problem but as each day passes with nothing accomplished the contagion is spreading to include Portugal, Spain and likely will include Ireland in the coming weeks. The growing debt problems in Europe are continuing to fuel safe haven moves to US treasuries and mortgages are taking the ride with them. Also adding support this morning, the US stock market is under pressure in the pre-market futures trading; at 8:30 the DJIA -11 with the other key indexes also weaker. The 10 yr at 8:30 +11/32 at 3.76% -5 BP, mortgage prices at 8:30 +8/32 (.25 bp). At 9:30 the DJIA opened -35, 10 yr +14/32 3.75% -6 BP, mortgage prices 8/21 (.25 bp)

German Chancellor Angela Merkel said today she is unwilling to release any financial help for Greece until the country comes up with a viable budget plan; so far that hasn’t happened. Greece has 8.5 billion euros ($11.4B) of bonds coming due next month (May 19th) after the state election and the extra yield that investors demand to hold its 10-year bonds over German bunds jumped 93 basis points to 652 basis points yesterday. Yields stayed near the highest since at least 1998 today amid mounting concern Greece will ask investors to accept delayed or reduced payments on its debt. Greece came up with a one yr budget plan but that according to Merkel isn’t enough, she wants at least a five yr plan.

The sovereign debt issues are unlikely to wane, we expect them to increase in concern within the global debt markets. As we have been noting in previous commentaries, Spain’s economy is substantially larger than Greece and it too hangs on the edge of potential debt defaults as the European economies are lagging the rest of the world in recovery from the recession. Portugal and  Ireland are in about as difficult situation as the contagion of rampant spending is pushing many secondary economies to the edge. As long as the crisis continues without resolution the US bond market will benefit and pull mortgage rates lower along with treasuries. Now we are watching countries in South America for the same problems, Argentina has appeared on the radar. All that said; in the end the EU and IMF will come up with money to keep Greece from defaulting, a default by Greece or any EU country would send the euro much lower, it has already declined 7.0% against the dollar this year and today is lower again.

At 9:00 the Feb Case/Shiller home price index of the 20 largest metro areas was expected to show the first improvement in 3+ yrs, up 1.1%. C/S reported prices in Feb declined 0.1% in the 20 largest metro areas, on a yr/yr basis however prices for the 10 and 20 metro areas increased 1.4%. For the 20 cities the yr/yr was expected to increase 1.2% but were half that at +0.6%. Prices continue to decline and C/S says it is too early to predict or expect home prices to start increasing. The reaction to the report sent treasury prices higher and mortgage prices a little better than prior to the data.

At 10:00 April consumer confidence, expected to have improved to 53.7 frm 52.5 in March, was better at 57.9. The expectations index, a measure of one yr out increased to 77.4 frm 70.4 in March. The initial reaction brought the stock indexes back to unchanged  and somewhat softened the rate markets.  

A little theater this morning in Washington; Lloyd Blankfein and The Fabulous Fab of Goldman/Sachs are testifying in Congress on G/S and how it conducted itself during the sub prime meltdown. Until now Blankfein has been rather outspoken and defensive on any of the allegations, will he temper his attitude in testimony and Q&A in what will likely be a contentious session? The crux of the issue is whether G/S traded against its clients by shorting the sub prime markets with credit default swaps. They did, and they profited from it, what remains is whether they were at the same time selling the junk sub prime CDOs to investors. The Senate’s Permanent Subcommittee on Investigations released documents that showed the company “put its own interest and profit ahead of the interests of its clients.”

This afternoon Treasury will sell $44B of 2 yr notes to begin three days of auctions totaling $118B. The 2 usually goes off well with strong bidding, today the safe haven concerns growing on the European potential debt defaults (lead by Greece) should add to the demand. 

Today US rate markets are being driven mostly on safe haven moves with the debt problems in Europe; Greece, Spain, Portugal and Italy saw their 10 yr note yields jump as much as 50 basis points overnight on concerns the contagion is spreading for potential sovereign defaults. It is difficult to handicap in terms of the lasting impact on US rates moving lower, at the moment a plan is worked out to save Greece (and we believe it will happen) the need for safety will lessen and take away the present strong support for US treasuries.

Treasuries and mortgage markets rallied hard yesterday on the news that S&P downgraded Greece debt to junk status. The stock market was hit hard and safe haven moves drove all yields across the curve lower. The 10 yr declined 13 basis points, the 5 yr fell 14 basis points, the DJIA closed -213. The debt problems with Greece and possibly Portugal and Spain, with no real plan to avoid default led S&P to lower the rating on Greece with little being accomplished by the EU and IMF to help out. Greece has to find a way to cut its budget more than appears possible. Finally, with little apparent progress to contain the potential contagion the global markets erupted when S&P made its move. European equity markets fell, the US stock market fell and investors and traders rushed to US treasuries for safety. 

The DJIA opened +40 this morning, at 9:30 the 10 yr note -11/32 at 3.72% +4 BP and mortgage prices -5/32 (.15 bp) frm yesterday’s close. Prior to 9:30 mortgage prices were off 8/32 (.25 bp) so morning pricing may be worse than where markets are trading at 10:00.

Overnight the euro gained after the Financial Times reported the International Monetary Fund may increase its financial assistance in the first year to Greece by 10 billion euros from the current 15 billion euros, citing unidentified bankers and officials in Washington. European Central Bank President Trichet, who declined to comment to reporters on yesterday’s downgrades, is in Berlin today to brief lawmakers on Greece’s deficit-cutting plans. The country is struggling to convince investors it can push its shortfall below the EU’s limit of 3.0% of gross domestic product from 13.6% last year. After the attack on Greece’s debt and dragging Portugal and Spain into the fears; the IMF and EU, led by Germany have juiced up the intensity to get moving on a solution to keep the contagion from spreading. The requirement that Greece reduce its debt to 3.0% will take years and unlikely to significantly ease global market fears that other mid-level economies will avoid the same difficulties. This morning cooler heads are prevailing; the DJIA is opening better (it has not had two bad days in succession for months), the rate markets are reversing with yields increasing as fast money traders back off. As we noted in yesterday’s 4:30 commentary, market volatility has stepped up a couple of notches making it more risky for mortgage lenders and originators to anticipate daily movement.

The homebuyers tax credit is going to expire in two more days unless a contract is signed and closed before the end of June. The tax credit jumped sales of new homes by 27% and existing homes by 6.0% in March. This morning the weekly MBA mortgage applications data confirmed that it is the tax credit and it alone that is driving sales and consumers. The overall index of apps declined 2.9% last week, the decline was all in re-finances that fell 8.8% but purchase apps jumped 7.4%. Once the stimulus has run its course the actual demand will be more clear as to the level of strength in the housing markets; recent activity has likely taken away future sales as buyers rushed to take advantage of the credit.

Not to overlook the Senate hearings on G/S yesterday; a parade of traders refusing to answer many questions, Senators asking questions that suggested they didn’t know much about the way Wall Street works. At the end of 10 hours of hearings with no breaks other than pit stops, nothing was revealed that was definitive. G/S execs did tell their sales staff to dump MBS CDOs and securities when it became apparent the housing markets were unwinding rapidly. In the world of high and complicated finance it is the slowest man on the track that gets stuck standing in the musical chair game. The e-mails, including communications from Chief Executive Officer Lloyd Blankfein, show that employees discussed how to “arm” salespeople to shed bonds the firm found too risky to hold. By the time Lloyd Blankfein testified the Senate committee had covered more e-mails than could fit in a 5″ binder; he of course was testy and admitted nothing.

Today has no economic data but this afternoon markets will have two key focuses. At 1:00 Treasury will auction $42B of 5 yr notes, the demand will be key as global sovereign investors wiggle on concerns of debt defaults in Europe. A strong auction with good demand will likely provide support for the bond and mortgage markets—weak demand will of course paste the markets. At 2:15 the FOMC will conclude its meeting and release the always short policy statement. The Fed will continue to keep rates low (the FF rate) with concerns that the economy still has a big hill to climb with unemployment high, consumer spending better but still anemic, and the housing sector nowhere near a substantive recovery. Any comments in the statement about the Fed selling its balance sheet assets will grab attention, however we are not looking for anything of substance on that front now.

Treasuries and mortgage markets weaker this morning; still however there is a safety trade alive. Market volatility should remain high as the sovereign debt problems will dominate.

Rate markets starting today very quietly. Weekly jobless claims were out at 8:30, as expected claims fell 11K to 448K, not quite as much decline as expected but still a decline. The four-week average is up 1,500 to 462,500 and compares negatively with 448,000 at the end of March. Continuing claims were down 18,000 to 4.645 million for the April 17 week.There was no noticeable reaction to the data in the bond and mortgage markets but it did boost the key stock indexes a little. At 9:00 the DJIA +33, 10 yr note unchanged and mortgages -1/32 (.03 bp). At 9:30 the DJIA opened +60, 10 yr unchanged and mortgages unchanged.

On the Greece problem; two days ago S&P down-graded its debt to junk status. S&P accomplished what politicians had yet to do, get going to work out some plan to keep Greece, Spain, Portugal and Ireland from moving ever closer to defaulting on their sovereign debts. Prior to S&P’s move Germany was taking a strong stand that no help would come unless Greece had a plan that was workable to lower its spending and reduce its external debt. Since the S&P downgrade the momentum is increasing rapidly to come to some resolution as the entire EU system is at risk. The euro currency has fallen from $1.52 to 1 euro to $1.32 to 1 euro. This morning German Chancellor Merkel said that bailout negotiations with Greece must be accelerated, signaling urgency on aid for the first time as Europe’s debt crisis spreads. “It’s completely clear that the negotiations between the Greek government, the European Commission and the IMF need to be sped up now,” Merkel said. “The stability of the euro zone is at stake and we will not duck our responsibility. But the condition is that Greece accepts an ambitious program so as to restore markets’ confidence in Greece.” Her remarks follow additional credit downgrades downgrades to Greece and Portugal yesterday that drove up borrowing costs from Italy to Ireland and boosted indicators of corporate credit risk around the world.

If the IMF and EU can get Greece to come up with a credible plan to increase confidence in the country the safe haven trades that have kept US treasuries from increasing will be lessened and attention will turn back to domestic considerations. Germany is expected to vote on its part of a plan by Friday evening, then it goes to the EU, but Germany is key.  It is a big IF but the consequences of failing to stabilize Europe’s mid-majors would set back the EU for years and would drive the euro currency lower. On the domestic scene; yesterday the Fed’s policy statement added more support to the improving economic outlook, but reiterated that inflation is not about to increase. The Fed once again reaffirmed that it will keep the FF rate at present levels as long as the economy is fragile and inflation remains subdued.

What appears to be progress on the Greece has bolstered the equity market this morning, the stock market is strong in early activity and will work against treasuries and mortgages. After weekly claims this morning the bond market has two focuses through the rest of the session; at 1:00 the last of three Treasury auctions, $32B of 7 yr notes, the demand will have influence. The second focus of course is how the stock market trades. The safe haven moves to US Treasuries over the European debt problems ebbs and flows with each comment from the region; ay 12:00 however most of Europe will be having cocktails so this afternoon’s trade may be devoid of any news on the subject.

Since the beginning of the year we have warned foreclosures would increase through the year; today more evidence that banks are finally going to have to drop the hammer on many they have tried to hold together. Time and opportunity is running out for banks that have been reluctant to put more homes on the markets. Whatever one believes, until the inventories of foreclosed and future foreclosures begin to wane the housing sector will continue to suffer. 

Rate markets starting today very quietly. Weekly jobless claims were out at 8:30, as expected claims fell 11K to 448K, not quite as much decline as expected but still a decline. The four-week average is up 1,500 to 462,500 and compares negatively with 448,000 at the end of March. Continuing claims were down 18,000 to 4.645 million for the April 17 week.There was no noticeable reaction to the data in the bond and mortgage markets but it did boost the key stock indexes a little. At 9:00 the DJIA +33, 10 yr note unchanged and mortgages -1/32 (.03 bp). At 9:30 the DJIA opened +60, 10 yr unchanged and mortgages unchanged.

On the Greece problem; two days ago S&P down-graded its debt to junk status. S&P accomplished what politicians had yet to do, get going to work out some plan to keep Greece, Spain, Portugal and Ireland from moving ever closer to defaulting on their sovereign debts. Prior to S&P’s move Germany was taking a strong stand that no help would come unless Greece had a plan that was workable to lower its spending and reduce its external debt. Since the S&P downgrade the momentum is increasing rapidly to come to some resolution as the entire EU system is at risk. The euro currency has fallen from $1.52 to 1 euro to $1.32 to 1 euro. This morning German Chancellor Merkel said that bailout negotiations with Greece must be accelerated, signaling urgency on aid for the first time as Europe’s debt crisis spreads. “It’s completely clear that the negotiations between the Greek government, the European Commission and the IMF need to be sped up now,” Merkel said. “The stability of the euro zone is at stake and we will not duck our responsibility. But the condition is that Greece accepts an ambitious program so as to restore markets’ confidence in Greece.” Her remarks follow additional credit downgrades downgrades to Greece and Portugal yesterday that drove up borrowing costs from Italy to Ireland and boosted indicators of corporate credit risk around the world.

If the IMF and EU can get Greece to come up with a credible plan to increase confidence in the country the safe haven trades that have kept US treasuries from increasing will be lessened and attention will turn back to domestic considerations. Germany is expected to vote on its part of a plan by Friday evening, then it goes to the EU, but Germany is key.  It is a big IF but the consequences of failing to stabilize Europe’s mid-majors would set back the EU for years and would drive the euro currency lower. On the domestic scene; yesterday the Fed’s policy statement added more support to the improving economic outlook, but reiterated that inflation is not about to increase. The Fed once again reaffirmed that it will keep the FF rate at present levels as long as the economy is fragile and inflation remains subdued.

What appears to be progress on the Greece has bolstered the equity market this morning, the stock market is strong in early activity and will work against treasuries and mortgages. After weekly claims this morning the bond market has two focuses through the rest of the session; at 1:00 the last of three Treasury auctions, $32B of 7 yr notes, the demand will have influence. The second focus of course is how the stock market trades. The safe haven moves to US Treasuries over the European debt problems ebbs and flows with each comment from the region; ay 12:00 however most of Europe will be having cocktails so this afternoon’s trade may be devoid of any news on the subject.

Since the beginning of the year we have warned foreclosures would increase through the year; today more evidence that banks are finally going to have to drop the hammer on many they have tried to hold together. Time and opportunity is running out for banks that have been reluctant to put more homes on the markets. Whatever one believes, until the inventories of foreclosed and future foreclosures begin to wane the housing sector will continue to suffer.

Treasuries and mortgage markets opened flat this morning and continued to flat line at 9:00 after 8:30 data. Q1 advance GDP at 8:30 was in line with estimates at +3.2%; personal consumption (spending) increased 3.6% double the gain in Q4 2009. The price index fell to +1.5% frm +2.5% in Q4 with the core increase ju