New HUD-1

The new HUD-1 rules are not that bad----it is more folklore than anything. Change has come.

http://www.federalhousingtaxcredit.com:80/

Check out this website for questions/answers about the extended first time and repeat homebuyers tax credit.

FHA Minimum Credit Score going UP

Most Lenders are moving the minimum credit score up to 640 on FHA transactions. I would probably bet that come January 1, 2010 all lenders will require this. Just being proactive.

Read the "FINE PRINT"

Here is the fine print of one of those "Mortgage Rates have Dropped" pop-ups



RefinanceFrontier.com is not a bank or lender ("Service Provider"). Leading Service Providers participate in our matching engine who may have loan products available matching the criteria you submit in this interest profile. The information collected is not an application for credit or a mortgage loan, nor is it used to pre-qualify you with any Service Provider.

* Mortgage Rate of 4.00%% is for qualified borrowers for a 10 year term. The quoted rate assumes a credit score of 680 with a loan to value (LTV) of 80% or less on a primary residence. Rate and terms offered may vary depending on your credit history and other qualifications, amount of equity in the property, location, and type of property, and other factors. The quoted rate of 4.875% is for a 5/1 adjustable ARM rate for a 30 year term and may have loan origination/discount fee due at closing. Rates are subject to change without notice and may not be available in all states. This loan is only available in certain states which may vary from time to time. Otherwise, no matter what state you live in we invite you to complete our form to be matched with lenders offering other programs in your state.

** A monthly payment of $531, $708, $1062 and $1417 is based on the borrower making an interest-only payment on a $150,000, $200,000, $300,000 and $400,000 respectively for a adjustable rate, 30-year mortgage loan with an adjustable interest rate of 5.809% APR and with additional fees and points due at closing. The interest rate is fixed for 5 years and adjusts after the initial 5 year period. The interest rate continues to adjust annually thereafter, and your loan payment may increase or decrease depending on current market conditions. During the first 5 years of the loan, you may make interest-only payments or pay interest plus as much principal as you would like. After 5 years, principal and interest payments are due, and your monthly payment will increase to $983, $1,311, $1,966 and $2,621 respectively, assuming an interest rate of 6.18% (calculated at the current 1 year Libor index rate of 3.93% plus a margin of 2.25%). Actual mortgage payments will vary based upon your individual situation and current interest rates, and these loan terms assume you pay all closing costs out of pocket. This loan may not be available in all states, and not all consumers will qualify for these monthly payment terms. These terms are available for a refinance loan on your primary residence with a loan-to-value ratio of 80%, and a credit score between 650 and 719. Other restrictions may apply. Until you lock your rate, APR and terms are subject to change without notice. The option arm period of 5 years and the payments for the remaining term of the loan are subject to terms and conditions as well as potential changes and limits contained in your loan contract, mortgage, or other agreement. You may not be matched with the lenders(s) making this specific offer and some lenders may not offer this in certain states.


That's why you have to read the fine print---these are basically non-existent loan products today

http://online.wsj.com/article/SB125967194482271175.html?mod=WSJ_hpp_sections_news

State of the Banking Sector

Good video about the USDA loan program



State of the Banking Sector - CNBC.com

Option ARMs: Housing recovery killer?

An explosion of foreclosures will result from option ARMs set to reset to higher payments.


Rates provided by Bankrate.com.
NEW YORK (CNNMoney.com) -- Option-ARMs: File under, "It sounded good at the time."

These exotic mortgages allowed homebuyers to come to closing with little cash and choose, monthly, how much to pay: interest and principal, interest only, or a minimum amount less than the interest due.

Of course, the last option is the one 93% of option-ARM buyers selected, according to a new report released this week by Standard & Poors.

But eventually, everyone has to pay the piper.

Nearly all of the 350,000 option-ARM borrowers owe more than when they first bought their homes thanks to the unpaid interest accumulating. And many loans written during the first big wave, which started in 2004, are getting ready for their five-year reset, when they become standard amortizing loans. Additionally, some newer loans will reset early if the accumulated interest has pushed the loan-to-value ratio above 110% to 125%.

That means borrowers are about to start paying very hefty prices for their homes. In one scenario outlined in the S&P report, the payment on a $400,000 mortgage jumps from $1,287 to $2,593.

25% default rate
But that doesn't just spell bad news for borrowers. Some industry pessimists say the looming default problem could have the power to derail the nascent housing market recovery. "The crux of the matter is that as soon as these mortgages recast, the history is that they will default," said Brian Grow, one of the S&P report's coauthors.

And the newer the loans, the worse they will perform, the report said. The last year that any option-ARMs were issued was 2007. In the first 20 months after issuance, this vintage of option-ARMs had an average default rate of just over 22%.

That includes all option-ARMs issued in 2007. But if you calculate default rates for only 2007 option-ARM borrowers who are now underwater, the default rate jumps to 25% after just 20 months, according to S&P.

So, while there may not be an awful lot of these loans out there, their high default rates will have an outsized influence on housing markets, adding to already bloated foreclosure inventories and driving prices down further.

Bubble markets
And the markets where they'll produce the most foreclosures are still among the most vulnerable in the nation.

Option ARMs were most popular in bubble markets -- California, Nevada, Florida and Arizona -- where double digit home annual price increases put the cost of buying a home out of reach.

In fact, 60% of these loans went to residents of California and other Western states, places where prices have fallen the most, according to report coauthor Diane Westerback. "The geography is negative for these products," she said.

Many borrowers in these places could only afford a home if they chose the option ARM. Many counted on continued hot market conditions to add value to their homes. The extra equity could then be tapped to pay their bills.

We all know how that worked out.

Home prices in many of the markets where option ARMs are most concentrated have fallen 30%, 40% or more. When the loans recast, most borrowers will find themselves severely underwater.

"Because borrowers of [options ARMs] are in a much worse position," said Westerback. "You'll see defaults rising very rapidly."

And most option ARM borrowers will not be good candidates for refinancing or mortgage modifications because their loan-to-value ratios will be far too high. Under the administration's Making Home Affordable program, for example, mortgages with balances that exceed 125% of the home's value are not eligible for help.

Not so white lies
There is another little problem that many option-ARM borrowers seeking refinancing would face: "Upwards of 80% of were stated-income loans," said Westerback.

These are the so-called "liar loans" in which lenders did not verify that borrowers earned as much money as they said they did. Lenders may not be able to modify mortgages because many of the borrowers' income could not stand up to the scrutiny. Borrowers may also not want to go through underwriting again because they could be held legally liable for deliberate inaccuracies on their original applications.

Add to those conditions the still fragile economy and high unemployment rates, and you have a recipe for disaster.

First Published: November 25, 2009: 1:57 PM ET

7 years seasoning on bankruptcies and foreclosures effective immediately!!!!!

New FHA refinance Rules

Posted on October 19, 2009


Want to refinance on the FHA Streamline Refi program? Better get a move on.

Beginning in just 4 weeks, the FHA changes over to new guidelines for its popular FHA-to-FHA refinance program.

Getting approved for a Streamline Refi will be more difficult and more expensive.

Summarizing the official FHA announcement, there are 3 areas in which the Streamline Refinance program is toughening up.

FHA homeowners must now be employed at the time of application
FHA homeowners must now verify household income
FHA homeowners must now have their homes appraised in order to "roll in" closing costs to the refinance
Compared to the current Streamline Refi guidelines, it's a landscape shifter.

See, until now, the FHA's refinance philosophy has been to help its homeowners however possible. It didn't matter whether a person was out of work, or whether he had his hours reduced, or even whether his home had lost 50% of its value. The FHA was all about lowering payments for its people.

So long as the homeowner had been paying the mortgage on-time, the FHA would just do the refinance -- few questions asked.

Effective next month, this changes. Underwriters for the new FHA Streamline Refinance program will be instructed to deny applications on the basis of employment, income, and assets.

No job? No money? No FHA loan. Under current guidelines, this isn't the case.

Furthermore, because (1) homeowners won't be able to roll in their closing costs without appraisal and (2) loan-to-values will be limited, people in highly-depreciated areas like Florida and Arizona may find streamline refis suddenly cost-prohibitive.

It's a terrible situation for the FHA homeowners that don't hear about these changes until it's too late.

Therefore, here's what to do. If you've got a FHA mortgage and you've been paying on-time, get yourself a streamline refinance quote against today's set of guidelines. Don't worry about the costs or by how much you'll lower your rate just yet -- the important part is just to get a non-obligation quote.

For the unemployed and furloughed, it's especially important.

Act fast! Homebuyer tax credit ends soon

NEW YORK (CNNMoney.com) -- Use any metaphor you want: the ticking clock, sands running through the hourglass or pages falling away from the calendar. The fact is, time is running out to claim the $8,000 first-time homebuyers tax credit.

Passed earlier this year as part of the economic stimulus package, the credit is good for up to $8,000, or 10% of the purchase price, and applies to people who have not owned a home in the previous three years. (There are some income restrictions.) The best part: Unlike a similar program from 2008, the credit does not have to be repaid.

The bad part: It ends on Dec. 1.

Because it usually takes around 90 days to close on a house after a contract is signed, buyers have very little time left to act. As of Thurs., Aug. 27, there were only 96 days left before the credit ends.

"Buyers have to get a home under contract very, very soon," said Tom Kunz, CEO of Century 21. "They probably should get out looking."

Sense of urgency
What they will find may surprise them: Many of the prime properties have already been snapped up. Home sales have been on the upswing, and inventories are so depleted in hot markets that first-time buyers are struggling to find homes in their price range. (Check prices in your city.)

In Whittier, Calif., for example, there are few repossessed homes for sale. Those are easy to buy because there isn't a lot of red tape and the bank wants to get rid of them as quickly as possible. Instead, most of the properties are short sales, where the sellers have to convince their lender to let them sell the house for less than they owe.

"That's why there's such a sense of urgency now," said Irma Tapper, a Century 21 real estate agent in Whittier. "The banks have to approve short sales, and they're taking three to six months to do that."

That means a first timer putting a bid on a short-sale might not get an answer form the bank until well after the Dec. 1 deadline for the tax credit. So when an actual repossession listing hits the markets, it creates a feeding frenzy.

Chuck Whitehead, who runs the Coldwell Banker agency in Temecula, Calif., said one recent listing hit the market on a Friday and by Monday there were 57 bids.

The National Association of Realtors attributes much of this activity to the first-time buyer tax credit. It estimates that 1.8 million buyers will file for the credit, and 350,000 of them wouldn't have been able to buy without it.

"It makes a big difference because most of these clients are in a lower price range," said Michelle Edmunds, an agent with Coldwell Banker in Temecula, Calf., who has closed sales for six first-time buyers. "The houses they buy need work and normally they wouldn't want to move in because of the [less than perfect] conditions the homes are in."

That is true for Wesley Forsythe. This June, the 30-year-old computer consultant and his girlfriend bought a row house in the Fishtown section of Philadelphia. Since he paid just $80,000 for the three-bedroom, two-bath place, the credit acted like a 10% discount.

"It allowed us to expand our price range and plan additional renovations," he said. "My mortgage is several hundred dollars less than what my new rent would have been."

Forsythe applied for the credit immediately after closing, filing an amended 2008 tax return. The IRS cut him a check in less than seven weeks. He's spending it now on new hardwood floors, repainting most of the interior and renovating a bathroom. He's stretching the cash by doing much of the work himself.

Cash for Clunkers effect
Of course, analysts worry that this frenzy will dry up once the tax credit expires. They argue that without the incentive, much of the pressure on homebuyers to act quickly will vanish, and the nascent housing recovery could slump.

In many ways the tax credit is similar to the Cash for Clunkers program that ended this week. Already, auto dealers are anticipating that car sales will evaporate after accelerating during the program.

"It's just like Cash for Clunkers," said Robert Dye, a senior economist for PNC Financial Services Group. "It runs the risk of a let-down as the program runs its course."

Johnny Isakson, R-Ga., who is a former real estate broker, is pushing legislation to extend the tax credit through next year, increase it to $15,000, include non-first-time homebuyers, and remove income restrictions.

The effort has drawn strong industry support.

"We need to stimulate the move-up buyer," said Century 21's Kunz, "so it works its way up the pricing food chain. That's what we need to get inventory moving again."

First Published: August 27, 2009: 2:46 PM ET

Why Leaders Need Stories: A Lesson from Don Hewitt

03:26 PM Monday August 24, 2009


By John Baldoni

"Even the people who wrote the Bible were smart enough to know, 'tell them a story.' The issue was evil in the world, the story was Noah.... Now the Bible knew that and for some reason or another I latched on to that."

That was Don Hewitt, creator and executive producer of one of the longest running show in U.S. television history, 60 Minutes, explaining the "secret" of his success. According to Steve Croft, a 60 Minutes correspondent, Hewitt did not concern himself with issues per se; he focused on stories shaped by those issues, be it war, consumer fraud, health investigations, or celebrity profiles.

Hewitt, who died this month at the age of 86, was fond of saying that every child realizes the importance of "tell me a story" — but when we reach adulthood, we forget. Yet Hewitt's absolute commitment to story is something leaders, particularly those with big initiatives to push, should remember. Story is a form of person-to-person connection that leaders, as fellow HarvardBusiness.org contributor Stew Friedman writes, can use to connect with their followers.

There are three reasons why a good story can be a useful leadership tool:

To inform. We all want the facts, but if a leader wants the facts to matter he needs to add a little seasoning. Stories can take raw data and give it life. For example, why not use a spreadsheet to tell a story about rising sales, or declining quality? Use the data to make your points. Then, flesh out that explanation with stories about the effect on individuals, teams and the company as a whole.

To involve. If you need to get people on your side, you need to involve them in the process. You need to engage their interest. For example, if an executive needs to persuade people to support an initiative, she can describe how the initiative will benefit the customer but also emphasize how it will improve the lot of employees, too. (More customers, more sales, more revenues, more jobs, more opportunities for promotion, etc.)

To inspire. Employees become jaded; there is only so much "importance" they can absorb, even when their jobs are at stake. So it falls to leaders to find ways to inspire their teams. Stories are the ideal vehicle for inspiring people because successful ones can dramatize the human condition. A story about a customer service representative who drove to the house of a customer to rectify an error, or a sales person who drove through a raging blizzard to close a sale, can quickly become the stuff of corporate legend. These stories give sustenance in times of travail, and say to an employee faced with long odds, "If he can do it, so can I."

There is another advantage to using stories, and that's something that Hewitt alluded to with his reference to the Bible. Use stories to make your points rather than relying on platitudes. In fiction writing workshops, they call this "Show, don't tell." For executives, this means you have to avoid corporate speak; instead, tell stories about how your initiatives will improve the lives of customers and employees.

Not every issue need be reduced to a story. There are times when a leader needs to be direct and to the point, to lay out the issue and the challenges in clear and precise language. For example, if a company is losing market share to a competitor, the sales manager might want to quantify the decline in sales by percentage and by lost revenue. Yet even in such circumstances, that same executive could drive the message home by naming the lost customers and describing the effect of their loss on the company.

A leader picks the right story at the right time to drive her point home, leaving no doubt about the importance of an initiative and its impact on the organization. It's up to a leader to use stories to dramatize urgency and humanize events — so that listeners become followers.

Tuesday 8/26/2009

Mortgage bonds are a bit lower as stocks look to open higher, after it was
announced that President Obama has reappointed Ben Bernanke as Federal
Reserve Chairman to a second 4-year term. This looks to be a smart move as
financial markets finally appear to be stabilizing. It was a little less than a year ago
that the credit markets were in disarray and fears of financial collapse spread
worldwide. Although Mr. Bernanke has his critics, and he has probably exerted his
influence in areas far beyond those of past Fed chairs, he has many supporters that
credit him with helping the United States step towards recovery. President
Obama's reappointment of Mr. Bernanke comes amid pressure and speculation
from some Democrats, who would have rather seen current Fed member Janet
Yellen or former Fed Vice Chairman Alan Blinder. But a look back at the history
books shows that when former Fed Chairman Paul Volcker was replaced by Alan
Greenspan in 1987, the uncertainty hating stock markets sold off hard. So the
move to keep Big Ben should help keep the markets a bit more stable.
The Bond market is also a little jittery ahead of this afternoon's $42B 2-year Note
auction at 1:00pm ET.
In what appears to be a continuing positive trend, more good signs for housing
were released this morning. The Case-Shiller Home Price Index rose to a
seasonally adjusted 1.4% in June - the 2nd month in a row. Prices rose in 18 of the
20 cities used in the survey. And the index showed that prices for the 2nd quarter
rose by 2.9%, the first quarterly increase in 3 years. Prices are still down 15.4%
compared to a year ago.
While we are very pleased to see good housing numbers, we must remember
that some of the improvement may be coming from people who would have
purchased in 2010 that are moving up their buying decisions to take
advantage of lower rates and tax credits before they expire. This means that
we may actually see a little dip in the housing numbers early next year. So
the positive trend is very welcome but should be taken with a grain of salt.
It's perhaps best thought of for now as housing not getting worse, instead of
housing improving rapidily.
Consumer Confidence is set to be released at 10:00am this morning and despite
the expected improvement, consumers' confidence remains fragile amid ongoing
job losses.
With mortgage bond prices modestly lower and sitting in a range between Support
and Resistance, we can start the day floating and watch for the impact of the
treasury auction as well as stocks influence on mortgage bonds.

The New American Dream: Renting

'A man is not a whole and complete man," wrote Walt Whitman, "unless he owns a house and the ground it stands on." America's lesser bards sang of "my old Kentucky Home" and "Home Sweet Home," leading no less than that great critic Herbert Hoover to declaim that their ballads "were not written about tenements or apartments…they never sing about a pile of rent receipts." To own a home is to be American. To rent is to be something less.

Every generation has offered its own version of the claim that owner-occupied homes are the nation's saving grace. During the Cold War, home ownership was moral armor, protecting America from dangerous outside influences. "No man who owns his own house and lot can be a Communist," proclaimed builder William Levitt. With no more reds hiding under the beds, Bill Clinton launched National Homeownership Day in 1995, offering a new rationale about personal responsibility. "You want to reinforce family values in America, encourage two-parent households, get people to stay home?" he said. George W. Bush similarly pledged his commitment to "an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, 'welcome to my house, welcome to my piece of property.'"


.Surveys show that Americans buy into our gauzy platitudes about the character-building qualities of home ownership—at least those who still own them. A February Pew survey reported that nine out of 10 homeowners viewed their homes as a "comfort" in their lives. But for millions of Americans at risk of foreclosure, the home has become something else altogether: the source of panic and despair. Those emotions were on full display last week, when an estimated 53,000 people packed the Save the Dream fair at Atlanta's World Congress Center. Its planners, with the support of the Department of Housing and Urban Development, brought together struggling homeowners, housing counselors, and lenders, including industry giants Bank of America and Citigroup, to renegotiate at-risk mortgages. Georgia's housing market has been devastated by the current economic crisis—338,411 homes in the Peachtree state went into foreclosure in May and June alone.

Atlanta represents the current housing crisis in microcosm. Since the second quarter of 2006, housing values across the United States have fallen by one third. Over a million homes were lost to foreclosure nationwide in 2008, as homeowners struggled to meet payments. The number of foreclosures reached an all-time record last month—when owners of one in every 355 houses in the country received default or auction notices or were seized by creditors. The collapse in confidence in securitized, high-risk mortgages has also devastated some of the nation's largest banks and lenders. The home financing giant Fannie Mae alone held an estimated $230 billion in toxic assets. Even if there are signs of hope on the horizon (home prices ticked upward by 0.5% in May and new housing starts rose in June), analysts like Yale's Robert Shiller expect that housing prices will remain level for the next five years. Many economists, like the Wharton School's Joseph Gyourko, are beginning to make the case that public policies should encourage renting, or at least put it on a level playing field with home ownership. A June 2009 survey commissioned by the National Foundation for Credit Counseling, found a deep-seated pessimism about home ownership, suggesting that even if renting doesn't yet have cachet, it's the only choice left for those who have been burned by the housing market. One third of respondents don't believe that they will ever be able to own a home. And 42% of those who once purchased a home, but don't own one now, believe that they'll never own one again.


.Some countries—such as Spain and Italy—have higher rates of home ownership than the U.S., but there, homes are often purchased with the support of extended families and are places to settle for the long term, not to flip to eager buyers or trade up for a McMansion. In France, Germany, and Switzerland, renting is more common than purchasing. There, most people invest their earnings in the stock market or squirrel it away in savings accounts. In those countries, whether you are a renter or an owner, houses have use value, not exchange value.

For most Americans, until the recent past, home ownership was a dream and the pile of rent receipts was the reality. From 1900, when the census first started gathering data on home ownership, through 1940, fewer than half of all Americans owned their own homes. Home ownership rates actually fell in three of the first four decades of the 20th century. But from that point on forward (with the exception of the 1980s, when interest rates were staggeringly high), the percentage of Americans living in owner-occupied homes marched steadily upward. Today more than two-thirds of Americans own their own homes. Among whites, more than 75% are homeowners today.

Yet the story of how the dream became a reality is not one of independence, self-sufficiency, and entrepreneurial pluck. It's not the story of the inexorable march of the free market. It's a different kind of American story, of government, financial regulation, and taxation.

We are a nation of homeowners and home-speculators because of Uncle Sam.

It wasn't until government stepped into the housing market, during that extraordinary moment of the Great Depression, that tenancy began its long downward spiral. Before the Crash, government played a minuscule role in housing Americans, other than building barracks and constructing temporary housing during wartime and, in a little noticed provision in the 1913 federal tax code, allowing for the deduction of home mortgage interest payments.

Until the early 20th century, holding a mortgage came with a stigma. You were a debtor, and chronic indebtedness was a problem to be avoided like too much drinking or gambling. The four words "keep out of debt" or "pay as you go" appeared in countless advice books. As the YMCA told its young charges, "If you can't pay, don't buy. Go without. Keep on going without." Because of that, many middle-class Americans—even those with a taste for single-family houses—rented. Home Sweet Home didn't lose its sweetness because someone else held the title.

In any case, mortgages were hard to come by. Lenders typically required 50% or more of the purchase price as a down payment. Interest rates were high and terms were short, usually just three to five years. In 1920, John Taylor Boyd Jr., an expert on real-estate finance, lamented that "increasing numbers of our people are finding home ownership too burdensome to attempt." As a result, there were two kinds of homeowners in the United States: working-class folks who built their own houses because they couldn't afford mortgages and the wealthy, who usually paid for their places outright. Even many of the richest rented—because they had better places to invest than in the volatile housing market.


.The Depression turned everything on its head. Between 1928, the last year of the boom, and 1933, new housing starts fell by 95%. Half of all mortgages were in default. To shore up the market, Herbert Hoover signed the Federal Home Loan Bank Act in 1932, laying the groundwork for massive federal intervention in the housing market. In 1933, as one of the signature programs of his first 100 days, Frankin Roosevelt created the Home Owners' Loan Corporation to provide low interest loans to help out foreclosed home owners. In 1934, F.D.R. created the Federal Housing Administration, which set standards for home construction, instituted 25- and 30-year mortgages, and cut interest rates. And in 1938, his administration created the Federal National Mortgage Association (Fannie Mae) which created the secondary market in mortgages. In 1944, the federal government extended generous mortgage assistance to returning veterans, most of whom could not have otherwise afforded a house. Together, these innovations had epochal consequences.

Easy credit, underwritten by federal housing programs, boosted the rates of home ownership quickly. By 1950, 55% of Americans had a place they could call their own. By 1970, the figure had risen to 63%. It was now cheaper to buy than to rent. Federal intervention also unleashed vast amounts of capital that turned home construction and real estate into critical economic sectors. By the late 1950s, for the first time, the census bureau began collecting data on new housing starts—which became a leading indicator of the nation's economic vitality.

It's a story riddled with irony—for at the same time that Uncle Sam brought the dream of home ownership to reality—he kept his role mostly hidden, except to the army banking, real-estate and construction lobbyists who rose to protect their industries' newfound gains Tens of millions of Americans owned their own homes because of government programs, but they had no reason to doubt that their home ownership was a result of their own virtue and hard work, their own grit and determination—not because they were the beneficiaries of one of the grandest government programs ever. The only housing programs prominently associated with Washington's policy makers were underfunded, unpopular public housing projects. Chicago's bleak, soulless Robert Taylor Homes and their ilk—not New York's vast Levittown or California's sprawling Lakewood—became the symbol of big government.

Federal housing policies changed the whole landscape of America, creating the sprawlscapes that we now call home, and in the process, gutting inner cities, whose residents, until the civil rights legislation of 1968, were largely excluded from federally backed mortgage programs. Of new housing today, 80% is built in suburbs—the direct legacy of federal policies that favored outlying areas rather than the rehabilitation of city centers. It seemed that segregation was just the natural working of the free market, the result of the sum of countless individual choices about where to live. But the houses were single—and their residents white—because of the invisible hand of government.

But by the 1960s and 1970s, those who had been excluded from the postwar housing boom demanded their own piece of the action—and slowly got it. The newly created Department of Housing and Urban Development expanded home ownership programs for excluded minorities; the 1976 Community Reinvestment Act forced banks to channel resources to underserved neighborhoods; and activists successfully pushed Fannie Mae to underwrite loans to home buyers once considered too risky for conventional loans. Minority home ownership rates crept upward—though they still remained far behind whites. Even at the peak of the most recent real-estate bubble, just under 50% of blacks and Latinos owned their own homes. It's unlikely that minority home ownership rates will rise again for a while. In the last boom year, 2006, almost 53% of blacks and more than 47% of Hispanics assumed subprime mortgages, compared to only 26% of whites. One in 10 black homeowners is likely to face foreclosure proceedings, compared to only one in 25 whites.


Long Island’s Levittown, celebrated its 60th anniversary in 2007.
.During the wild late 1990s and the first years of the new century, the dream of home ownership turned hallucinogenic. The home financing industry—at the impetus of the Clinton and Bush administrations—engaged in the biggest promotion of home ownership in decades. Both pushed for public-private partnerships, with HUD and the government-supported financiers like Fannie Mae serving as the mostly silent partners in a rapidly metastasizing mortgage market. New tools, including the securitization of mortgages and subprime lending, made it possible for more Americans than ever to live the dream or to gamble that someone else would pay them more to make their own dream come true. Anyone could be an investor, anyone could get rich. The notion of home-as-haven, already weak, grew even more and more removed from the notion of home-as-jackpot.

And that brings us back to those desperate homeowners who gathered at Atlanta's convention center, having lost their investments, abruptly woken up from the dream of trouble-free home ownership and endless returns on their few percent down. They spent hours lined up in the hot sun, some sobbing, others nervously reading the fine print on their adjustable rate mortgage forms for the first time, wondering if their house is the next to go on the auction block. If there's one lesson from the real-estate bust of the last few years, it might be time to downsize the dream, to make it a little more realistic. James Truslow Adams, the historian who coined the phrase "the American dream," one that he defined as "a better, richer, and happier life for all our citizens of every rank" also offered a prescient commentary in the midst of the Great Depression. "That dream," he wrote in 1933, "has always meant more than the accumulation of material goods." Home should be a place to build a household and a life, a respite from the heartless world, not a pot of gold.

—Thomas J. Sugrue is Kahn professor of history and sociology at the University of Pennsylvania. He is writing a history of real estate in modern America.

08/13/2009

It's been another exciting morning and Mortgage Bonds are on the plus side after
starting the day lower. But don't touch that dial, because another day of Treasury
auctions may cause pricing to change quickly.
Interestingly, Germany and France have both declared that their recession is over.
We don't quite understand how they can confidently be beating the drum on this,
but time will tell. On the news, Mortgage Bonds drifted lower and were pushed
lower still after Wal-Mart beat earnings estimates for the 2nd Quarter. But this
didn't jive with the Retail Sales report, which was worse than expectations. And a
disappointing Initial Jobless Claims numbers soured the Stock market and helped
boost Mortgage Bonds.
Initial Jobless Claims rose by 558,000 in the latest week, above the 545,000 that
was expected. The recent trend of Claims readings does show some
improvement. After 22 consecutive weeks of readings over 600K, we have seen
three successive readings under 600k, so Claims have dropped a bit. But have
people found Jobs or have they just fell off the extended claims benefits? This is
tough to gauge - but based on what you see in the economy - is there a lot of hiring
going on? We feel it may be more likely that Claims benefits are expiring.
Retail Sales dropped in July by 0.1%, well below the 0.8% gain that was expected.
This report negated the better than expected Wal-Mart report and signals that
consumers are still saving more than spending. This brings up a little known and
rarely discussed but critical facet of the economy...the velocity of money. In simple
terms, if you bought a pair of shoes and the owner of that shoe store takes that
profit and buys a big screen TV, then the TV store owner buys something else, etc.
- the same dollar passes through the economy over and over again causing growth
and jobs as well as ultimately inflation. But the latest Retail Sales report tells us
that the velocity of money is stagnant. Once the velocity of money increases,
inflation will likely follow.
More Bonds coming to market. Once again the Treasury is going to unleash more
Bond supply, this by way of $15B in 30-year Bonds. Yesterday's 10-year Note
auction showed so-so results with anemic foreign participation, thereby causing a
swift selloff in Mortgage Bonds. Stay tuned for the results of this auction at 1pm
today as we may see some more volatility yet. Some good news - there are no
auctions scheduled for next week aside from the usual T-Bill offerings, so Mortgage
Bonds may be able to improve somewhat from current levels.
Yesterday's volatility was expected and today we are likely to see some more - we
will float for now, but be ready to take the action later today should the markets
move on the auction findings.

Video: Aesop's Fable - or fact? Meet the world's cleverest bird - Times Online

Video: Aesop's Fable - or fact? Meet the world's cleverest bird - Times Online

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Use Nap Time to Maximize Your Up Time

By John Baldoni

Want to make better use of your time? You might want to consider taking a nap.

A new study from Pew Research shows that one-third of all people who earn $100,000 or more take naps. These folks spend more time napping than those earning between $30,000 and $100,000. (Too much napping is not good for your income: those who napped the most earned less than $30,000 annually.)

While I cannot attest to the earning power of napping, I can vouch for its leadership effectiveness. Winston Churchill and John D. Rockefeller took regular naps, as did my grandfather. For nearly thirty years, Grandpa John worked full-time and ran a weekly newspaper on the side. Naps were essential to his ability to keep working productively.

Napping is something I've been preoccupied with lately as I recuperate from foot surgery. Since I have been instructed to stay off my feet as much as possible, the tendency to snooze has caught me more regularly — typically it's a quick doze on a hard floor. When I awake, I am refreshed and recharged, and possess an extra stipend of energy.

The chief purpose of a quick nap is less about the time spent resting and more about the energy it produces. Some refer to this as power napping. Here are some suggestions for making your naps more productive.

1. Find a comfortable spot and stretch out. This can be hard to do in an office setting but it's not impossible. If appropriate, keep your eye out for a clean stretch of carpet, perhaps in a conference room or unoccupied office. [You can also snooze in your chair but make certain you are not cramped and that you are positioned for safety so you won't fall out when you fall asleep.]

2. Close your eyes and focus on a project. Do not get wrapped up in details like budgets and deadlines. That will only provoke anxiety; focus on possibility, that is, on how you will accomplish the project and with whom.

3. Relax as you mull over concepts. As your mind wanders, let your body relax, too.

4. Doze. For me, fifteen to thirty minutes works. Any longer makes me a bit groggy, but do what works for you. (Note: naptime is not heavy REM sleep; often I do not actually fall asleep but I do feel rested upon waking.)

5. Wake up. Rise slowly, and as you regain your balance, stretch your arms and legs. Time to get back to work. Enjoy the sense of renewal that comes from a quick nap.

Chances are if you follow these simple tips, you will be more than ready to get back to work. You may find yourself with a bit more pep in your step and zip in your thought processes. You may not make more money but you will likely be more refreshed and able to tackle the challenges the rest of the day presents.

From my point of view, naptime is not slack time. It is self-time. Use a nap as you would exercise or reflection; it is a time to connect your thoughts to your eventual actions. And for leaders that can be a very good thing.


05:31 PM Thursday August 06, 2009

Do You Really Know What Your Employees Think?

Do You Really Know What Your Employees Think?

01:54 PM Wednesday July 22, 2009


By John Baldoni

The Pew Research's News Interest Index for a week in July concluded that people surveyed were actually more interested in stories about Michael Jackson's death, as well as the economy and health care reform, than news media's coverage provided.

With the glut of coverage and cries of overkill for these stories, this is a surprising revelation. The lesson for leaders? If you want to know what people are thinking, don't rely on second-hand reports from others. Ask employees yourself and listen to what they have to say. Political campaigns are particularly expert in this area when they test market messages and conduct tracking polls. By measuring impact and understanding, they are able to shape and re-shape their messages for greater impact. (Some may call this pandering; others may regard it as responsiveness.)

Corporate leaders do not need to hire pollsters but they do need to be more cognizant of the impact of their messages. Most managers are very good at giving messages; following up with repeated iterations is more of a challenge, but a greater challenge is often gauging the effect of the message. We see this most evidently during organizational transformation efforts. There is a lot of energy and enthusiasm expended in getting the word out about the "big change" but relatively little follow up in terms of listening and evaluating impact. To address this, consider these suggestions when crafting your next communication plan.

Walk the halls. Make yourself visible to your team by spending time in their work areas. Be approachable so people can engage you in conversation. Be prepared to begin conversations about new product launches, service improvements, or efficiency initiatives. Ask people how these things are working for them.

Listen to feedback. Give them time to respond. Ask follow-up questions related to their experiences so you get beyond the seventh-grader's answer to how are things at school — fine! When you hear such responses, people may be too timid to voice an honest answer. Be conversational to encourage folks to share more information.

Report on feedback. Let your colleagues know what you are hearing and what it means. For example, if you are discovering that customers hate the service upgrade, report on it. Likewise if employees are enthusiastic about an initiative, you can be heartened, but stay tuned for further updates. Many initiatives are well received, only to die later from lack of support.

Report on revisions. If you make a major change, or even a minor one, communicate it. Also, do more follow up to see how it is working. This is especially critical when there is initial resistance. Few things are more powerful than a senior executive saying, "we heard you and we are making changes." That gives a leader instant credibility, as long as there is appropriate follow through.

Conduct a communications audit. Corporate leaders do not need to conduct tracking polls but communication audits around what people are thinking, feeling, and doing related to company initiatives can be useful. Such audits can be done quickly and cost effectively online. Again, report the results to everyone so you keep the organization up to date.

There is an additional point about the prevailing news coverage that is relevant to communicating in tough times. While economic news is generally bleak right now, there are periodic bits of good news, "green shoots" as pundits are fond of calling them. If those green shoots are related to your business, make certain you make a point of linking that good news to what your team does. Do not assume people will figure it out; connect the dots for them. For example, if you are in the alternative energy field, talk up federal funding as well as uptick in consumer awareness and corporate demand.

Leaders need to keep their fingers on the pulses of their organizations. Many executives fear being blindsided by what they do not know — like lack of capability, resources, manpower and talent that will affect business growth. Those executives who spend time out and about with their people have few such fears. They know the score and as a result, can steer their organizations with a greater sense of awareness.

Treasury Yields to Fall, Fibonacci Signals

Treasury Yields to Fall, Fibonacci Signals: Technical Analysis

By Yoshiaki Nohara

July 22 (Bloomberg) -- Ten-year Treasury yields are likely to decline, paring their biggest weekly increase in more than a month, a technical indicator suggests.

Yields may fall to 3.43 percent this week after they failed on July 20 to break above 3.72 percent, a figure that represents a key threshold based on the Fibonacci sequence of numbers, said Kazuaki Oh’e, a bond salesman in Tokyo at Canadian Imperial Bank of Commerce, the nation’s fifth-biggest bank.

The 3.72 percent yield marks a 61.8 percent retracement of the decline from an eight-month high of 4 percent on June 11 to a two-month low of 3.26 percent on July 13.

“The yield is likely to fall a bit further this week,” Oh’e said. “It may reach the next support level” of 3.43 percent, which is the 23.6 percent retracement level, he said.

The 10-year yield was unchanged at 3.48 percent as of 9:05 a.m. in Tokyo, according to BGCantor Market Data. It fell 12 basis points, or 0.12 percentage point, in New York yesterday.

Yields jumped 34 basis points last week, the biggest increase since the five days ended June 5.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance or below support indicates yields may move to the next stage. Levels used in the analysis are based on a sequence identified in the 13th century by Italian mathematician Leonardo da Pisa.

Friday 07/10/2009

After a significant rally higher, Bonds have been ripe for some profit taking and a
reversal lower – and yesterday’s weak Treasury auction results triggered a plunge
lower in pricing. This morning, Bonds are fighting to regain some lost ground as
prices sit almost exactly between a floor of support at the 50-day Moving Average,
and a ceiling of resistance at the 100-day Moving Average.
The economic calendar has been light this week, and as we mentioned yesterday,
Traders seem to be scrounging around under the bleachers searching for morsels
of good news. But this morning, two different economic reports have already
shaken things up a bit for Stocks.
First, the Balance of Trade, which measures the difference between our imports
and exports, came in at a surprisingly narrow reading of $26 Billion in May –
dropping 9.8% compared to the previous month’s reading, as exports rose and
imports declined. Not only did this month’s reading come in significantly off from
expectations that the deficit would widen to $30 Billion, but it also was the lowest
deficit in nearly a decade.
While some may try to grab headlines and take credit for their efforts to narrow the
trade deficit, those in the know – like our Mortgage Market Guide subscribers – can
clearly see that this is simply the result of a weakened Dollar against other
currencies, making our goods appear relatively cheaper. Additionally, the report is
actually an indicator of the continued weakness of the economy, as demand for
imports has decreased for the 10th straight month. This does mean that GDP may
not fall as sharply in the second quarter as industry experts were expecting, due to
the relative rise in exports. Remember, rising exports add to GDP, while falling
imports are subtracted from it. All in all – Stocks weren’t crazy about the report,
and money moved from Stocks into Bonds, helping Bond pricing move higher this
morning.
Then the Consumer Sentiment Index arrived at 64.6, far uglier than the expected
read of 70.3. Clearly, consumers continue to feel concerned about the economy –
again, not good news for Stocks, but benefitting Bonds.
While Bonds are improving a bit this morning based on the economic report
headlines – we’re still concerned about the overall outlook for Bonds in the near
term. They have many factors working against them – overhead resistance at the
100-day Moving Average, a continued overbought state with the beginnings of a
negative Stochastic Crossover, and the relentless supply of Treasury Bonds coming
on the market that need to be absorbed. So when we have opportunities to lock
clients in at lower rates, where it clearly makes sense for them to refinance – we
want to do so and not be greedy or overly optimistic. At the same time, we do want
to try and safely squeeze as much out of each rally as we can – the recent rally is a
good example. But knowing that there are both fundamental and technical
obstacles makes this a challenging task, and it also can be a bit of a challenge for
you to relay this information to your clients…as many of them can be greedy,
searching for rates that are unattainable while risking significant savings. We’ll
continue to work together and use the illustrations available to get those clients to
make smart decisions

Interest rates-----come down out of that high tree. I need you at 5% again.

Tuesday 07/07/2009

Bonds continue to dance just under a thick dual layer of resistance
formed by the 50-day Moving Average and recent highs…and Bonds
might find it hard to bust through the overhead ceiling and find much
improvement today unless Stocks roll over.
After struggling most of the day, Stocks mustered a run higher late
yesterday to erase their losses and actually finish the day with slight
gains. The Dow finished a modest 44 points higher on the day, while
the S&P 500 was higher by 2 points. Overnight, European Stocks
continued the climb, after manufacturing orders in Germany reported
the highest jump in almost two years. The report helped ease some
concerns that a global economic recovery is stagnating.
But even given the positive news from across the pond, Stocks
opened lower again this morning, despite a small rebound in the price
of Oil and rumors about a potential second economic stimulus
package. Vice President Joe Biden commented over the weekend
that “the administration miscalculated how bad the jobless problem
would be”, prompting speculation that more stimulus might be in the
works during 2009. More stimulus would translate into more
inflation…and also would mean more Treasury auctions to pay for it,
creating even more supply to be sopped up. Many members of
Congress admittedly voted to pass the first stimulus package without
even reading through it, only to now look back and discover that most
of the almost $800B was not earmarked to actually stimulate the
economy, but more towards social programs. This will be an important
story to watch as it certainly could create a negative impact on Bonds
and home loan rates down the road.
With no Economic Reports scheduled for release today, Traders will
likely remain cautious and keep their eyes on the initial second-quarter
corporate results due out later this week. Also in the news this week is
another round of Treasury securities up for auction, totaling $73 Billion.
Depending on how the sale is received by the markets, it could put
pressure on Bonds, particularly in light of the recent comments on
added stimulus.
Bonds are in a tough spot, with both technical indicators and
fundamentals working against them, so a Locking approach might
normally be more appropriate. However, the picture for Stocks may
even be uglier than it is for Bonds – and a sell-off in Stocks would
mean that some of that money would find its way into Bonds and
potentially push prices higher…or at least support present levels.
We’re going to Float – but not be cavalier about it, as the current
situation needs to be monitored carefully.

Ch-ch-ch-changes

Everyday we get some type of lending change. They come in the form of an email with an effective date that has either already passed or only a few days away. We do our best to keep up with the current underwriting guidelines but we are at the mercy of the rule makers.
The frustrating part is the changes can come in the middle of your loan and there is nothing you can do about it. Borrowers are frustrated too but this is the world we live in now. Evolve or go extinct.

Cap and Trade

06/25/2009

House Speaker Nancy Pelosi has put cap-and-trade legislation on a forced march through the House, and the bill may get a full vote as early as Friday. It looks as if the Democrats will have to destroy the discipline of economics to get it done.

Despite House Energy and Commerce Chairman Henry Waxman's many payoffs to Members, rural and Blue Dog Democrats remain wary of voting for a bill that will impose crushing costs on their home-district businesses and consumers. The leadership's solution to this problem is to simply claim the bill defies the laws of economics.

Their gambit got a boost this week, when the Congressional Budget Office did an analysis of what has come to be known as the Waxman-Markey bill. According to the CBO, the climate legislation would cost the average household only $175 a year by 2020. Edward Markey, Mr. Waxman's co-author, instantly set to crowing that the cost of upending the entire energy economy would be no more than a postage stamp a day for the average household. Amazing. A closer look at the CBO analysis finds that it contains so many caveats as to render it useless.


Associated Press

Henry Waxman
For starters, the CBO estimate is a one-year snapshot of taxes that will extend to infinity. Under a cap-and-trade system, government sets a cap on the total amount of carbon that can be emitted nationally; companies then buy or sell permits to emit CO2. The cap gets cranked down over time to reduce total carbon emissions.

To get support for his bill, Mr. Waxman was forced to water down the cap in early years to please rural Democrats, and then severely ratchet it up in later years to please liberal Democrats. The CBO's analysis looks solely at the year 2020, before most of the tough restrictions kick in. As the cap is tightened and companies are stripped of initial opportunities to "offset" their emissions, the price of permits will skyrocket beyond the CBO estimate of $28 per ton of carbon. The corporate costs of buying these expensive permits will be passed to consumers.

The biggest doozy in the CBO analysis was its extraordinary decision to look only at the day-to-day costs of operating a trading program, rather than the wider consequences energy restriction would have on the economy. The CBO acknowledges this in a footnote: "The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap."

The hit to GDP is the real threat in this bill. The whole point of cap and trade is to hike the price of electricity and gas so that Americans will use less. These higher prices will show up not just in electricity bills or at the gas station but in every manufactured good, from food to cars. Consumers will cut back on spending, which in turn will cut back on production, which results in fewer jobs created or higher unemployment. Some companies will instead move their operations overseas, with the same result.

When the Heritage Foundation did its analysis of Waxman-Markey, it broadly compared the economy with and without the carbon tax. Under this more comprehensive scenario, it found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Note also that the CBO analysis is an average for the country as a whole. It doesn't take into account the fact that certain regions and populations will be more severely hit than others -- manufacturing states more than service states; coal producing states more than states that rely on hydro or natural gas. Low-income Americans, who devote more of their disposable income to energy, have more to lose than high-income families.

Even as Democrats have promised that this cap-and-trade legislation won't pinch wallets, behind the scenes they've acknowledged the energy price tsunami that is coming. During the brief few days in which the bill was debated in the House Energy Committee, Republicans offered three amendments: one to suspend the program if gas hit $5 a gallon; one to suspend the program if electricity prices rose 10% over 2009; and one to suspend the program if unemployment rates hit 15%. Democrats defeated all of them.

The reality is that cost estimates for climate legislation are as unreliable as the models predicting climate change. What comes out of the computer is a function of what politicians type in. A better indicator might be what other countries are already experiencing. Britain's Taxpayer Alliance estimates the average family there is paying nearly $1,300 a year in green taxes for carbon-cutting programs in effect only a few years.

Americans should know that those Members who vote for this climate bill are voting for what is likely to be the biggest tax in American history. Even Democrats can't repeal that reality.

Printed in The Wall Street Journal, page A14
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

Sitting at the doctor with my dad.

Monday 6/15/2009

Mortgage Bonds are advancing higher so far today after two days of healthy gains.
The Bullish Engulfing Pattern, along with the Positive Stochastic Crossover,
accurately signaled this very welcomed rally. And the good news is that there
should be some more room to advance until we reach resistance at the 200-day
Moving Average, about 30bp higher. From there we will have to see if the rally has
the power to break above the ceiling. A stumble from stocks will be key - and
stocks continue to battle their own 200-day MA, now at 944 on the S&P 500.
As you know, we have been watching this level closely and stocks have, very
stubbornly, hung in for quite at while near this ceiling. It's no coincidence that both
stocks and bonds are doing battle with their 200-day MA's at the same time. It will
be interesting to watch.
A worse than expected New York State manufacturing index came in at -9.41,
weaker than estimates of -5.10. Readings below zero show contraction in
manufacturing.
This morning, the US Dollar is rebounding higher against global currencies. This is
causing a sell-off in oil and putting downward pressure on Stocks in shares energy,
mining and other natural resource companies.
There are no auctions this week other than the normal T-Bill offerings and the
absence of additional supply may provide Bonds some room for improvement. For
today, we can recommend a floating bias but stay tuned, as both stocks and bonds
"duke it out" near their respective 200-day Moving Averages.

Mortgage-Bond Yields Climb to New High Since Fed’s Buying Plan

By Jody Shenn

June 10 (Bloomberg) -- Yields on Fannie Mae and Freddie Mac mortgage securities rose, setting a new high since the Federal Reserve announced plans to buy the bonds to drive down interest rates on new home loans and further thwarting the effort.

Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds rose 0.09 percentage point to 5.06 percent as of 3 p.m. in New York, according to data compiled by Bloomberg. That’s the highest since Nov. 24, the day before the U.S. central bank announced its plans to buy home- loan bonds. The level is up from 3.94 percent on May 20.

Today, yields advanced largely in line with a climb in rates on benchmark 10-year Treasuries, as the government sold $19 billion of the securities and Russia said it may switch some of its reserves from U.S. debt. The “agency” mortgage-backed securities market has also been roiled by widening yield premiums relative to government notes.

“You know the Fed is going to be buying, so investors aren’t underweighting agency MBS per se, but they are taking off their overweights as spreads have tightened well beyond historical averages,” said Scott Buchta, a strategist at Guggenheim Capital Markets LLC in Chicago. “What you’re starting to see people look at is: What happens when the Fed stops buying?”

U.S. mortgage applications fell last week to the lowest level since February as a jump in borrowing costs discouraged refinancing and signaled that Fed Chairman Ben S. Bernanke’s bid to cap rates is stalling, according to Mortgage Bankers Association data released today.

The Fed’s Strategy

The Fed initially said on Nov. 25 that it would buy as much as $500 billion of mortgage securities, before announcing in March that it would expand the program to as much as $1.25 trillion, as well as buy $300 billion of Treasuries. The average rate on a typical 30-year mortgage rose to 5.56 percent as of early yesterday, from 4.85 percent on April 28, the lowest on record, according to Bankrate.com data.

“The homeowner can’t handle this,” said Scott Simon, the head of mortgage-bond investing at Pacific Investment Management Co., whose Newport Beach, California-based firm is the world’s largest fixed-income manager.

Higher rates are “really hurting the refi wave,” Buchta said in a telephone interview. “And rising rates are definitely going to hurt home prices. Consumers figure out the payment they can afford and from that figure out how much house they can buy.”

An increase of 0.5 percentage point in loan rates translates into about 5 percent “less buying power,” he said.

Fannie-Treasury Gap

The difference between yields on the Fannie Mae bonds and 10-year Treasuries rose 0.02 percentage point today to 1.13 percentage point, Bloomberg data show. The gap, which grew to as much as 2.38 percentage points last year, contracted to 0.7 percentage point on May 22, the lowest since 1992.

Yields on agency mortgage bonds are guiding rates on almost all new U.S. home lending following the collapse of the non- agency market in 2007 and a retreat by banks. The almost $5 trillion market includes securities guaranteed by government- controlled Fannie Mae and Freddie Mac and bonds of U.S.-insured, low-down-payment loans backed by federal agency Ginnie Mae.

The housing market faces challenges. Additional U.S. home foreclosures will probably total 6.4 million by mid-2011, about 2.5 million less than if mortgages weren’t being reworked to aid borrowers, according to JPMorgan Chase & Co. analysts.

The modification-adjusted number, from a starting point of March, will lessen home-price declines “only slightly,” the mortgage-bond analysts led by John Sim in New York wrote in a June 5 report. Instead of falling 41 percent from their peaks, U.S. prices will probably drop 39 percent on average, they said.

Completed foreclosures totaled 861,664 last year, up from 404,849 in 2007, according to RealtyTrac Inc., an Irvine, California-based seller of foreclosure data. In the first four months of this year, they totaled 276,526.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

Last Updated: June 10, 2009 16:03 EDT

Monday 6/1/2009

06/01/2009

On Friday, mortgage backed securities (MBS) aggressively rallied, recapturing about half the losses suffered on "Black Wednesday". The majority of lenders repriced for the better but many remained cautious and did not pass along gains to the extent that MBS coupons rallied, which is typical for a Friday.



So far this morning, we have given back half of Friday's gains after better than expected economic data. The week ahead is packed with economic reports to digest with the highest impacting report scheduled to be released on Friday: The Employment Situation Report.





Today brings us several relevant reports to discuss.

- Personal Income and Outlays report which provides us data on the dollar value of income received from all sources and consumer purchases of durable and non durable goods, and services. Last month, both income and spending declined from the prior month by -0.3% and -0.2% respectively. Economists surveyed are expecting continued declines with income and spending both expected to drop an additional -0.2%. Since consumer spending is the lifeline of our economy, it will be very difficult for our economy to recover until spending picks up. Personal income came in much higher than expected at a 0.5% increase but it did not lead to much more spending with the outlays coming in at a -0.1%. It appears that the sharp jump higher in income is being attributed to increased government social benefits including unemployment insurance. Consumer optimism is picking up, income is moving higher but spending is still lagging. Imbedded within this report is a measure on inflation with the Personal Consumption Expenditure index. The core PCE index came is higher than expectations at a month over month increase of 0.3% following last month’s 0.2% increase. This places year over year core PCE at 1.9%. With oil continuing its move higher, currently up more than a dollar to $67.50 a barrel, let’s hope that the inflation genie is not out of the bottle yet. The 1.9% year over year reading is within the Fed’s comfort zone but rising oil prices will continue to apply pressure on consumer goods to move higher in price. High unemployment should contain inflation for now but we do have a couple months in a row of higher than expected month over month increases in inflation. Following the release, MBS have moved considerably lower in price giving back half the gains from Friday.

- ISM Manufacturing index which gives us a measure of the strength of the manufacturing segment of our economy. This is a survey of more than 300 manufacturing firms on employment, production, new orders, supplier deliveries and inventories. Readings above 50 indicates growth in manufacturing, readings from 43 to 50 indicates that the economy is growing even though manufacturing is contracting and any level below 43 indicates the economy is in recession. Last months’ report came in much better than expected rising from 36.3 to 40.1 which helped to spark the optimism that the recession is nearing its end. Economists’ expectations are for continued improvement to a reading of 42.0 and the actual report came in at 42.8. Following the release of this better than expected data and the construction data, MBS have now given back all of Friday’s gains.

- Construction spending which is the dollar value of new construction activity on residential and non residential projects. Rising construction spending is a key indicator of a growing economy since businesses tend to only build new factories when they are confident that the economy is healthy enough to justify the expansion. Construction spending for March rebounded to a surprising 0.3% increase but expectations are for a sharp decline to -0.8% for April. The release has come in much higher than expected at a month over month increase of 0.8%.

Tuesday

- Pending Home Sales Index will be released by the National Association of Realtors. This index is a leading indicator of housing activity in the existing home sales market. A pending sale is one in which a contract has been placed on a home but the sale has yet to close. Strong housing demand is viewed as a huge positive for economic growth due to a person would have to feel very positive about their own financial position to buy a home. In addition, high housing demand usually leads to other purchases such as appliances, flooring, window treatments, etc… which leads to higher sales of goods and services.

Wednesday

- Weekly Mortgage Bankers’ Applications Index. This data set measures new applications at mortgage lenders. This report gives investors a gauge into demand for housing which has a big impact on economic momentum. Higher demand for housing usually leads to higher demand for many products to fill the home thus the stock market generally rallies with a improving number.

- Factory Orders which represents the dollar value of new orders for both durable and non durable goods. An increasing number suggests economic momentum and is seen as a positive for stocks and a negative for MBS. Last month’s report came in at a decline of -0.9% and economists’ surveyed are estimating a sharp rebound to an increase of 1.1%

- ISM Non-Manufacturing Index which gives us a measure of the strength of the non manufacturing segment of our economy. Last month this index rose to 43.7 and economists surveyed are expecting continued improvement with a 45.0 reading. This index is compiled by surveying 400 firms across the US.

Thursday

- Jobless Claims, expectations call for 620,000 filers for first time unemployment insurance following last week’s 623,000. The bigger concern is the continuing claims, which is the number of citizens who continue to file for unemployment insurance, which has set a record week after week and is currently over 6.6 million. A higher than expected number would be a positive for MBS and mortgage rates.

- Productivity and Costs measures the growth of labor efficiency and unit labor costs. An efficient labor force can help contain inflation by lowering unit labor costs. If a company can produce a higher amount of goods and services, with the same labor force, that helps to keep prices and inflation down.

- We also get an announcement from the Treasury Department regarding the total amount of Treasuries that will be auctioned at the next auction. The added supply of debt will apply pressure on treasury and MBS yields to rise. Currently the yield on the benchmark 10 year treasury note is at 3.65%. Our government needs to issue more treasuries to fund the ever increasing spending.

Friday

- Employment Situation which is the highest impacting economic report we receive on a monthly basis. Higher unemployment leads to less consumer spending and less pressure on wages so it is positive for MBS and lower rates when unemployment is high. Economists’ surveyed are expecting the number of jobs lost from last month to be at 530,000 following the April’s loss of 539,000. It is also expected that the unemployment rate will move from last month’s 8.9% to 9.2%. In a sign of optimism for our economy, March’s job loss total was 699,000 so we are seeing some improvement in the amount of jobs lost. If this report comes in better than expected, the stock market will probably continue to move higher as investors sell their fixed income investments to move their cash into higher yielding equities.





After the very welcomed rally we had on Friday, it is very disappointing to watch the sell off this morning. Early reports from fellow mortgage professionals are indicating better rates than we had at the end of last week but disappointing after the huge rally on Friday. Again, this just shows you how quickly things can and will change. Today’s par 30 year conventional rate mortgage is near 5.00% for the best qualified consumers. In order to secure this rate you will have to have a FICO credit score 740 or higher, a loan to value 80% or less and be willing to pay all closing costs associated with your refinance including 1 point loan origination/discount/broker fee.

Frequently Asked Questions About the Home Buyer Tax Credit

Frequently Asked Questions About the Home Buyer Tax Credit

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

1. Who is eligible to claim the tax credit?
2. What is the definition of a first-time home buyer?
3. How is the amount of the tax credit determined?
4. Are there any income limits for claiming the tax credit?
5. What is "modified adjusted gross income"?
6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
7. Can you give me an example of how the partial tax credit is determined?
8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
9. How do I claim the tax credit? Do I need to complete a form or application?
10. What types of homes will qualify for the tax credit?
11. I read that the tax credit is "refundable." What does that mean?
12. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
15. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
16. I am not a U.S. citizen. Can I claim the tax credit?
17. Is a tax credit the same as a tax deduction?
18. I bought a home in 2008. Do I qualify for this credit?
19. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
20. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
21. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?


Who is eligible to claim the tax credit?
First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.


What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.


How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.


Are there any income limits for claiming the tax credit?
Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.


What is "modified adjusted gross income"?
Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.


If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.


Can you give me an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.


How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.


How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase.


What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.


I read that the tax credit is "refundable." What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).


I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.


Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.


Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.


I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
No. You can claim only one.


I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.


Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.


I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit. Please consult with your tax advisor for more information.
Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.

Finally, HUD’s publication of Mortgagee Letter 2009-15 allows FHA-approved lenders to issue short-term loans to advance the credit amount for use in purchasing the home.
If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.
For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

$8,000 tax credit video

Mortgages Over 5% Mean Fed Purchases as Bonds Slump (Update2)

By Daniel Kruger

May 11 (Bloomberg) -- The world’s biggest investors are increasing bets that Federal Reserve Chairman Ben S. Bernanke will boost purchases of Treasuries as the steepest losses on government debt since 1994 send mortgage rates above 5 percent.

The slump in Treasuries the past seven weeks pushed yields on longer-maturity bonds up by more than half a percentage point and sent average rates on 30-year mortgages to the highest since the start of April, according to North Palm Beach, Florida-based Bankrate.com. Policy makers said March 18 they were committing “greater support to mortgage lending and housing markets” when they pledged to buy as much as $300 billion of Treasuries and stepped up purchases of bonds backed by home loans.

BlackRock Inc., American Century Investments, Federated Investors and Pioneer Investment Management say it’s time to buy Treasuries because the Fed will need to expand its purchases to keep consumer borrowing costs from rising further. While higher bond yields, the 37 percent increase in the Standard & Poor’s 500 Index since March 9 and U.S. reports on housing and inventories show the economy may be stabilizing, Bernanke said May 5 that “mortgage credit is still relatively tight.”

“The Fed needs to consider increasing its purchases of Treasuries,” said Stuart Spodek, co-head of U.S. bonds in New York at BlackRock, which manages $483 billion in debt. Spodek said he resumed buying Treasuries. “We are still in a recession. It’s quite bad. They need to stabilize long-term rates.”

Fed Precedent

Reviving the housing market is critical to ending the longest recession since the 1930s. The National Association of Home Builders says the industry accounted for 13.6 percent of U.S. gross domestic product in the first quarter of 2009, down from 16.7 percent in 2005. GDP contracted at a 6.1 percent rate last quarter after shrinking at a 6.3 percent pace in the final three months of 2008.

There is precedent for the central bank to expand purchases. The Fed increased its commitment to buy mortgage bonds to $1.25 trillion in March from $500 billion when it said it would begin buying government debt in a policy known as quantitative easing.

“We think there’s a point very close to here where the Fed would act,” said James Platz, a fund manager at Mountain View, California-based American Century, which invests about $24 billion in bonds and resumed buying Treasuries. “We would expect at some point an announcement of additional buybacks.”

The Fed purchased $92.2 billion of Treasuries since the March 18 announcement, according to data compiled by Bloomberg.

Losing Streak

At the same time, 10-year note yields, a benchmark for consumer and mortgage rates, reached 3.38 percent last week, the highest since November and up from 2.46 percent on March 19, according to BGCantor Market data. Thirty-year mortgage rates are up from 4.85 percent on April 28.

Yields rose for seven weeks, the longest streak in five years. The benchmark 3.125 percent note due in May 2019, which was auctioned by the Treasury on May 6, ended last week at 98 20/32 to yield 3.29 percent. The yield declined to 3.21 percent today at 9:32 a.m. in New York.

Treasuries lost 3.93 percent this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index, after gaining 14 percent in 2008 as investors sought a refuge from tumbling prices of securities tied to subprime mortgages. Losses and writedowns at the world’s largest financial institutions total $1.41 trillion since the start of 2007, Bloomberg data show.

‘Tight’ Credit

The declines are the most since Treasuries tumbled 4.94 percent at the same point in 1994, according to Merrill Lynch indexes. That year, the Fed raised its target rate for overnight loans between banks to 5.5 percent from 3 percent in an effort to contain inflation. Treasuries ended up losing 3.35 percent for all of 1994, before returning 18.5 percent in 1995 and 2.61 percent in 1996, including reinvested interest.

Thirty-year mortgage rates as measured by Freddie Mac rose to 9.25 percent on November 1994, from 6.74 percent in 1993, before falling to 6.94 percent in February 1996.

Home prices have declined for 31 straight months and are down 31 percent from their peak, according to S&P/Case Shiller indexes. Mortgage applications to purchase a home remain below the high reached in September when rates averaged 5.94 percent, Mortgage Bankers Association and Bankrate.com data show.

“The supply of mortgage credit is still relatively tight, and mortgage activity remains heavily dependent on the support of government programs or the government-sponsored enterprises,” Bernanke told the Joint Economic Committee of Congress on May 5.

Thawing the Freeze

Bernanke succeeded in narrowing the difference in yields between mortgage securities, which also influence home loan rates, and Treasuries.

The gap between the 30-year current coupon Fannie Mae bond and the benchmark 10-year Treasury shrank to a 15-year low of 0.77 percentage point on May 6. It averaged 1.23 percentage points in the five years prior to the collapse of Lehman Brothers Holdings Inc. in September. Thirty-year mortgage rates are down from 6.46 percent in October.

Other lending rates also show Fed efforts to thaw frozen credit markets are working, which may reduce pressure on policy makers to step up purchases of Treasuries.

The London interbank offered rate, or Libor, for three- month dollar loans fell to a record 0.92 percent. The difference between Libor and what the Treasury pays to borrow for three months, the so-called TED spread, was 0.72 percentage point, the narrowest in almost a year and down from 4.64 percentage points on Oct. 10.

Bond Switch

Investors anticipating an expansion of the Fed’s Treasury purchases were disappointed after the Federal Open Market Committee’s April 29 meeting, when policy makers left the size of planned buybacks unchanged and said the economy is showing signs of stability. Yields on 10-year notes rose 16 basis points, or 0.16 percentage point, to 3.16 percent that week, the biggest increase since the period ended Feb. 27.

Treasuries are falling in part because investors are switching to higher-yielding assets on signs the worst of the recession is over.

Unemployment in the U.S. grew by the smallest amount since October last month. Payrolls fell by 539,000, after a 699,000 loss in March, while the unemployment rate rose to 8.9 percent, the highest level since 1983, the Labor Department said May 8. The Commerce Department said the same day wholesalers reduced supplies of unsold goods for a seventh month in March.

Corporate Debt Sales

“People are feeling a little bit more comfortable that the economy is not getting as bad as it was,” said Richard Schlanger, who helps invest $13 billion in fixed-income securities as vice president at Pioneer Investment in Boston. “There has been a slight migration out of the safe-haven mentality.”

Besides the gain in stocks and the drop in the rate banks charge to lend to each other, U.S. companies including New York- based Morgan Stanley and Bank of America Corp. in Charlotte, North Carolina, have sold more than $500 billion of bonds, according to Bloomberg data.

There is still plenty of incentive for Bernanke to contain borrowing costs as job losses threaten to restrain consumer spending after a first-quarter rebound, according to economists surveyed by Bloomberg News last month.

The government is likely to sell a record $3.25 trillion of debt this fiscal year ending Sept. 30, according to Goldman Sachs Group Inc., to finance bank bailouts, economic stimulus plans and fund a growing budget deficit.

Consumer credit in the U.S. contracted by a record $11.1 billion, the most since records began in 1943, to $2.55 trillion in March, according to a Fed report released May 7.

“If all of a sudden this rise in the 10-year yield feeds into higher all-in mortgage rates, that’s when we think the Fed will come in with a vengeance” to increase its Treasury purchases, said Joseph Balestrino, a money manager at Federated Investors in Pittsburgh, which oversees $21 billion in bonds. “We are a buyer.”

To contact the reporter on this story: Daniel Kruger in New York at dkkruger1@bloomberg.net.

Friday May 1st 2009

Mortgage Bonds are trading lower today after failing to stay above support at the
25-day Moving Average. A look at yesterday's candle on the Bond Page
shows both long upper and lower wicks, illustrating wild intra-day trading. Prices
bounced around, hitting both the 25-day MA ceiling of resistance, and support at
the 50 and 100-day Moving Averages.
But so far this morning, although lower, Bond prices have successfully tested a
triple layer floor of support, marked by the 50 and 100-day Moving Averages, as
well as some previous lows. This strong floor of support could help prices from
getting much worse, but it is important to remember that there is a lot of influential
news coming next week, along with huge supply of Bonds being auctioned, which
could push prices below this strong floor. And if prices do break beneath this floor,
we will likely see another 75bp deterioration before the next level of support is
found. That said, we will Float for now, as we watch to see if this strong triple layer
of support holds.
Stocks are slightly lower so far this morning, but they did post strong gains in
April. In fact, the S&P 500 had its best month in nine years, gaining 9.4%, led by
the financial sector and thanks to Congress and FASB for fixing Mark-to-Market.
Speaking of the financial sector, the Fed is going to delay releasing the banking
stress test results. It appears that there may be some discussion as to the
conclusions of the findings, as well as how the information is released to the
public. It's always difficult to speculate as to the exact reasons why this delay
would take place, but it is possible that this open dialog shows a willingness for both
sides to get this right.
The New York Fed reported that it purchased $23B in Mortgage Backed Securities
from April 23 through April 29 bringing the year-to-date total to $400B out of the
$1.25T. Of note, the Fed did for the first time purchase FNMA 3.5% Bonds - but the
amount purchased was miniscule and insignificant. We will be seeing if the Fed
dips in to buy more 3.5% Bonds as that could help rates improve modestly from
these levels.
Yesterday, the Economic Cycle Research Institute (ECRI) said that the current
recession and longest post war will probably end by the time the summer is over.
The ECRI, whose leading indicators have a solid track record of predicting turns in
the business cycle, said that enough of its key gauges have turned upward to
indicate with certainty that a recovery is coming. This is comforting news and yet
another reason why mortgage rates are not likely to improve significantly.
Consumer Sentiment came in at 65.1, a bit better than the expected 61.9. As we
have been saying, this appears to be a result of the improvement in Stock prices.
Additionally, the Institute of Supply Management (ISM) Index arrived at 40.1, also
better than expectations of 38.4.
As we've mentioned, keep your eye on the S&P500 Index, which is at a pivotal
juncture around 875. A convincing move above this level could push Stocks higher
by another 8%, but a failure to break this level could trigger a sell-off of at least 5%.
And as we know, this will likely have an influence on Mortgage Bonds.