What You Should REALLY Be Shopping For On Black Friday

Black Friday is rolling around again.  Hundreds of Thousands of people will be lining up early Friday morning, in the cold, dark weather to get the best buys for Christmas.  I have been shopping on Black Friday once, the sense of urgency surrounding the shoppers is amazing.  But what are they really saving?  A few hundred dollars?  Maybe you get lucky and get short-term low interest financing as well.

How would you like to save between $50,000 and $100,000 this Black Friday?  Instead of lining up early to get $50 off an X-Box or $25 bucks off that new TV for your kids, sleep in a little bit.  Have a nice breakfast.  Then spend the day with your Realtor finding the ultimate deal.

The entire last year has seen Black-Friday like prices in the Real Estate Industry.  Houses are on sale, and even better, fixed rates are near rock bottom.  Let’s take a look at the impact of this Black Friday Housing Special.

Most of the country has seen some sort of falling home prices.  Let’s assume (conservatively), that the area that you are in has seen prices fall just 5% over the past two years. If you are looking at a house that is currently listed for $250,000 than you are already saving over $13,000- I am betting that you can’t get that kind of savings at Wal-Mart, no matter how much they roll back prices.

Now consider financing:  sure, Conn’s may run a special giving you 1 year interest-free, but is that really in your best interest?  On a $5,000 purchase at a 20% rate, you save at the most $1,000.  Home Mortgage Rates are currently hovering around 5%.  Lock on of those babies in and you are talking savings.  On that $250,000 home, are saving almost $55,000 over the life of the loan (vs. a 6% rate).  Further, if you plan appropriately, and invest that money wisely, you are looking at over a $300,000 increase in net worth.

OK, I know.  The Black Friday deals are pretty hard to pass up.  There’s a darn good chance that the house you want may be on the market through Saturday.  I just ask you to think of this…. why are you spending more time and effort to save a couple hundred dollars rather than tens of thousands.

If you truly want to save money this Black Friday, give me, Rich Bonn, a call at 281.841.1723.  I will be more than happy to assist you and your Realtor in creating a personalized mortgage plan for you, and getting you into the home of your dreams.

Today’s Market Update

FNMA 30-YR 4.5%

Previous close 101.781

Opened down 0.09BPs @ 101.688

Key Economic Data:

EUR / USD 1.4928 Up 0.0051
USD / JPY 89.280 Up 0.0262
GBP / USD 1.6790 Down 0.0022

OIL 79.60 Up 0.46
Gold 1,145.90 Up 6.50

Key Economic News:

CPI and housing, Geithner and Bullard.

8:30: Consumer pirce index for Oct…a moderate report? On headline, median forecast (of 78): +0.2%, ranging from -0.2% to +0.5%; last +0.2%. On core, median forecast (of 77): +0.1%, ranging from -0.2% to +0.2%; last +0.2%. We made some modest adjustments to our forecast after PPI, but basic nature of the forecast has not changed. As was the case wthe PPI, we expect the CPI to feature a benign core reading with food and energy pulling the headline up, though not nearly as much as in the PPI. Within the core index, the rental components should continue to be flat or slighly negative, and apparel prices should also be off a bit. Medical and lodging away from home are the higher components of our forecast. Price increases for tobacco took effect late in the month to show up materially in this report; they’ll be an issue for November.

8:30: Housing starts and permits for Oct…look for a small increase. On starts, median forecast (of 77) +1.7%, ranging from -3.4% to +8.2%; last -1.2% (since revised to -0.9%). With sales of new homes and builder sentiment both stalling of late, we expect gains in housing starts will be limited.

9:00: Treasury Secretary Timothy Geithner hosts a small business financing forum at the US Treasury Department…

9:15: St. Louis Federal Reserve President James Bullard speaks on the US economic outlook…Bullard has surprised us in both directions since he’s been on the job, so hard to know what to expect. He rotates onto the voting membership of the FOMC next year.

Advice:

CPI – Gas and cars vs Everything Else in the CPI; Starts Down surprisingly.

Bottom Line:
A highly skewed report on consumer prices, with vehicles accounting for more than 80% of the core increase and energy driving most of the rest. Housing starts weaken as high vacancies weigh on new construction, especially of multifamily projects.

Key Numbers:
CPI +0.27% in Oct (mom, -0.2% yoy) vs median forecast +0.2%.
ex food and energy +0.18% (mom, +1.7% yoy) vs median forecast +0.1%.
Housing starts -10.6% in Oct (mom, -7.2% yoy) vs median forecast +1.7%.

Based on CPI and Housing Starts, I see today following in yesterdays footsteps. With all this uncertainty I would lock today.

Clearing Up Condo Confusion

Over the past few months, there has been a lot of questions about FHA’s changes in condo guidelines. The date has been a moving target, the modifications to the guidelines keep changing. So what is happening now?

The biggest change in my opinion is that FHA will no longer allow spot approvals for condo project. This “permanent” change will happen on February 1st, 2010. What does that mean? If you are trying to purchase a condo in a home owners association that is NOT approved by the FHA, you will have to get the entire project approved by the lender* prior to the loan being approved. This involves significantly more time and paper-pushing, as well as a lender who wishes to be involved in the condo approval process. On the plus side, once that condo project is approved, it will be much easier to sell other units in that project.

Here is some good news (note, these are temporary changes):
-FHA will lend on up to 100% of the units in a project, if the project meets FHA criteria (call me for more information)

-FHA will no longer consider bank owned condos (foreclosures) in their occupancy calculation, this will make many projects more marketable.

-Construction presale requirements have dropped to 30%.

These changes are available for case numbers issued between December 7th, 2009 and December 31st, 2010

Today, over half of all purchases are being financed by FHA mortgages.  Rather than trusting your mortgage to the first person who picks up the phone, trust your home to an expert.

For more information, call Rich Bonn at 281.841.1723.

Updated Homebuyer Tax Credit Information

The Worker, Homeownership, and Business Assistance Act of 2009 has extended the first time home buyer tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence. The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.

For sales occurring after November 6, 2009, the Act establishes income limits of $125,000 for single taxpayers and $225,000 for married couples filing joint returns.

The income limits for sales occurring on or after January 1, 2009 and on or before November 6, 2009, are $75,000 for single taxpayers and $150,000 for married taxpayers filing joint returns.

The following q&a provides 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.

• Who is eligible to claim the $8,000 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 on or before April 30, 2010. 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. A limited exception exists for certain contract for deed purchases and installment sale purchases. See the IRS website for more detail.

However, the law also allows home sales occurring by June 30, 2010 to qualify, provided they are due to a binding sales contract in force on or before April 30, 2010.

Persons who are claimed as dependents by other taxpayers or who are under age 18 are not qualified for the tax credit program.

• 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, IRS Notice 2009-12 allows unmarried joint purchasers to 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. For sales occuring after November 6, 2009, the income limit for single taxpayers is $125,000; the limit is $225,000 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 $125,000 for single taxpayers and $225,000 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 $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.  The income limits for claiming the tax credit were raised when the tax credit was extended. Are the higher limits retroactive?

• The income limits for claiming the tax credit were raised when the tax credit was extended. Are the higher limits retroactive?

No. The new income limits are only applicable to purchases occurring after November 6, 2009.

The income limits for sales occuring on or after January 1, 2009 and on or before November 6, 2009 are $75,000 for single taxpayers and $150,000 for married couples filing jointly.

• 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 $235,000. The applicable phaseout to qualify for the tax credit is $225,000, 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 $138,000. The buyer’s income exceeds $125,000 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 early 2009?

The tax credit’s income limits were increased, the documentation requirements were tightened, and the program’s deadlines were extended.

• How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?

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 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). No other applications 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. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home 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, provided the home is purchased for a price less than or equal to $800,000. 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.

It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.

• 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).

• 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 on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April, 30, 2010).

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 an 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 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 a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 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.

In addition, 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. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.

• HUD is now allowing “monetization” of the tax credit. What does that mean?

It means that HUD allows buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.

Under HUD’s guidelines, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans of up to $8,000. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.

Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement. In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.

More information about the guidelines is available on the NAHB web site. Read the HUD mortgagee letter (pdf) and an explanation of the FHA Mortgagee Letter on Tax Credit Monetization (pdf). An FAQ about monetization (pdf) is available at the NAHB web site.

• If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?

Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year 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 prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.

• For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, 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 the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

Mortgage Market Update-Hang On, It May Be A Wild Ride

FNMA 30-YR 4.5%

Previous close 101.125

Opened down 0.09BPs @ 101.03

Key Economic Data:

EUR / USD   1.4782   Up   0.0076

USD / JPY   91.390   Up   0.6348

GBP / USD   1.6468   Up   0.0096

OIL     78.83       Up    1.37

Gold   1,038.30  Up    7.80

Key Economic News:

Growth for a change as we see the first print on Q3 GDP, plus two appearances by Secretary Geithner and the usual run of weekly data on unemployment claims and the financial sector.

8:30: GDP for Q# ( premiminary)…a return to growth. Median forecast (of 79): +3.2%, ranging from +2.0% to 4.8%; last (third Q2 estimate) -0.7%. The main factor was a reevaluation of the inventory data suggesting that, in real terms, efforts to reduce liqidation contributed much less to last quarter’s growth than we had previously. Mark-ups to residential investment (reflecting stronger brokerage commissions) and to state and local spending (still down, but less so) provided offset, but do imply that final sales were actually firmer – up about 2.5% at an annual rate.

GDP price index…a modest increase. Median forecast (of 45): +1.4%, ranging from +0.3% to +2.3%; last flat

8:30: Unemplyment insurance claims…will they dip further? For initial claims, median forecast (of 43): 525k, ranging from 515k to 540k; last 531k. For continuing claims, median forecast (of 18): 5.905 million, ranging from 5.85mm to 5.975mm; last 5.923mm. Initial claims appear to be stuck at around the lower end of the range that has prevailed for several months. Continuing claims for regular benefits have been coming down, and the total number of recipients appears to have stabilized in the past couple of weeks. The continuing figure is for the reference week for the October payroll survey.

9:30 Treasury Secretary Timothy Geithner testifies on regulatory reform…before the house Financial Services Committee.

16:30: Fed balance sheet data. The Fed’s balance sheet has crept up gradually to the upper end of the $1.8trn-$2.2trn range that has prevailed through most of the year. Total reserves have risen more sharply and now exceed $1trn, with excess reserves at about $987bn vs. about $850bn a month ago, as the Treasury unwinds the Supplemental Financing Program.

9:30: Treasury Secretary Timothy Geithner speaks on the economy…to the Economic Club of Chicago. He is likely to reiterate the themes of comments made Tuesday before SIFMA to the effect that more stimulus is in the pipeline and that the economy, while not strong, is on the road to recovery.

Advice:

The Federal Reserve will complete its $300 billion Treasury purchase program today amid signs the seven-month buying spree helped stabilize the housing market and limited increase in borrowing.

The economy grew in the third quarter for the first time in more than a year, propelled by stimulus-driven gains in consumer spending and home building. The economy expanded at a 3.5% pace from July through September, exceeding the median estimate.

Today’s Mortgage Update, Looking Bullish on Rates

FNMA 30-YR 4.5%

Previous close 100.781

Opened up 0.25 BPs @ 101.031

Key Economic Data:

EUR / USD 1.4892 Up 0.0017
USD / JPY 90.280 Down 0.2700
GBP / USD 1.6474 Up 0.0053

OIL 79.65 Up 0.04
Gold 1,066.30 Up 8.20

Key Economic News:

Housing starts, PPI, weekly confidence, and more Fedspeak…

8:30: Housing starts and permits for September…look for another increase. On starts, median forecast (of 76) +2%, ranging from -2.7% to +5.4%; last +1.5%. On permits, median forecast (of 54) +2.8%, ranging from -1.6% to +7.1%; last 2.8% (since revised to -1.1%). Although builders reported a small setback in thier index of housing market conditions in October, most indicators (low mortgage rates, increase in home sales) suggest that home building continued to improve in September. We expect small increase in both single- and multifamily starts. If there’s a suprise, it should be to the upside in the multifamily sector, where activity has benn particularly low.

8:30: Producer price index for September…little change, on balance? On headline, median forecast (of 75) flat, ranging from -0.8% to +0.5%; last +1.7%. On core, median forecast (of 75) +0.1%, ranging from -0.1% to +0.5%, last +0.2%. This is a hard one to pin down, and coming after the CPI it will matter less to the markets. Our forecast shows relatively little change in the major indexes of finished goods – for energy, food, or core. Expectations are on the low side on headline (probably due to energy, though it was up in the September CPI) and to the high side on core(probably a presumption of pass-through from intermediate goods prices. The intermediate core index has risen 1.2% over the past three months (about 5% at an annual rate) after tumbling 9.4% (almost 14% annualized) during the preceding eight months. In recent years, fluctuations in intermediate goods prices have generally not transmitted through to finished goods prices.

11:00: Federal Reserve Governor Kevin Warsh moderates a session on financial crisis…at the San Francisco Fed’s Asia economic policy conference.

15:30: San Francisco Fed President Janet Yellen speaks with reporters… following the conclusion of the conference. From the looks of it, this will not have prepared remarks (though one can never be sure) but certainly has the potential to generate headlines. She is a voting member of the FOMC this year.

17:00: ABC consumer index…microscopic improvement? This index continues to struggle, having given back three points to -48 in the latest week. It remains range bound between -54 and -41.

Advice:

Housing starts rose 0.5% to an annual rate of 590,00 from a 587,000 pace in August that was lower than previously estimated, figures from the Commerce Department showed today in Washington. Permits, a sign of future construction, fell for the second time in the past three months. PPI prices unexpectedly fell in September on lower fuel costs, a sign inflation remains muted. The 0.6% decrease in prices paid to factories, farmers and other producers was the second drop in three months and followed a 1.7% rise in August, the Labor Department said today in Washington. Excluding food and fuel, so-called core prices declined 0.1%.

Todays Market Update

My 2 cents:
Today is a rough day with rates opening higher than yesterday. There is a lot of economic data coming out in the next couple days, and we expect some significant movement in rates. If you like the rates that you currently have, it is time to lock in your gains.

FNMA 30-YR 4.5%

Previous close 101.125

Opened down 0.31 BPs @ 100.813

Key Economic Data:

EUR / USD 1.4902 Up 0.0048
USD / JPY 89.506 Down 0.1525
GBP / USD 1.5988 Up 0.0063

OIL 74.85 Up 0.70
Gold 1,062.20 Down 2.80

Key Economic News:

We’re looking at some serious data today, featuring retail sales for September. Also the FOMC minutes…

8:30: Retail sales for September…look under the hood. On total sales, median forecast (of 78): -2.1%, ranging from -4% to +0.6%; last +2.7%. On sales ex autos, median forecast (of 72): +0.2%, ranging from -0.4% to +0.7%; last +1.1%. Payback for the cash for clunkers program will dominate the headline figure, so you have to look under the hood to see what’s going on. There we see a decent gain. Some of this is artificial – gasoline prices were high on a seasonally adjusted basis – and building materials should also reflect an improving trend in residential onstruction. In the core component better-than-expected same store sales appear to imply sequential month-on-month improvement, though this is a bit tougher to tell given how quickly the year-earlier sales level was dropping.

8:30: Import/export price indexes for September…modest increase? Median forecast (of 56): +0.2%, ranging from -1% to +1.3%; last +2.0%. Not much to say about this one, the median forecast appears to attribute little net impact from energy prices one way or another, the variation around that median makes it clear that this is far from a consensus view.

10:00: Business inventories for August…ongoing contraction. Median forecast (of 49): -1.0%, ranging from -1.3% to -0.5%; last -1.0%. The implied change for retail inventories in the median forecast is also -1%, which seems moderate given that August was clunker month and should therefore have resulted in a sharp drop in retailers’ auto inventories.

14:00: Minutes to the September 22/23 FOMC meeting…This is the meeting where the committee decided to extend and taper the purchases of agencies and agency MBS. Otherwise, it produced no surprises. However, given the wide range of opinions expressed by individual committee members in recent weeks and rumors ahead of the meeting that some might press the case for near-term rate hikes, it is quite possible that the minutes may also convey a wider-than-normal range of views about the near-term outlook for growth and inflation.

14:30: Federal Reserve Governor Daniel Tarullo testifies on the state of the banking industry…He joins FDIC Chairwoman Shelia Bair and Comptroller of the Currency John Dugan before the Senate Banking Committee.

Advice:

Retail sales fell less than anticipated in September, a sign households will play a greater role in the emerging economic recovery. The 1.5% decrease in purchases followed a 2.2% gain the prior month, figures from the Commerce Department showed today in Washington. Sales ex auto climbed 0.5%. With this news I expect the market to keep selling off this morning.

Mortgage Market Update

Here is my take on the week ahead: this is a busy newsweek for the bond market in 4 short days.  Nothing notable will come out today, but tomorrow starts with Retail Sales and FOMC Minutes. Retail sales are sure to be sluggish, especially as even the mighty Johnson and Johnson are showing weakness in their consumer products division despite strong earnings overall.  Is this the Q-tip indicator? 

Business Inventories are out tomorrow, and they will further illustrate the direction of the consumer market.  Finally, we have the CPI (Consumer Price Index) on Friday.  Will that show inflation starting to creep in like all those diving into gold fear?  That could be the driver for the weeks major volatility.

 

FNMA 30-YR 4.5%

Previous close 101.281

Opened down 0.09 BPs @ 101.188

Key Economic Data:

EUR / USD   1.4834   Up      0.0061
USD / JPY    89.746   Down 0.0785
GBP / USD   1.5829   Up      0.0030

OIL     73.87       Up    0.60
Gold   1,060.50  Up    3.00

Key Economic News:

13:15: New York Fed President William Dudley speaks…The topic is unspecified as far as we can determine. In his speech last week at the Fordham Law School, he came down spuarely on the side of expressing more concern about disinflation than inflation. As president of the New York Fed, Dudley is a permanent voting member of the Federal Open Market Committee and its Vice Chairman.

13:45: Federal Reserve Vice Chairman Donald Kohn speaks on the economic outlook..to the annual meeting of the National meeting of the National Association of Business Economists (NABE) in St.Louis. We think he’s pretty much in the same camp as Mr. Dudley, though his last speech – focusing more on the state of research on monetary policy than on the economic outlook per se – did not say so directly.

17:00: ABC consumer comfort index…microscopic improvement?  This index edged up to -45 last week in the latest run (well, it’s barely a walk actually) at breaking through the -41 ceiling that has prevailed since the spring of 2008. You know things are lousy out there when the ceiling on anything is -41.

Advice:
With no real news to go by, I expect MBS pricing to continue on its downward path today.

My position on MBSs stays short today.

I would lock deals today.

A Form to Take Seriously

By Kenneth R. Harney
Saturday, October 10, 2009

You might assume it’s just another boring-looking piece of the paper blitz you’re hit with when applying for a home loan. But given the new prominence of IRS Form 4506-Ts in the fraud-shocked mortgage market, it’s much more than just another document to sign.
The form authorizes a loan officer or mortgage investor to get electronic transcripts from the Internal Revenue Service covering multiple years of your federal income tax filings. Though the IRS has supplied private tax-return information to lenders for years, the data typically were requested only at settlement, and mainly for self-employed applicants or those with unusual income patterns.
But Fannie Mae recently directed lenders to obtain two sets of electronic transcripts for all borrowers, regardless of their income sources. One copy is pulled upfront at application, and another is pulled before closing. Fannie told lenders that the move was part of its efforts to spot fraudulent income claims and limit loan losses.
During the height of the housing boom, many lenders went soft on borrowers, allowing millions of them to “state” their incomes rather than supply copies of actual tax returns filed with the IRS. These no-documentation loans, as they are called, often turned out to be “liar loans,” with puffed-up incomes enabling borrowers to obtain larger amounts of mortgage money than they could justify — or afford — based on their actual incomes.
When lenders didn’t verify stated-income claims, liar loans frequently turned into foreclosure bombs. Their remains are visible in neighborhoods across the country, where foreclosures have soared to record levels.
Now, not only Fannie Mae but also most major lenders are tightening standards, double-checking everything. When it comes to what you say is your annual income, they want to verify it twice — even if you submitted stacks of IRS returns.
The IRS is helping out by lowering the cost of those multiple verifications. As a result of higher-than-expected revenue generated by skyrocketing demands for 4506-Ts, the IRS — which is not permitted to make a profit on services such as income verification checks — has cut the price of transcripts from $4.50 to $2.25, according to industry sources.
Curtis Knuth, vice president of NCS of New Jersey, one of the largest vendors of Form 4506-Ts to the mortgage industry, says, “The timing of the cost reduction couldn’t be better for lenders looking to return to more prudent underwriting.” Most lenders, he said, do not charge loan applicants separately for income verifications but roll the costs into their origination or processing fees.
The much-more intensive use of Form 4506-T is also focusing new light on what consumers should — and shouldn’t — do when confronted with a lender’s or settlement agent’s request that they fill one out.
Here’s a quick overview:
– Take Form 4506-T seriously. It’s a powerful tool, and it potentially exposes otherwise confidential personal financial information to unknown and uncontrollable numbers of people. It is not just another part of the paper blizzard.
– Pay careful attention to the IRS’s instructions on the form, particularly as related to the years for which the tax-return transcripts are being requested, and to the dating of the form next to your signature. The date you write in is important because the IRS won’t provide transcripts unless it receives the request within 60 days of the applicant’s signing date. Make sure you date the form when you sign it.
Filling in the tax return years is crucial as well because it allows you to limit what the lender, settlement official or secondary market purchaser of the mortgage can obtain. The form includes boxes allowing up to four years of tax data to be accessed, but loan applicants can specify that fewer years be made available.
Earlier in this decade, controversy erupted in the mortgage industry because some large secondary-market loan investors and banks were requiring brokers or closing agents to instruct applicants to sign Form 4506-Ts but not date them or fill in the transcript years being requested. Some lenders even distributed their own printed instructions along with the Form 4506-T, requiring the homebuyer’s or refinancer’s signature but no dates. This not only countermanded the IRS’s instructions but also gave loan investors the ability to check incomes whenever they chose — long after the closing.
Be aware of the new importance of Form 4506-T and get used to seeing it twice during the mortgage cycle. Make sure you know how it’s supposed to be used — and how it can be abused. Check it out in advance by going to the forms area on the IRS Web site (http://www.irs.gov) and downloading a copy.

Quick FHA Tips… New and Proposed Changes to the Real Estate World

FHA Mortgages have emerged in the last two years to become a pre-eminent funding vehicle for the residential real estate industry.  As rapidly as this long forgotten product has come back into the forefront of residential lending, the Federal Housing Administration has had to make changes to minimize risk.  The most recent change occurred with all case numbers ordered on or after October 1st, 2009.  This change required the use of Certified, rather than Licensed appraisers.  This change affects appraisers more than anyone else, as all licensed appraisers are now excluded from doing FHA Appraisals. 

Here are some proposed changes that may go into effect in the near future:

Prohibition of mortgage brokers and commission based lender staff from the appraisal process 

            Historically FHA prohibited mortgagees from accepting appraisal reports completed by an appraiser selected, retained or compensated, in any manner by real estate agents.  To ensure appraiser independence, FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan. 

Increase in minimum down payment to 5% for FHA Transactions

There is currently pending legislation that would increase the minimum down payment for FHA loans to 5%, from the current level of 3.5%.  This legislation also proposes that closing costs may not be financed.  FHA loans currently charge an Upfront Mortgage Insurance Premium (MIP) of 1.75%.  It is customary that Upfront MIP, a closing cost) is financed into the loan balance.  If borrowers are restricted from financing the Upfront MIP, that will increase the minimum cash to close even more, as that would make the homebuyers bring in 6.75% of the purchase price plus other closing costs to the mortgage transaction.  On a $200,000 purchase, that would be $13,500 PLUS closing costs, PLUS escrows.  How many first time homebuyers can drop that much cash into a purchase transaction?

For more information, or to get your rapid FHA mortgage approval, please feel free to call me at 281.841.1723.  Rich