Friday, August 8, 2008

Rate Watch: Locking

Mortgage Bonds are up this morning after the Second Quarter Productivity Report in non-farm business was released at 2.20%, slightly lower than estimates of 2.50%.

What is particularly interesting about this report is that employers eliminated 165,000 workers in the Second Quarter, so what happened is that we got more production from fewer workers! I guess this is what they used to call "American Ingenuity"! When you get more production from fewer workers, this is good for Bonds becuause it helps lower inflationary pressures.

As predicted yesterday, prices went up to the 25 day moving average and have now bounced off this level. I am recommending locking today and taking advantage of the price improvement and lower yeild we got yesterday and this morning.

P.S. Oil is down again this morning at $116 per barrel, well below the $147 peak from last month. What's crazy is that we think $116 per barrel is cheap!

HR3221: Tax Credit for First Time Homebuyers

First Time Home Buyer Tax Credit Clarification 8/8/08 (HR3221: Housing and Economic Recovery Act of 2008)

A tax credit is much more valuable than a deduction! A credit reduces dollar for dollar the amount of tax you owe. A deduction merely reduces the amount of your income that is taxable. Under the new law, certain homeowners will be eligible for a tax credit equal to 10 percent of the purchase price of a home, up to a maximum of $7,500. The credit is $3,750 for married couples filing separately. Unmarried people who jointly purchase a home will be able to divide the $7,500 credit.

This tax credit is actually a loan, administered through the tax code (basically, a LOAN, cloaked as a tax credit!). Very important that our first time homebuyer's understand the mechanics of how this loan will be repaid. The loan does have the best rate and term you can get. It's interest-free! Buyers who take advantage of the TAX CREDIT, would be required to repay the government over 15 years in equal installments for any amount received. So let's say the first time homebuyer qualifies for the maximum $7,500. The terms would mean a yearly loan payment of $500 for 15 years, or about $41.67 a month.

WHEN DOES THE REPAYMENT BEGIN?: Repaying the credit starts in the second tax year after the home is purchased. If the home is sold before the credit is paid back, the entire amount becomes immediately due. However, if the home is sold and the gain is less than the credit, then the amount that must be repaid is up to the amount of gain. If the homeowner dies, any outstanding amount is forgiven. The credit applies only to homes purchased on or after April 9, 2008, and before July 1, 2009.

WHO QUALIFIES FOR THE CREDIT? High-income buyers won't qualify for the credit. LESS can be claimed, the more you earn. The phase-out starts for single filers with adjusted income of more than $75,000 and $150,000 for joint filers. It completely phases out at $95,000 for singles; $170,000 for married couples filing jointly.

Additional standard deduction allowed (only applied for the 2008 tax year): The law would provide homeowners who claim the standard deduction with an additional standard deduction for state and local real property taxes. The maximum that may be claimed under this provision is $500 ($1,000 for joint filers).

Thursday, August 7, 2008

Rate Watch Alert: Float!

In this mid-day alert, Bonds are having a great day with the pricing 37 basis points better since pricing this morning. Bonds are enjoying improvement at the cost of stocks that are currently off 175 with 1 hour remaining in the session. Bonds appear to be heading toward the ceiling at 25-30 bps overhead.

HR-3221: Housing and Economic Recovery Act of 2008

Here are the highlights of the Act. Please call me if you have questions or would like additional details explained:

  • $7500 First Time Home Buyer Tax Credit-Credit is repayable over the next 15 years, making it, in effect, an interest free loan. Time frame to take advantage of tax credit will be April 8, 2008-June 30, 2009
  • Down Payment Assistance Programs (DAP) will be prohibited-Loan must close by October 1, 2008 to still have sellers pay down payment and closing cost (for 100% financing) through a DAP.
  • Minimum Cash investment for FHA loan to be 3.50% (was 3.00%). Sources of down payment that will still be allowed: Gift from a relative, Loan from a Relative (with loan payment amount included in borrowers debts), sale of real property (with proper documentation), loan against real property with inclusion of new debt payment in debt to income ratios, approved city and county grants, and Utah Housing Down Payment Loan. Sellers can still pay closing costs and prepaids for the buyer.
  • FHA risk based pricing moratorium to be permanently in place October 1, 2008-September 30, 2009 (temporary risk based pricing went into effect July 14, 2008). Lower upfront and monthly Mortgage Insurance Premium for better credit scores and higher down payements. This risk based pricing also allows buyer's with lower credit scores to get FHA financing (at higher upfront and monthly Mortgage Insurance Premium).
  • Mortgage Revenue Bond Authority-Authorizes $10 Billion in Mortgage Revenue Bonds for refinancing Sub-Prime Mortgages. If you or someone you know has a subprime loan, give me a call and I can go over the new options for refinancing the loan into an FHA loan!
  • GSE Stabilization from Treasury Department to Authroize Treasury to make loans to Fannie Mae and Freddie Mac to insure that they don't fail.

Rate Watch: Carefully Floating

Technically, the 25 day moving average is 66 basis points overhead and Bonds may make a move toward this ceiling. Factors improving Bonds this morning include Wal-Marts announcement that sales could be slowing in August and the release of the Initial Jobless Claims report which came in worse than expected. The only thing preventing Bonds from doing even better this morning is the poor earnings report for Freddie Mac which was also released this morning. For now, I recommend carefully floating and see how the Bond Market reacts to the Treasury auction of $10 Billion in 30 year Bonds this afternoon. I will let you know if there is a change in direction in the market.

Buyer Thank You

"Quick! Excellent job of keeping us informed on the status of our loan." Steve and Cathy S., Loan#25173-002-00

Buyer Thank You

"Marty did an excellent job of explaining the entire loan process to us when we met with him. This was very important to us since we were first time homebuyer's and had many questions which Marty answered for us." Gerald and Laura P., Loan#18018-003-00

Buyer Thank You

"During the loan process, Marty was very responsive to our requests." Ramon and Maria H., Loan#26477-002-00

Buyer Thank You

"Marty was Personal, Available and Patient and we would use Marty again and recommend him to others." Paul and Cathy W., Loan#20875-002-00

Tuesday, August 5, 2008

Rate Watch: Jittery

Here's a new one: Jittery! This Rate Watch comes to you with the Fed meeting at 2:30 Eastern and leaving the Fed discount unchanged at 2.00%. For now the Bonds are level, earlier they were trading lower (Bond prices lower, yield higher, mortgage rates higher), and stocks are in positive territory with Proctor and Gamble releasing their net profit increase of 33% (I guess American's are driving less and cleaning more? :)). For now I recommend floating to see how all of the recent news filters through to the Bond Market. Additionally, Oil is again trading lower, which is helping hold down inflation (bonds hate inflation!) fears. I will be watching for changes in this very volatile market. Have a great day!

Monday, August 4, 2008

Rate Watch: Cautiously Floating

Mortgage Bond Prices are lower this morning (when prices are lower, bond yield is higher and mortgage rates are higher), after the PCE Index showed a climb of .8% in June. This is the highest jump in 27 years and shows how the soaring energy and commodity prices this past month have negatively effected inflation. Because inflation is the archenemy of Mortgage Bonds and will usually push interest rates higher in the short term, I will be watching other economic indicators for you.

As the Fed announces it's decision about the Fed Funds Rate tomorrow afternoon, it is expected that the Fed will keep the Rate at 2.00%. For now I recommend cautiously floating because Mortgage Bonds appear to gaining back some of their earlier losses.