First time homebuyer tax credit update: Well the battle rages on in D.C. on this controversial topic. The rhetoric heated up late this week with the Inspector General for Tax Administration reporting that nearly 74,000 individuals who claimed the credit do not appear to qualify. Can you say fraud? The IRS said that they have opened 107,000 civil claims and have identified 167 “criminal schemes”. So far the number of tax payers that have filed to take the credit is estimated at 1.4 million. Next the Brookings Institute reported that the $8000 credit will cost the government $43,000 for each person taking the credit. They estimate that only 15% of those applying for the credit purchased because of the credit and that the remaining 85% would have purchased without it. Really?

Finally, if you are trying to close a loan before the existing deadline to get the credit you may want to have your complete loan file submitted by November 30^th at the absolute latest. Remember we have a big holiday at the end of November.

HVCC Update: The House Finance Committee has included an amendment to HR 3126 that would effectively KILL this disaster of government think by allowing lenders, loan originators, etc to order appraisals again. Anyone ordering an appraisal would have to be a licensed mortgage professional under new SAFE guidelines.

Interest Rates

Interest rates for the week remained essentially flat but change is a coming. The Treasury Department announced that next week it will auction off a record $123 Billion in Notes to fund the country’s operation. Note that this amount will only last two weeks! The upward pressure on rates will increase as government Treasuries compete with Mortgage Backed Securities (MBS) for investor dollars. If Treasury yields move higher MBS will have to follow to be competitive thus pushing mortgage rates upward. Also, long term Treasuries are growing weaker as the Fed buying program winds down this month. We should see a similar situation in the MBS world as the Fed slows it purchases of MBS. Also, as if this was not enough Moody’s said Thursday that the U.S. needs to get its deficit reduced in the next 3-4 years or risk its triple A rating. This is a big one folks and with the deficit in the trillions of dollars and the economy struggling to recover a reduction in this rating will raise our costs to finance government spending resulting in………..you guessed it higher rates. All of this combined means higher rates are on the horizon.

When	Rate
This Week	5.00
1 Month Ago	5.04
1 Year Ago	6.09
2 Years Ago	6.33

Note that actual market rates vary geographically and by lender, credit score and Loan to Value.

Source: Federal Reserve Statistical H.15.

Mortgage Industry Update

·         John Burns Real Estate Consulting survey said that of all NEW homes purchased 59% were FHA, VA or Rural all loans requiring 3.5% or less for down payment. The FHA disputes the report and says that about 75% of FHA buyers put more than the minimum 3.5% down. Really?

·         Freddie Mac reported it September delinquency increased to 3.33% up from August 3.13% and much higher than September 2008 1.22%.

Good News

·         September sales of existing homes were up 9.4% in September and the inventory declined to 7.8 months the lowest level since March 2007.

·         The median home price for September was $174,900 down 8.5% from a year ago and down from August $177,300.

·         September housing starts were up .5% in September which was in line with forecast.

·         The Labor Department reported that the Producer Price Index (PPI) fell .6% in September which was on target with the forecast.

·         Leading economic indicators rose for the sixth consecutive month according to the Conference Board a private research firm.

Statistics of Interest/Concern

·         The National Association of Home Builders (NAHB) housing index expressing builder sentiment fell to 18. Forecast was for 20. This is first decline in 3 months.

·         Construction permits declined 1.2% in September which was below forecast.

Foreclosure Headlines

·         In testimony before the House Oversight Committee a Treasury official confirmed that they were developing a plan for foreclosure alternatives using TARP funds. The plan would be called the Foreclosure Alternatives Program and would include incentives for short sales and deeds in lieu of foreclosure. No timing was discussed.

·         Fiserv a financial information and analysis firm predicts that home prices nationally will decline another 11.3% by June 2010. They forecast for the Phoenix area the decline will be 23.4% by June 2010 with a slowing decline of 5% in 2011.

·         The charts below illustrate a couple of things we probably already know. First, the more expensive homes are not selling. Second, homes priced under $150,000 are where the action is at. [Data from ARMLS]

 Job Market Headlines

·         Weekly initial jobless claims rose to 531,000 up from previous week revised number of 520,000.

·         The four week moving average of initial jobless claims came in at 532,000 which is flat from previous week.

·         Continuing claims fell to 5.9 million from the previous weeks 6.0 million. Note that some observers think the decline is due to those no longer looking for work and/or whose benefits have expired.

Commentary/Observations

The focus this week is on the commercial market since it is likely the next big financial challenge that we will face. There are at least three signs to watch for that could indicate the collapse of the commercial market. First, an increase in activity at so called “special servicers” who handle troubled loans. From April to August these special servicers saw their volume double to $50 billion according to Trepp a firm that tracks the commercial market. Second, the failure of big projects involving big dollars. For example, the Stuyvestant Town project in East Manhattan we discussed previously has lost a court case where they would have been able to raise rents. This is just another step toward default on the projects multi-billion dollar debt. Third, the performance of community banks as they manage their portfolio of commercial loans.

As part of this potential crisis the President announced this week that the administration will start using left over bailout funds to help community banks by incenting them to lend to small businesses. Not surprisingly the National Federation of Independent Business said they would prefer lower taxes and less government intervention. And a final thought on coming commercial loan crisis. In 2006 the FDIC failed to enforce its own guidelines to control excessive commercial lending by 20 banks that, you guessed it, ultimately failed according to the FDIC’s own Office of Inspector General. Are you thinking what I’m thinking?

If you have any mortgage or related questions please contact me at (602) 803-9660 or by e-mail at burt@gosfm.com.