First time buyer credit

MORTGAGE REVIEW:RATES, NEWS AND MORE!

***Smart Financial Weekly Mortgage Update May 29, 2009!***

Interest Rates

It was bound to happen. Wednesday the market went, well, nuts! We suffered through 3 rate increases that day and some investors even stopped taking rate locks. Why? On Wednesday the 10 year Treasury Yield closed at 3.73% driving mortgage rates up .375% to .500%. The difference between the 2 year Yield and the 10 year Yield hit an all time high (typically means economy headed for recovery BUT massive spending could mean higher rates, inflation, etc)! Rates have moderated some as the week ended with the 10 Year Treasury Yield at about 3.46%.

So what is going on? Well, gentle reader, read on as we try to simplify the complex;

· Our government is trying to raise money to pay for all of the bailouts and spending it has committed to in an effort to get the economy out of the recession. Some say it could be as much as two TRILLION dollars. L

· Washington gets money from the sale of various instruments and tax receipts (more on tax receipts later). J

· The current SUPPLY or what the government wants to sell is more than the MARKET can ABSORB so, are you still with me N, prices go down (yields go up).

· As Yields on the 10 Year Treasury increase mortgage rates typically move up as well. D The Fed has pledged to buy up to $300 BILLION in Treasuries and $1.25 TRILLION in bonds backed by home loans to……………………………….keep mortgage rates low to help the housing market recover C.

· As the economy starts to recover investors holding these government instruments see better returns elsewhere (stock market, oil and other commodities) so they sell them. This puts more SUPPLY back in the system pushing Yields up even more. D

· Remember those tax receipts mentioned above? Well, the month of April is typically the biggest revenue month for the government because of the infamous April 15^th deadline. This year tax receipts for April were very weak. Impact is more money has to be raised by, you guessed it, selling government treasuries and bonds.

· The RISK here is that as rates move up consumer and business credit gets more expensive and complicates and/or delays recovery from the recession.

What to look for $: If foreign owners of our government instruments lose confidence in our recovery and sell (remember more than 50% of these instruments are foreign owned) creating more SUPPLY then rates likely move up thus hurting housing which was the initial cause of our recession.

Date	Rate
5/29/09	4.91
5/22/09	4.82
5/15/09	4.86
5/8/09	4.84
5/29/08	6.06
5/31/07	6.42

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

· First time home buyer tax credit update: Today it was announced that FHA would allow an advance of the first time buyer tax credit to help buyers cover closing costs, etc. The advance can NOT be used for the down payment. Additional details will be forthcoming.

· There has been a lot of publicity about loan modifications recently. According to the Treasury Department somewhere between 10,000 and 55,000 loans have been modified under the President’s plan. The goal is to help 4 million homeowners. Also, in January and February 313,000 homes became 90 days delinquent or went into foreclosure.

· According to a NY Times analysis the number of prime mortgages with serious delinquency (90 days late or more, property in foreclosure or in lender possession) increased from 473,000 in November 2008 to 1.5 Million at the end of February or a total of $224 billion dollars in loans!

Good News

· Consumer confidence was 54.9 for April compared to the forecast of 43 (the biggest gain since April 2003).

· Existing home inventory was about 10 months for April.

· Existing home sales were flat in April at 4.68 million units on annualized basis compared to the forecast of 4.63 million.

· Durable goods up 1.9% in April compared to expectations of .5%. March was revised downward to -2.1%.

· Initial jobless claims were at 623,000 in April compared to 628,000 forecast.

Statistics of Interest/Concern

· Home values thru first quarter 2009 declined 19% the sharpest decline in 21 years according to Case-Shiller (Phoenix metro was down 36% and led the nation).

· Absentee buyers (investors and second homes) accounted for about 40% of sales in the Phoenix area in April.

· Delinquency on prime loans was at 8% for April and if you add in foreclosures, etc was 11%.

· New home construction was flat versus expectations at 10 months inventory.

Commentary:

More news from Texas as the state created more jobs in 2008 that the remaining 49 COMBINED! Wow, how about them cowboys!

For mortgage and related information please contact Burt Carlson at (602) 803-9660 or by e-mail at burt@gosfm.com.

First time buyer credit

MORTGAGE REVIEW: RATES, NEWS & MORE

***Smart Financial Weekly Mortgage Update May 15, 2009***

Interest Rates

Can the recovery of the U.S. economy lead to higher interest rates? At least one economist thinks so (maybe more). According to a Wells Fargo Senior Economist it goes something like this. As the recovery moves forward the Federal Reserve will start “mopping away” all the excess liquidity it has injected into the economy. Early signs of this have been seen in the increase in the 10 Year Treasury Yields (although the 10 Year Treasury Yield finished the week at 3.13 down from last week). Fed Chairman Bernake has stated publicly that he sees an orderly process to the mopping away where the Wells Fargo economist is not so sure.

The problem for the Fed is as credit markets thaw and more money is available investors will look for investments with higher returns than U.S. Treasuries. This in turn will cause Treasury yields to increase to attract buyers so that we can fund Federal spending. So the Fed will have to decide between buying Mortgage Backed Securities (MBS) (to keep mortgage rates lower) and/or buying Treasuries to keep funds flowing into the Treasury. This is where the fun really starts! Because most of the President’s “fiscal package” spending is in the next few years the Fed will have to raise rates to prevent inflation from creeping into the economy or so the thinking goes.

Bottom Line: In the next few years some argue we will pay for low mortgage rates today and more government spending to jump start the economy with higher rates in the future. The only question is how long will it take this future to arrive and what will the rates look like?

Date	Rate
5/15/09	4.82
5/8/09	4.84
5/1/09	4.78
4/24/09	4.80
5/15/08	6.01
5/17/07	6.21

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

· $8,000 First Time buyer Tax Credit Update: HUD Secretary Donovan said earlier this week that the FHA would allow approved lenders, non profits and state and local agencies to issue bridge loans to first time buyers using the tax credit. However, the Mortgagee Letter addressing this idea has been pulled from HUD’s website. I guess they are re-thinking the issue.

· Freddie Mac lost $9 Billion in Q1 2009 compared to $23.9 Billion loss in Q4 2008. This reduced the equity to minus $.6 Billion so they requested $6 Billion in equity from the government (remember we the tax payers own Freddie Mac and Fannie Mae).

· Wells Fargo in its quarterly report for March 31, 2009 noted that it has $115 Billion in Option Arms/Pick a Pay loans in its portfolio and that number is 107% of the estimated value of the properties! In addition, Wells said that 50% of the borrowers were paying the minimum payment or less than the interest. Finally, they said 70% of these loans are in California, Arizona and Florida and Wells estimated that 61% of these loans will not be paid. Can you say foreclosure crisis continues?

Good News

· As of March 31, 2009 there were 3.7 million homes existing for sale compared to 4.7 million in July 2008 according to the National Association of Realtors (NAR).

· Consumer sentiment for April was 67.9 the highest level since September 2008.

· New York State Empire Mfg Index was -4.55 for April beating forecast of -14 and up from March’s -14.

Statistics of Interest/Concern

· Initial jobless claims were 637,000 versus forecast of 610,000.

· Producer Price Index (PPI) was up .3% versus forecast of .2%.

· Consumer Price Index (CPI) was flat in April and down .7% for the last 12 months the sharpest decline in 54 years.

· Household debt grew from 69% of Gross Domestic Product (GDP) in 1998 to 100% of GDP in 2008.

· Median home price for single family residences was down 14% to 169,000 the biggest drop on record.

· Foreclosure filings were up 32% in April.

· Retail sales were down .4% compared to forecast of ZERO (eighth decline in last 10 months).

· Credit card defaults rose to an all time high in April.

Commentary:

As you can see there was somewhat more bad news than good for the week. However, most analysts do think the economy is headed in the right direction and that we are in the early stages of recovery.

For more information about the mortgage industry or loan programs please contact Burt Carlson at (602) 803-9660 or by e-mail at burt@gosfm.com.