THE BASIS POINT

345k Jobs Lost, First-Time Homebuyer Tax Credit Facts, SEC Goes After Former Countrywide Boss, Will Higher Rates Ease?

General Motors has filed for bankruptcy, and they also want billions more in bailout money so they can restructure their debt. “You want more money? Wait here while I talk to the manager. I’ll be right back.”

First-Time Homebuyer Tax Credit Facts
There is still some confusion about the guidelines for use of the first-time home buyer tax credit for settlement funds (from Mortgagee Letter 2009-15). Here is the top 10 list of things you need to know about these guides:
1. The IRS tax credit refund can be made only to the taxpayer and not a third party.
2. Government agencies may offer tax credit advances with second liens.
3. The buyer cannot get cash back through the tax credit advance.
4. The 2nd lien may not exceed the down payment, closing costs, and prepaid expenses.
5. The 2nd lien may be “soft” or require payments.
6. Payments on 2nd liens must be included in ratios unless deferred for at least 36 months.
7. Balloon payments on 2nd liens may not be before 10 years.
8. FHA approved lenders and FHA approved non-profits may purchase the tax credit.
9. Tax credit purchaser may not charge more than 2.5% of the tax credit as a fee.
10. IRS may deduct from the tax credit: unpaid student loans, tax liens and garnishments.

GMAC Loan Guideline Updates
GMAC Bank’s correspondent group (servicing mortgage banks) has introduced the Fannie Mae DU Refi Plus products. It is important to note that only loans having new Mortgage Insurance certificates will be eligible for these products. GMAC also sent out MI guidelines (“If the LTV of the original loan was >80% LTV AND if current LTV >80%, new mortgage insurance certificates are required; however, the new mortgage is subject to acceptable MI company guidelines. If original transaction LTV was > 80% and mortgage insurance was previously cancelled or terminated in accordance with Fannie Mae guidelines, mortgage insurance is not required on the subject refinance. If the mortgage insurance on the original transaction was LPMI, it is not eligible under this program.”)

SEC Goes After Former Countrywide Boss
The Securities and Exchange Commission outlined formal fraud charges against Angelo Mozilo. Last month SEC staff recommended several charges against Mozilo, such as insider trading and failure to disclose pertinent information to shareholders. The government is charging him, along with former COO David Sambol and former CFO Eric Sieracki, with civil fraud, along with illegal insider trading. Yesterday regulators in the civil lawsuit accused Mozilo of making more than $139 million in profits in 2006 and 2007 from exercising 5.1 million stock options and selling the underlying shares.
“Each of the defendants was aware, but failed to disclose, that Countrywide’s current business model was unsustainable,” the agency wrote.

Will Higher Rates Ease?
Back to interest rates, which haven’t been in anyone’s interest for over a week. Ahead of the Non-farm Payroll data Treasury prices were down, and rates higher, as signs of a possible economic improvement continue to appear. Commodity prices are going up, with oil near $70/barrel, and gold and copper moving up. Stocks markets around the world are rallying, and it would appear that investors don’t want to miss the boat on trying to recoup losses from last year. The Treasury announced the sizes for next weeks’ auctions: $35 billion in 3-year notes, $19B in 10-year notes, and $11B in 30-year bonds. And, in spite of the Fed buying about $5 billion a day of mortgages, our interest rates continue to go up, with lock volumes everywhere grinding to about 30-50% of where they were a few weeks ago.

345k Jobs Lost
This morning we saw Non-farm Payroll, expected at -550k, came out -345,000, the fewest since September. But the headline grabbing Unemployment Rate hit 9.4%, the highest since the summer of 1983. There were some back-month revisions in March and April, and importantly the pace of lay-offs has slowed. It is so rare that I am correct, but a little over a week ago I said, “I think that we have seen the lows in rates. The US Government keeps borrowing, and there are signs that the economy is starting to revive in some areas. I don’t know why rates would go back down too far unless the economy deteriorates more. There are always dips as rates move back down, but I see the trend higher.” And higher they are today, with the 10-yr up to 3.86% and mortgage prices worse by roughly .5.

Daily Humor
Why Some Men Have Dogs And Not Wives:
1. The later you are, the more excited your dogs are to see you.
2. Dogs don’t notice if you call them by another dog’s name.
3. Dogs like it if you leave a lot of things on the floor.
4. A dog’s parents never visit.
5. Dogs agree that you have to raise your voice to get your point across.
6. You never have to wait for a dog; they’re ready to go 24 hours a day.
7. Dogs find you amusing when you’re drunk.
8. Dogs like to go hunting and fishing.
9. A dog will not wake you up at night to ask, “If I died, would you get another dog?”
10. If a dog has babies, you can put an ad in the paper and give them away.
11. A dog will let you put a studded collar on it without calling you a pervert.
12. If a dog smells another dog on you, they don’t get mad. They just think it’s interesting.
13. Dogs like to ride in the back of a pickup truck.
14. If a dog leaves, it won’t take half of your stuff.