I decided that if overlays (restrictions on guidelines or pricing) are good enough for our investors, they’re good enough for my family! So last night I told my daughter, 14 years old but going on 24, that I loved her – but with overlays. “I love you, but when you glare at me there’s a 5% reduction in my affection. If you do it in front of others, another 5% ding. And with regard to your brother, there’s a 10% across the board reduction due to him now being able to throw a ball twice as far as I can.” I told her that when things settle down, we’ll reconsider the overlay thing, but for now, “Get used to them.”
Tax change for home sellers? This portion of the recently passed housing bill is raising some eyebrows, and takes effect January 1. Prior to the bill’s passage, homeowners could enjoy tax-free capital gains of up to $250,000 for a single person and up to $500,000 for a married couple if they used the home as their principal residence for at least two of the previous five years. Under the revised law, in the housing bill, a homeowner can no longer enjoy tax-free capital gains from the home during the years it isn’t the owner’s principal residence. For example, if a homeowner uses the house as a vacation home for three years and as a principal residence for the next two, the owner will have to pay capital gains taxes on three-fifths of the gain — which represents the three years the home isn’t a principal residence. Previously, the homeowner would have pocketed the entire capital gain up to the limit.
Warren Buffett says Economy Won’t Improve Soon
Who am I to argue with Warren Buffett, distant cousin of Jimmy Buffett? Warren said the U.S. economy is unlikely to improve before 2009, and that he expects the government to take action to support troubled mortgage financiers Fannie Mae and Freddie Mac. Referring to the economy, Buffett said, “In my judgment it won’t be any better five months from now.” Fannie and Freddie? “They’re too big to fail,” Buffett said. “That doesn’t mean that the equity can’t get wiped out, and it almost has. In a practical sense, as institutions, they don’t have any net worth…. People who own their insured mortgages or own their debt, nothing is going to happen to them. The equity and preferred stock is another question.”
Lehman Brothers’ stock, the brokerage that’s lost almost 80% of its value this year, is up 12% this morning after Reuters reported Korea Development Bank said it’s open to purchasing the firm. In addition, they are losing the head of their mortgage division, Ted Janulis, 49 years old. He joined Lehman in 1985, was appointed co-head of the mortgage- and asset-backed business in 1996. A year later he became sole head of that business line.
I was all set to buy several Las Vegas condos (to help support the market) with loans from U.S. Bank when this caught my eye: “As the MI Companies continue to assess their risk exposure to the condominium market in various parts of the country, more areas are coming under scrutiny…because U.S. Bank Home Mortgage Correspondent Lending Division does not submit the loan for MI until after the closing, we have no choice but to pay close attention to these trends. Therefore, effective with new locks taken on or after Friday, August 22, 2008, loans on condominiums in the states of Florida and Nevada will not be allowed on any (high LTV) product.”
Must one be an attorney to understand the FHASecure program? “In Mortgagee Letter 2007-11, the Federal Housing Administration announced FHASecure, a temporary initiative to permit lenders to refinance delinquent adjustable rate mortgages (ARMs) and/or to offer new subordinate financing where the combined loan-to-value ratio exceeds the applicable FHA loan-to-value ratio and geographical maximum mortgage amount. The Department has decided to expand FHASecure as follows: To include borrowers delinquent on their non-FHA ARMs due to a rate reset or the occurrence of an extenuating circumstance but experienced no more than two 30-day or one 60-day late payment in the 12 months prior to the rate reset or extenuating circumstance that caused the delinquency; or to include borrowers delinquent on their non-FHA ARMs due to a rate reset or the occurrence of an extenuating circumstance but experienced no more than one 90-day late payment or no more than three 30-day late payments prior to the rate reset or extenuating circumstance that caused the delinquency provided the loan-to-value on the FHA insured first mortgages does not exceed 90 percent. Borrowers delinquent on their interest-only and/or payment option ARMs are not eligible for this expansion: borrowers with these types of mortgages must demonstrate that a rate reset caused the delinquency and that they were making the monthly mortgage payments within the month due during the 6 months prior to the rate reset. For borrowers refinancing delinquent non-FHA ARMs the Up-front mortgage insurance premium (UFMIP) is set at 2.25 percent of the base loan amount (loan amount excluding UFMIP) regardless of the loan-to-value (LTV) ratio. For LTV ratios greater than 95 percent (excluding UFMIP) the Annual premium (collected monthly) is set at .55 percent. This mortgagee letter replaces the specific guidance regarding FHASecure issued in Mortgagee Letter 2007-11 and is effective for case numbers assigned on or after July 14, 2008.”
In spite of Jobless Claims remaining high, the Philadelphia Fed’s Factory Index still negative at -12.7, and Leading Economic Indicators being -.7%, falling by the most in almost a year, rates shot up yesterday. LEI, for example, points to the direction of the economy over the next three to six months. Remember that 7 of the 10 economic indicators that make up the index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, supplier delivery times and factory hours. The Conference Board estimates the remaining three (new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation), and the surprise number to the downside was still not enough to keep the market from worsening. By the end of the day mortgage prices were worse by .5 point or more blamed on “lack of buyers, nervousness about Fannie & Freddie, and Asian selling”. Unfortunately today the trend is continuing, and in spite of no news we’re worse by another .375 in price.
Joke of the Day
Two bowling teams, one of all blondes and one of all brunettes, charter a double-Decker bus for a weekend trip to Louisiana. The brunette team rode on the bottom of the bus, and the blonde team rode on the top level.
The brunette team down below really whooped it up, having a great time, when one of them realized she hadn’t heard anything from the blondes upstairs. She decided to go up and investigate.
When the brunette reached the top, she found all the blondes in fear, staring straight ahead at the road, clutching the seats in front of them with white knuckles. The brunette asked, “What the heck’s going on up here? We’re having a great time downstairs!”
One of the blondes looked up at her, swallowed hard and whispered… “YEAH, BUT YOU’VE GOT A DRIVER!?!”