THE BASIS POINT

ADP and BLS June Jobs Results, Manhattan Condo Prices Down 23%, Appraisal Rules May Change Again, 125% LTV Refis?

Manhattan Condo Prices
When I graduated from Cal with a fresh business degree, I tried to get an apartment in Manhattan. They wouldn’t let me in. I knew it would be expensive, but I just assumed that for $2,000 a month, the toilet would be inside the apartment. That has changed a little, since in the last year Manhattan apartment sales dropped more than 50% and the average price dropped about 23%. The average price of Manhattan apartment in the second quarter slid to $1.3 million down from $1.7 million a year earlier, according to a Prudential Douglas Elliman Real Estate report. Gee, are tougher mortgage requirements and unemployment having an impact?

Will Appraisal Rules Be Repealed?
HVCC? A bill, now in committee and sponsored by U.S. House Rep. Travis Childers, D-Mo., includes a provision that would suspend enforcement of the Home Valuation Code of Conduct for 18 months. Childers believes that the code threatened to put some independent appraisers out of work, and thus put the provision in HR 3044. HVCC went into effect May 1 and prevents loan agents from talking to appraisers, so the appraisal request goes into a blind queue and the bank orders it. It was designed to remove perceived influence on appraisers by the loan agents, but it has caused people to lose their jobs and also caused sloppy appraisals by appraisers who now have very little accountability because they get paid regardless of whether their appraisal is deemed of high quality by an underwriter or not.

Will Lenders Implement 125% LTV Refis?
I see that the Federal government is coming out with 125% LTV Fannie & Freddie loans. Whether or not investors go along with them is another story. Through HUD’s “Home Affordable Refinance Program”, it will raise the “underwater” limit on the program from 105% LTV, and was, not surprisingly, announced in Las Vegas. Treasury Secretary Tim Geithner called the move “a crucial step in our broader efforts to get America’s housing market and economy on the path to recovery.” Obviously these guys are a lot smarter than I am, because I am really skeptical about any LTV above 100% in this market. HUD states that “Since the administration announced Making Home Affordable Feb. 18, more than 200,000 borrowers have received offers for trial loan modifications, tens of thousands of refinances and trial modifications have gotten under way and more than one million potentially eligible borrowers have been sent informational mailings.” Some naysayers would view those results as disappointing.

Freddie, for example, stated “This expanded eligibility will apply to both the Same Servicer and Open Access options under the Freddie Mac Relief Refinance Mortgage, our business implementation of the Home Affordable Refinance.” Freddie is pushing a 25-yr mortgage: “To incent borrowers to consider this shorter amortization term, we will lower the Relief Refinance Mortgage delivery fee cap by 50 basis points to 150 basis points for qualified borrowers who refinance from a 30-year fixed-rate mortgage into a 25-year fixed-rate mortgage. We encourage you to pass on the savings to borrowers.”

Market Update
Back to something safe, like interest rates. Yesterday we had yet another bag of mixed economic news. The ADP jobs report, which leaves off government jobs, was worse than expected, but Pending Home Sales increased .1% in May and up 4.6% versus a year ago. Construction Spending dropped .9% in May to its lowest level in 5 years, worse than expected, but the Institute of Supply Management Index rose to 44.8 from 42.8. On top of all of that, Federal Reserve Bank of San Francisco President Janet Yellen said that overnight rates could remain at .25% or lower for a few years.

Jobs Reports from BLS and ADP
Non-farm Payroll was expected be down -365K and the employment rate is expected to increase to 9.6% from 9.4% in May. But employers cut 467,000 jobs in June, far more than expected, while the unemployment rate rose to 9.5% – the highest since mid-1983. May’s numbers were revised down, but April’s were revised upward. We also had Jobless Claims, which dropped 16,000 – better than expected. But what will grab the headlines, and probably push the bond and stock markets, is the Non-farm Payroll number. After the numbers, sure enough, and heading into a holiday weekend, stock futures are pointing down, whereas the 5-yr and 10-yr (3.525) Treasury notes are better by .250 in price, as are 30-yr mortgages.

Daily Humor
Yesterday I had a flat tire on Interstate 5. So I eased my car over to the shoulder of the road, carefully got out of the car and opened the trunk. I took out 2 cardboard men, unfolded them and stood them at the rear of my car facing oncoming traffic. They looked so lifelike, you wouldn’t believe! They were in trench coats, exposing their nude bodies and private parts to the approaching drivers.
Cars start slowing down looking at my lifelike men. And of course, traffic starts backing up with everybody tooting their horns and waving like crazy. It wasn’t long before a state trooper pulls up behind me. He gets out of his car and starts walking towards me. I could tell he was not a happy camper.
“What’s going on here?”
“My car has a flat tire,” I said calmly.
“Well, what the heck are those obscene cardboard men doing here by the road?”
I couldn’t believe that he didn’t know. So I told him, “Welllllll, those are my emergency flashers!”