THE BASIS POINT

Fed Stats on MBS & Treasury Buying, $8000 Tax Credit For Down Payments?, 46% of Foreclosures in CA, FL, NV, AZ

There are some clever folks out there. One of them created this lamentation of the new appraisal rules (known as HVCC, the Home Valuation Code of Conduct), sung to Joe Cocker’s “All Night Laundry Mat Blues”:

We got the all day HVCC blues
Brokers can’t use appraisers that they choose
The AMC we’re using they don’t give a spit
They take half the money
And their appraisers work is s—.
The Government hasn’t got a clue
So we sing the all day HVCC blues
Yes we do
We sing the all day HVCC blues.

46% of Foreclosures in CA, FL, NV, AZ
Speaking of clever, cats never fly away. Huh? If you have trouble remembering which 4 states currently account for almost half the foreclosures, memorize that sentence. The states of California, Nevada, Florida and Arizona have accounted for 46% of foreclosures. The Mortgage Bankers Association reported that one in every eight homeowners is either late or in foreclosure. Shouldn’t someone tell that to the stock market? According to the Mortgage Bankers Association, “The foreclosure rate on prime fixed-rate loans has doubled in the last year, and, for the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures. In addition, almost half of the overall increase in foreclosure starts we saw in the first quarter was due to the increase in prime fixed-rate loans.”

$8000 Tax Credit For Down Payments?
After some debate, apparently the FHA will indeed allow home buyers to apply the new $8,000 first-time home buyer tax credit toward down payments for FHA-insured homes. Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5% of appraised value or their closing costs. Only my opinion, but I guess the possible problems with the continuation of “little or no money down” are thought to be outweighed by the National Association of Home Builders saying this will stimulate 160,000 home sales across the nation, 101,000 of which will be by first-time buyers who will receive the credit. Many borrowers, however, don’t qualify, often because their income is too high.

According to a story in Reuters:

Mortgage originators will have to submit fingerprints and other personal information to federal authorities who will maintain a database of the agents who help homebuyers secure loans. The new standards were conceived by Congress last summer and were part of a broader plan to help stabilize the rattled housing markets, stem foreclosures and increase consumer protections. The Federal Reserve helped set the standards that have been agreed to among the top federal banking regulators and that will establish a database accessible by consumers. The Federal Bureau of Investigations will use fingerprints to perform a criminal background check on loan agents who must annually register under the program. The lending industry may comment on the regulators’ outline and the database is due to be in place by the end of July. The program was conceived under the Secure and Fair Enforcement for Mortgage Licensing Act.

ISM Beats Expectations, Fed’s Stats on Treasury & MBS Buys
So what are we using to gauge the economy? Yesterday the Institute for Supply Management’s factory index rose to 42.8 in May from 40.1 in April, shrinking less than forecast. And consumers are spending less, causing their saving rate to increase to 5.7%, which is good. Construction Spending was up .8%, unexpectedly. All of this helped our equity markets to rally nicely, but in turn caused the bond market to sell off, causing rates to rise. If the economy is improving (and many say it is not) and the Treasury continues to sell large amounts of debt to pay for the deficit, rates will have a bias toward moving up. The Federal Reserve’s program to keep mortgage rates low by buying securities and Treasury bonds is not as successful as it was earlier this year. So far the Fed has purchased more than $480 billion in MBS’s out of an allowance of $1.25 trillion. They’ve also bought $130 billion, out of $300 billion, in Treasury bonds to help keep rates low. And by historical standards rates are still good – just not as good as they were a few weeks ago, and not as low as any borrowers waiting to lock had hoped.

We are seeing a little improvement this morning. Treasury Secretary Geithner stated that there will enough demand for the record amount of debt the US selling, and the chairman of the China Construction Bank reiterated that the US dollar is the main reserve currency cannot be replaced in the short term. There is no scheduled economic news out today, aside from Pending Home Sales later on, so perhaps it will be a quiet but better day for rates. So far the 10-yr is at 3.62%, and mortgage prices are better than yesterday afternoon by .250-.375.

Daily Basis
One afternoon an investment banker was riding in his limousine when he saw two men along the roadside eating grass. Disturbed, he ordered his driver to stop and he got out to investigate.
He asked one man, “Why are you eating grass?”
“We don’t have any money for food,” the poor man replied. “We have to eat grass.”
“Well, then, you can come with me to my house and I’ll feed you,” the banker said.
“But sir, I have a wife and two children with me. They are over there, under that tree.”
“Bring them along,” the banker replied.
Turning to the other poor man he stated, “You come with us, also.”
The second man, in a pitiful voice, then said, “But sir, I also have a wife and SIX children with me!”
“Bring them all, as well,” the banker answered.
They all entered the car, which was no easy task, even for a car as large as the limousine was.
Once underway, one of the poor fellows turned to the banker and said, “Sir, you are too kind. Thank you for taking all of us with you.”
The banker replied, “Glad to do it. You’ll really love my place. The grass is almost a foot high.”