WAMU Fails, $700b Bailout Stalled Out, GDP Up, New CA Real Estate Laws

Bailout Stalled Out
Negotiations are scheduled to resume at 8:30AM PST on the bailout plan in an attempt to reach an agreement. Democrats are insisting that a majority of Republicans support the proposal because Democrats do not want to campaign for the November election against opponents who say that the incumbent Democrats bailed out big banks. But House Republicans are balking, and are pointing to strong public opposition. Many Republican members are apparently resisting pressure to support President Bush, and the plan demands unity, appeasing them is important. Meanwhile, the stock market is expected to give back all of the gains from yesterday due to the setback.

WAMU Seized by FDIC, Sold To JP Morgan For $1.9b
I used to have Great Western as my bank, which then turned into Washington Mutual, which apparently will now be JPMorgan Chase. WaMu was seized by regulators last night – not waiting for the typical Friday afternoon – and all of its deposits and most of its assets were purchased by JPM, although Chase didn’t take any WaMu debt. So any bond holders, hoping to reap those huge yields a few months ago, may be out of luck unless there are large amounts of cash available.

With this FDIC takeover (the largest one yet) and $1.9 billion sale to JPMorgan Chase, Chase became the biggest U.S. bank by deposits. You may recall that back in March, WaMu rejected a $4/share offer by Chase. Depositors may see little change today (I drove by last night to see if there was a padlock on the door, but nothing so dramatic had happened). This also leaves many small institutions (who probably sold them a good portion of the $19 billion in bad loans) scratching their heads, wondering why they’re still around while companies like IndyMac, Lehman, Merrill, and Bear are all gone.

Market Update
Other wonderful news: The Commerce Department said today that Gross Domestic Product, the measure of total goods and services output, was up 2.8% in the second quarter rather than the 3.3 percent rate it estimated a month ago….HSBC laid of 1,000 workers…KB Homes, the #5 U.S. builder, reported a third-quarter loss of $144.7 million…yesterday we heard that New Homes Sales were -11.5% in August to a 17-year low and the median price sank to a four-year low….and the four-week moving average of Jobless Claims shot up from 446,500 to 462,500 & the number of people collecting benefits is at a 5-yr high. What are rates doing this morning? Not much: the 10-yr is around 3.80% and mortgages are unchanged!

New California Real Estate and Lending Laws
Here in California, Gov. Schwarzenegger signed 10 new laws pertaining to real estate and mortgage finance, measures he said will protect home buyers and create “accountable” lending.

Roundup of Loan Guideline Changes
Downey Savings, effective today, eliminated the following “Portfolio Products”: Interest Only 6-month LIBOR ARM’s, 1-Year CMT/Interest Only, 3 Year Fixed (LIBOR)/Interest Only, 5 Year Fixed (LIBOR)/Interest Only, Hybrid loans with an initial fixed rate period greater than 3 years, and the 5 Year Fixed LIBOR.

I have 18 rental houses. (OK, I actually don’t have any, but it sounds cool.) Up until recently Fannie Mae would allow ten as the number of max financed properties. In light of all the credit restraints, Fannie has changed this to read, “When a conforming mortgage loan is secured by the borrower’s principal residence, there is no limitation on the number of one-to-four unit financed properties in which the borrower may have an individual or joint ownership interest. If the conforming mortgage will be secured by a second home or investment property, the number of financed properties is limited to four when the mortgage being delivered to Fannie Mae (DU) is secured by a second home or investment property. Jumbo-conforming mortgage loans are currently limited to four financed properties, including principal residences, second homes and investment properties. GMAC and AmTrust quickly followed suit.

Franklin American announced VA changes, following their FHA changes last month. All borrowers qualifying for the loan must have a decision credit score of at least 580. FAMC will no longer accept any VA loan, regardless of AUS approval status, where any borrower has a FICO score of zero or is relying on the use of non-traditional credit to qualify, i.e. rental housing, utility company references, etc., on any VA loan requiring a credit score.

CitiMortgage announced new Agency Fixed Rate changes in their pricing to their investment property refinances, second home cash out refinances, MyCommunity program, along with pricing changes to their Agency ARM products. In addition, Citi, due to Congress not extending the authority of the Department of Veterans Affairs’ to guarantee adjustable rate and hybrid adjustable rate mortgages, will no longer accept VA 3/1 and 5/1 ARMs. Citi stated that all VA 3/1 and 5/1 ARMs must be registered and locked by midnight September 30 and purchased by November 14, 2008.

Lastly, yesterday HSBC Mortgage increased the Base Loan Amount Overlays on all FHA/VA loan programs.

Daily Humor
At Penn State University, there were four sophomores taking chemistry and all of them had an “A” so far. These four friends were so confident that, the weekend before finals, they decided to visit some friends and have a big party. They had a great time but, after all the hearty partying, they slept all day Sunday and didn’t make it back to Penn State until early Monday morning.
Rather than taking the final then, they decided that after the final they would explain to their professor why they missed it. They said that they visited friends but on the way back they had a flat tire. As a result, they missed the final. The professor agreed they could make up the final the next day. The guys were excited and relieved. They studied that night for the exam.
The next day the Professor placed them in separate rooms and gave them a test booklet. They quickly answered the first problem worth 5 points. Cool, they thought! Each one in separate rooms, thinking this was going to be easy…. then they turned the page. On the second page was written….

For 95 points: Which tire? _________