Miracles Never Cease!

Back by popular demand, at least in my mind! I will be returning to the airwaves on Tuesday, August 12, 2008 on the mighty mox; that is KMOX for all of you who are not hip to the lingo of St. Louis and our toasted ravioli, hwy farty far, and pork steaks.

At 10:20 in the morning, please tune your radio to 1120 on your am dial or go to www.kmox.com to listen live over the internet. I will be on the air with Dave Simons of Merrill Lynch discussing the new legislation that was signed by the President on July 30, 2008.

Thanks for your support! By the way, if you know anyone who is looking to purchase or refinance please send me their information and I will be happy to keep you posted on how things go!

As always, for questions or comments please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

The Housing Act

On July 30, 2008, President Bush signed into law the “Housing Assistance Tax Act of 2008” (the Housing Act). It includes a $15.1 billion package of housing tax incentives.

Here are the highlights of the bill for homeowners and first time home buyers.

Property Tax Deductions for Non-Itemizers

The Housing Act created a new, temporary property tax deduction for non-itemizers (i.e., for taxpayers who claim the standard deduction rather than itemizing their deductions).

Highlights include:

· The provision creates a new standard deduction for state and local real property taxes paid by non-itemizers. Since most homeowners who are paying on a mortgage have enough deductions (e.g., mortgage interest and property taxes) to justify itemizing them on their return, this new provision chiefly benefits homeowners who have paid off their homes.

· The deduction is currently only available for tax years that begin in 2008.

· The amount of deduction will be as much as $500 for single filers and $1,000 for joint filers. Since this is a deduction and not a credit (i.e., a dollar-for-dollar reduction in tax liability) the actual tax benefit will not be all that substantial. For example, it only proves a maximum of $100 to a couple in the ten percent tax bracket and $150 to a couple in the fifteen percent bracket (and only $50 and $75, respectively, to singles in those brackets). Granted, in this economy every little bit helps.

Credit for First-Time Homebuyers

The single largest provision in the Housing Act is a measure allowing taxpayers buying their first home to take a tax credit of up to $7,500 of the purchase price. Qualified homebuyers can subtract the credit amount from their federal income tax when they buy a home and even get a refund if the credit exceeds their tax. However, they are then required to pay the credit back over fifteen years. The result is that the credit resembles an interest-free loan that must be repaid to the government.

Here are the details of the new credit:

· The home must be located in the United States and must be the taxpayer's principal residence. The taxpayer (and the taxpayer's spouse if married) must not have owned another principal residence in the United States in the three-year period before purchasing the new home. Accordingly, the home does not literally have to be the taxpayer's first home ever purchased in the United States.

· The home must be purchased between April 9, 2008 and June 30, 2009. Purchases from certain related persons and acquisitions by gift or inheritance do not qualify. A home constructed by the taxpayer does qualify if the taxpayer moves in between April 9, 2008 and June 30, 2009.

· There is also a special rule that allows taxpayers who purchase a qualifying principal residence in the first six months of 2009 to treat the purchase as if made on December 31, 2008. This allows the credit to be claimed on the taxpayer’s 2008 taxes rather than waiting to claim it on the taxpayer’s 2009 taxes.

· The credit is equal to ten percent of the price paid for the home, up to a maximum of $7,500. The $7,500 maximum credit applies both to individuals and married couples filing a joint return. A married individual filing separately can only claim a maximum credit of $3,750.

· The credit is phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase. Taxpayers with modified AGI over $95,000 ($170,000 for joint filers) can't claim the credit at all.

· The credit is refundable, which means that households with incomes too low to owe any income tax can still benefit as the excess credit available after applying to any income taxes will be refunded to the taxpayer.

· In the second year after purchase (note that the payback doesn’t immediately start in the subsequent tax year), taxpayers who took the credit must start paying back the credit in equal interest-free installments over fifteen years. For example, suppose a first-time homebuyer purchases a home for $100,000 in December 2008 and claims the maximum credit of $7,500 on his 2008 tax return. He would then be required to pay back $500 (one-fifteenth of the credit) on his tax return for 2010 and for each subsequent return for the following fourteen years, finishing in 2024.

· If the taxpayer sells the home (or the home ceases to be the principal residence of the taxpayer or the taxpayer's spouse) before the complete repayment of the credit, any remaining credit is due on the tax return for the year in which the home is sold (or ceases to be the principal residence). If the home was sold at a loss to an unrelated person, repayment of the remaining credit is forgiven to the extent of the loss.

· No credit is allowed if certain conditions exist: the taxpayer was ever entitled to a District of Columbia homebuyer credit, the home purchase was financed through tax-exempt mortgage revenue bonds, the taxpayer is a nonresident alien, or the taxpayer disposes of the residence (or it ceases to be a principal residence) in the same year as it was purchased.

For a chart of the tax credit information, click here:

http://www.realtor.org/GAPublic.nsf/files/chart_homebuyer_tax_credit_.pdf/$FILE/chart_homebuyer_tax_credit_.pdf

For the Mortgage Bankers of Americas' comments on the bill click here:

http://image.exct.net/lib/ff3611707560/d/1/MBAA_Housing_Bill_Summary_072508_Final.pdf

The majority of the information for this piece was provided by Bryan Shaw of Hoffman Clark LLC.

www.hoffmanclark.com

For Questions or Comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

New MHDC

Here we go! It is actually going to happen! The new rates for the 2008B are as follows:

CAL for Government loans 6.9%

NON CAL for Government loans 6.45%

CAL for Conventional loans 7.3%

NON CAL for Conventional loans 6.85%

The window for reservations will open at 8 am on Monday August 4th. As soon as you have a confirmed reservation you may close loans. All loans in this bond issue will be sold to the new master servicer US Bank. Training with the master servicer will start on Tuesday August 5th in Columbia and on Wednesday August 6th in St. Louis. I will go over the changes to the program in depth at the training but I will state the changes briefly in this email.

Rates

As you can see we will have 4 rates instead of 2 due to the conventional market. Only Fannie Mae's My Community Mortgage or Freddie Macs Home Possible programs can be used with this bond issue. There will be no charge of 1.25% for LLP and adverse market fee in this issue only. However, there will have to be a $175 servicing fee charged to the borrower for the all CAL loans.

Down payment Assistance

As you can see I have changed the acronym from CAP to CAL. This stands for Cash Assistance Loan and will help differentiate between the two programs. The assistance will still be 3% of the loan amount but it will be in the form of a soft second mortgage that will be forgiven over a 5 year period. The loan will actually diminish 1/60 per month over the 5 year period. The borrower will then be given a 1099 every year for the amount that was forgiven that year and will have to claim that as income on the federal tax return. If the borrower sells or refinances the loan in the first five years the remainder of the amount will have to be paid back. We have been discussing the just-enacted housing stimulus bill with FHA staff and they told us today that the just-enacted housing bill does not impose a 100% CLTV cap on FHA loans. It imposes a 100% LTV cap on the FHA-insured first mortgage and requires the FHA mortgage insurance premium to be counted toward the LTV ratio for purposes of the 100% cap. HUD will continue to allow second liens from state housing agencies that result in CLTVs that exceed 100%.

For Questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

What was I thinking?

The wonderful thing about interest rates is that you never can truly predict what direction they are heading in. For those of you that read my last post about rates going down, you at this point think I am a complete fool! At some level you might be right; however the same pressures that existed when I wrote that article are still there. They just have had some short term relief and the usual unpredictable influences that occur from time to time affect them. Let’s talk about where we were, where we went and where we are now?

Two weeks ago today our 30 year fixed on a conventional loan was about 6.75%. It was then that I started the article on rates dropping. Throughout that week the rates started to fall, so much that on Friday morning of that week I locked in a purchase at 6.125% on a 30 year loan. Around 1:00 that day it was announced that the Fed was stepping in and taking over Indy Mac bank. http://www.latimes.com/business/la-fi-indymac12-2008jul12,0,6071779.story At that point our rates jumped up to 6.375%.

The following Monday the market remained calm, and rates did not move. Then on Tuesday oil prices started to drop and over the next two days oil fell over $10 a barrel. All of a sudden Wall Street showed improvement in stock prices and the 6 week slide was halted. That meant that money was flowing back into stocks and out of bonds. Remember your economic lessons of previous posts, when the demand goes down the price goes down. On bonds when the price goes down the yield (interest rate) goes up. So by Friday of last week we were back to 6.75% on a 30 year loan.

As we start the week, we have oil starting to climb again and one of our two Presidential Candidates trying to move troops to Afghanistan to fight the War on Terror. As long as we are fighting Wars, we are going to have challenges controlling our markets. These wars are costing us BILLIONS and we are paying for that with borrowed money. Sooner or later that will have a negative effect on our economy and we will see rates come down.

For questions or comments about this please contact Chris Scheer at 314.223.9824 or cscheer@cornerstonestl.com.

Goodbye Countrywide and Goodbye to their step brother Indy Mac.

The Federal Reserve stepped in and took over Indy Mac bank on Friday.

http://www.latimes.com/business/la-fi-indymac12-2008jul12,0,6071779.story

This comes as no shock to members of the mortgage industry as recently Indy Mac announced it was ceasing its retail mortgage operations.

http://theimbreport.com/?p=161

So why do I call Indy Mac Countrywide’s step brother? For years Indy Mac mirrored all the lending programs that Countrywide created, almost to the point where unless you looked at the login page when you were visiting their site, you could not tell the 2 companies apart. There were times when Countrywide would announce a change in a program or guideline and within hours the same change would be announced at Indy Mac. From an originators standpoint, it was comical how the two companies mirrored each other.

When Countrywide was hammered last year and the Fed stepped in to rescue them (see previous posts) Indy Mac started to take on a life of their own. They for the first time were the first of the two companies to change programs and products reducing their exposure and tightening their lending practices. It was because of these efforts that they managed to last as long as they did. If it were not for comments made by Senator Schumer http://blownmortgage.com/2008/07/08/indymac-bank-run-caused-by-senator-comments/ they may have managed to right their ship and avoid the Fed taking them over.

So why does the Fed rescue one company and take over another? Stock penetration and price. If Indy Mac would have had the numbers of shareholders that Countrywide had world wide or even Bear Stearns, they would have been rescued as opposed to taken over.

For Questions or comments, please contact Chris Scheer at 314.223.9824 or cscheer@cornerstonestl.com.

We are on the cusp!

Undeniably the stock market has become a Bear market. That means that the Dow industrial average is down more than 20%. Sooner or later, those investors are going to start to move to safer investments. What are safer investments you ask? Well I am going to suggest that Mortgage Backed Securities are safer investments. For the last 12 months, this investment has been out of favor with everyone from institutional investors to foreign investors. As housing prices have fallen drastically on both coasts the middle of the country has done a good job of holding value. The Countrywide Mortgage debacle has turned a corner and is now Bank of America’s problem. The Fed has not had to rescue any more mortgage companies for the last 30 days. Second quarter earnings are being reported this week and by now all the major companies have figured out that they cannot hide the losses from the mortgage mess, so those will be dealt with in these reports.

That leaves us with mortgage backed securities in position to be an attractive investment again; especially the Ginnie Mae government loans. With over 70% of all loan applications that I am taking right now being for FHA or VA loans, I am confident that most other successful originators are doing the same. This will create a huge supply for these investments and the hawkers of these securities will have the product to sell and most of these properties will not be those that are going into foreclosure but being bought out of foreclosure by people who have the means and desire to make their mortgage payments. Sooner or later, Wall Street is going to start moving these securities and then the laws of economics will take over. As demand goes up so does price. On a bond, for those of you that don’t remember, when the price goes up the yield (see interest rate) goes down. Thus, even though there is discussion of the Fed raising short term interest rates, what they really are hoping for is that the lowering of short term rates that they did months ago will finally take hold on the long rates and we will see the 30 year fixed rate get below 6% again.

Now I realize that this is optimistic thinking on my part, but if you listen to the doom and gloom prognosticators out there saying that the economy and the stock market are still in for tougher times, someone has to be willing to bet on the bond market. Today I am that person!!!

What a difference a day makes!

Over the past 11 months the mortgage industry has gone through one of the most tumultuous times in recent history. As mortgage companies went out of business, others were rescued by the Federal Reserve and program guidelines changed like your mother told you to change your underwear; DAILY. Many people, loan officers included were caught not being up to date on the ever changing landscape of guideline changes. I can admit I had challenges with 2 condo loans in particular.

In addition to the ever changing landscape of product and guideline changes we have also seen a rate climate that reminds me of a playground toy, the sliding teeter totter! Rates go up one day, down the next, up again then up and up and then a drastic drop followed by more upward movement. I continue to preach to my clients, that locking in is the best defense in the current market. We can always look to renegotiate if rates go down drastically but, once they go up you are screwed. As my old mentor told me, “pigs get fat, hogs get slaughtered.

Let’s hope that the reforms FHA has instituted effective July 14, 2008 and the merger of Countrywide and Bank of America signal a change to the whirlwind of changes and the rest of the year is filled with calm waters for borrowers to sail in.

For questions or comments on this post, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.