Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – May 7, 2010

What Happened Yesterday?

Too Many Market Orders

Yesterday, the Stock Market had a wild ride.  They’re still determining the reason, however, many attribute it to Market Sell Orders.  Remember, computers are set to sell stocks, when a stock gets to a certain level.  Then, these computers are programmed to sell at the next market level, to “fill” their order requirement.  So, stocks got trapped in a technical nightmare, after losing so much value already, and basically, computers started “selling” at each market level…which kept getting lower…and lower.  The volatility was impressive, to say the least.  For example:   Accenture (NYSE: ACN) went from $40 down to 14 Cents!  If that wasn’t impressive enough, the stock ended the day at $41.09. So, you can imagine the roller-coaster ride that interest took, as well.

Fat Finger Thursday

Another analogy is that there was a Fat Finger involved in yesterday’s debacle.  Again, using computers, a trader could have accidentally touched one too many zero’s, when trying to sell a certain number of Stock, causing panic in the markets.  Regardless, it’s interesting stuff.

Unemployment Figures

Unemployment moved from 9.7%, in March, to 9.9%, in April.  However, the Labor Department reported that 290,000 new jobs were created.  The market expected 187,000 new jobs, so that’s a serious increase.  Coupled with the fact that revisions to February and March’s numbers increased jobs numbers by 121,000.

More Jobs, But Less Employment?

So, how do we move to a higher unemployment rate of 9.9%, yet add 290,000 jobs?  Well, when people are laid off, they probably prefer to collect their unemployment checks for a while.  If you don’t look for a job, for four weeks, than you’re removed from the Unemployment Figures, by the Labor Department.  It’s just the way things are…So, last month, 805,000 people started looking for jobs, again.  So how those numbers can twist and turn, like the roller coaster, above?

It's Safe To Float...

Locking Advice

I’m in favor of locking in, while the gettin’s good!  Germany has decided to help bail Greece out.  So, that could have a negative effect on the flight to quality, or safe-haven of Mortgage Backed Securities.

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Tighter Guideline Announcements From Fannie Mae

Harder To Qualify

Fannie Mae announced that it will tighten lending requirements for its interest-only loans (I.O.)and adjustable rate mortgages (ARM).  If a borrower wants an Interest Only mortgage through Fannie Mae, for example, he or she will have to make down payments of 30% of the sale price. For Adjustable Rate Mortgage’s, Fannie Mae will only buy those underwritten to ensure that borrowers could still afford payments even if their interest rates reset to the higher of either; 1) the loan’s initial interest rate plus two percentage points or, 2) the maximum the interest rate the loan can rise to, known in the industry as the cap rate.

Examples:

As an example, for a loan with a beginning rate of 5% and a cap rate of 9% borrowers would have to demonstrate they could still keep up payments even if the rate rose to 9%.   For an ARM with a fixed period (for example 5 years) any initial period with 5 years or less qualify at greater of note rate +2% or fully indexed rate, and I.O. loans will have a maximum LTV 70% and a minimum FICO of 720 with 24 months minimum reserves.

Bye-Bye Balloons

Loans With Balloon Payments

Balloon Loans, unless they receive special approval, are going away entirely with Fannie Mae. Fannie Mae is giving the industry some lead time:  All loans not meeting the new guidelines must be purchased as whole loans on or before August 31, 2010.

For More Info.

Fannie Mae’s News Release

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Processing the 4506-T: The NEW Delay In Lending

IRS Form 4506-T: More Potential Delays

What’s IRS Form 4506-T

Now that April 15th has come and gone, lenders are struggling with a new potential delay.  The 4506-T form.

The 4506-T allows the lender to verify, line by line, the actual filings of a client’s 1040 Federal Tax Returns.  If one line is off by $1.00, than your loan may not fund…period!  Lenders are processing these forms on each and every file…or they cannot sell the loan in the secondary market.

What’s The Problem?

Since you need two year’s tax returns on every file, many times clients need 2009 tax returns to qualify for their loan, because 2007’s income may have been too low, or maybe their business didn’t exist until 2008.  Particularly with self-employed borrowers, as lenders will use the “net” income to qualify a borrower for their loan.  When the 4506-T is processed, you must use the two years’ tax returns compared with two years’ line by line result, from the Internal Revenue Service.  However, can take up to ten (10) weeks for the process to transpire.  If you have a client that is unable to provide 2007 tax returns that support income for qualifying, and you have to wait for the 4506-T results, it can get frustrating.

So, What’s The Answer?

There are a couple of things you can do.  One is to take your returns down to your local IRS office and submit them, ask for a copy, ask them to stamp the returns, IRS Received, and provide that to your lender.  NOT ALL LENDERS will accept this, however, we know who does…of course!  The concern, here, however, is that if you have mailed your returns in, and you hand deliver them…you will be assessed a late fee, because the IRS won’t have record that they were actually mailed.  Frustrating!

Another Route

Have your borrower contact the IRS at 800-829-8374 and ask for the assignment of a tax advocate. You may need to assist them in the preparation of documentation, which should also include a Letter of explanation explaining that the borrower will suffer financial hardship, if the processing of the return and availability of the transcript is not expedited. I received a processed 4506-T, directly from the IRS, in two weeks by employing the same method.

If either of these two processes are not viable options…you may be stuck…waiting!

Chico, CA Interest Rates Market Report – Economic Influences – April 21, 2010

Trouble In Greece Is Helping Our MBS

You Down With S.E.C?

What is going on with the Security Exchange Commission (SEC) and Goldman Sachs?  It’s unwinding into, an already, ugly mess.  The timing of the release of the lawsuit was already under suspicion, because generally an announcement like this would occur after trading hours.  This is to not effect the market , and have an obvious effect on Stocks.  Well, the SEC orchestrated a beautiful release party, so to speak.  You see, just as they were announcing the Goldman Sachs suit, they were also announcing their huge mistakes and sub-par handlings of the Bernie Madoff fiasco and the R. Allen Stanford Fraud Cases.  It looks like the SEC missed several red flags on Stanford, much as they did with Bernie Madoff.  According to the New York Times, the SEC found several securities violations over the years, “but each time the regulators ultimately let the company off with relatively small fines, records show.”  So, there is speculation that the announcement of the Goldman Lawsuit was timed perfectly enough to squelch any media coverage regarding mistakes that the SEC made on these two huge fraud cases.

Motivation From Financial Reform

And now, it’s being reported that the government has testimony that completely contradicts the findings, of the SEC, against Goldman Sachs.  This information is helping Goldman’s Stock, but there are many questions into what the true motivating factors are, behind the SEC’s actions, lately.  Could Financial Reform have anything to do with it?  We’ll have to wait and see.

Earnings Up, NO Down, No Up…

Corporate Earnings Reports were all over the board yesterday.  Starting with McDonald’s and Morgan Stanley beating expectations.  Unfortunately, Wells Fargo and Boeing’s revenue fell short of expectations.  The big news was reported after trading hours, when Apple reported significantly better than expected earnings.  This has shot their Stock to almost record high’s of about $260 per share.  Did you, also, hear about the next phase iPhone being left on a counter-top on a bar?  Well…you think that might not have been actually planned?  That could help their Stock, too, don’t you think?

Greece VII

Is this Greece VII, or VIII?  It looks like Greece and Portugal’s credit rating is falling and that their financial assistance packages may not have been enough to get them out of financial trouble.  This is helping funds to pour into the safe-haven of United States’ Treasuries.  If this continues into next week and the Treasury Auctions, it could be extremely beneficial for interest rates.

With Greece's Continued Problems...

Locking Advice

With no real economic information to report today, and the European troubles mentioned above, I’d continue to float.

9 Days Left To Get Into Contract For Tax Credit

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