JohnsBlog (articles, news, thoughts, advice)

The First Time Homebuyer Tax Credit for 2009 is quickly coming to an end.  To be eligible for the tax credit, a home buyer must settle on their new home by November 30, 2009.

Eligible buyers are anyone with an income $75,000 or under ($150,000 for a couple), who are buying a primary residence, and have not had ownership in a home for 3+ years.

The credit must be repayed if the home is sold within 5 years. 

Contact your local realtor today if you're on the fence about buying, and remember to get pre-qualified before looking at homes so your process won't be delayed!

It will resume buying mortgage backed securities for an additional 3 months longer than forecast.  What this means is that rates should stay low as the Fed absorbs supply of mortgage bonds that might otherwise float around and not meet demand.

What it also means that the economy has 3 months to hang by a string or improve, or else the program could be forced to continue.

With the home buying season almost over, and the$8000 tax credit set to expire at the end of November, it will be interesting to see how the recently resurgent housing sector responds.  Have the past few months improvement been artificially driven?  We shall certainly find out.  To add to the uncertainty is the fact that nearly 7 millions homes are either in the process of foreclosure, or close to it (up from roughly 1.25 million in 2006).  This addition of inventory to the market could spell a lot of trouble for home values, which for the first time in a long time, recently trended upward. 

For now, the Fed will keep up their support.  On the news, mortgage backed securities rose (good for rates) and the stock markets declined (also good for rates).  There will be a lot of uncertainty over the new few months added to the recent volatility, and if any sign of a stock decline takes hold, we could see low interest rates and Fed intervention for a long time to come.

If all stays well and things keep getting better, the Fed might let the monetary markets off the leash and see how things sort themselves out after what was a disastrous, scary year.

Reports are out showing that there is a greater oil surplus currently than there was at the start of summer.  There are oil tankers sitting all over the ocean at max capacity with low demand, so why was I buying gas for $2/gallon before summer, and it's about $2.45 now?

Supply and demand is clearly not the driving force.  Didn't congress recently interview oil execs about price gouging, and nothing really came out of it...what happened to that?

Hopefully someone can fill me in, because I'm confused...everything I learned in economics isn't making sense in this market.

More to come later as the lastest Fed meeting results are released this afternoon.  A rate change is highly unlikely, but their comments could cause some shake up.

the Home Affordability Refinance Plan has been in effect for several months now, and has yet to play a substantial role in housing recovery. 

There are several faults with the program that should have been addressed prior to its inception, those being the homeowners with stated income loans from the past, and the other being homeowners with subordinate financing or a semi-low FICO score (anything under 660 in today's environment.

HARP programs do require income verification.  That means any of the many people who took a stated income loan over the past few years are completely ineligible. Self-employed folks with large tax writeoffs are surprisingly getting no help from the government initiated program (I can't help but feel it's a "you hide money from us, we won't help you kind of deal).  Many of these borrowers have stated income loans on homes with deteriorating values, and the inability to refinance these homes as rates adjust (many also took adjustable rate loans) will inevitably lead to more foreclosures. 

Are you a borrower who took out a 1st and 2nd mortgage using nearly all the equity in your home?  If so, there's a good chance the HARP program may not help you, either.  Lenders have instituted their own pricing hits for anyone carrying subordinate financing (a 2nd mortgage).  Lender hits can equate to up to 1.5% of the loan amount, in many cases driving people even further above the equity threshold on their home.  A recent example I've seen had a borrower benefit of saving them money each month and going from an adjustable rate mortgage to a fixed rate product.  With a $300K+ loan amount and a 1.5% point charge directly from the lender (simply for having no equity and a 2nd mortgage), the borrower would have had to pay nearly $5500 extra for the loan, and that's with excellent credit! 

The pricing of loans is supposed to be based on risk.  Higher risk = higher rate and fees.  This is what the whole subprime industry was based on.  While the government is now bashing subprime, they are allowing lenders to continue their loan shark like fees.  In the above example, borrower was saving money each month, and going into a more stable product.  The 2nd mortgage was going to be subordinated, resulting in a lesser risk to the new lender (borrower was never late on his mortgage).  However, the bank charges a 1.5% "just because" fee, it seems.

This example is also seen in borrowers with lower FICO scores.  A couple years ago, a 620 FICO score could get you a great interest rate on 100% financing.  Lets take another test case.  Someone using 97% of the equity in their home between a 1st and 2nd mortgage (remember, the government recently backed utilizing 125% of the homes value, so 97% isn't too far fetched) with a 660 FICO (a pretty good score).  Lenders are charging a 1.75% pricing hit for the FICO, IN ADDITION TO the 1.5% hit for subordinate financing.  That's 3.25%, simply in lender fees (oh, and that's BEFORE their underwriting fee).  To absorb those hits into the interest rate, it would result in a rate close to 6% for borrowers.  Or on a $300K loan, it would be $9750 added to the mortgage balance for a homeowner who is already equity strapped!

These are the same lenders that we the taxpayer kept afloat a few months ago.  The same lenders the government backed and supported.  Now these banks are taking advantage of consumers, reaping HUGE profits while ripping off some consumers, and making it nearly impossible for other consumers to obtain a beneficial loan, when without these atrocious fees they'd be able to get a very affordable loan with great rates to save money. 

Now for someone with 10% + equity in their home and a 740+ FICO score, the HARP program allows for a decent program, but these folks are certainly a minority amidst a ton of other people that could use the help more.  Like many things that we've seen recently, the HARP program is helping a very small minority while the majority continues to suffer.  The people making programs seem to not be addressing the major problems, which really lie in adjusting rates and stated income loans.  For this reason, it may be a long while before we see a great housing recovery and a stop in the foreclosure boom.

I feel that one sentence can sum up the gist of this post.  A quote from Michael Feroli, an economist at JP Morgan/Chase, who was quoted in an online bloomberg article as saying the next few months would be "great for business and terrible for households".  With the unemployment figure hitting 9.7% (keeping in mind, of course, that those who are STILL unemployed but whose benefits have expired are not counted...nor are those working less hours than they want....nor are those who lost their businesses as self-employed folks not eligible for unemployment), the economy still has a long way to go.

The average workweek fell to 33.1 hours/week, meaning employers are running very tight on hours, and expecting people to work harder to make up for the slack.  It doesn't seem fair to me and many others that corporations can lay off thousands and begin filling their purses while their former employees are left to drown.  When is the stimulus, which if you remember, was RUSHED through congress faster than lightning, going to start showing any benefit?  We've seen benefits to corporations balance sheets and stock values, but none at all where it counts, at home. 

In my opinion, the current "growth" is unsustainable, fueled by government spending that simply cannot and will not last.  It's scary, really, to imagine what COULD happen.  It's even scarier when you realize that the probability of really terrible things happening are not at all extremely minute. 

Stay tuned as they try to dig the economy out of the grave. 
And a great big PS

Mr. Obama, weren't you supposed to be stimulating job growth?  Didn't you promise to create jobs...then changed it to "create or save" jobs?

Well, I'm not putting it all on Obama, as he did inherit a mess...but it's been 8 months, folks.  When is he going to start doing SOMETHING to help?  So far, the only folks I see doing well are the shareholders at the banks he bailed out, and the corporations that the administration has contracted to.  With the unemployment rate rising, jobs are clearly not being created, and jobs aren't being saved, either, or we'd see a reversal. 

Stocks took the largest losses in a while today, down 185 on the day.  Not that this would be huge news on its own, however these losses came in spite of enormously good economic news.  The ISM index, a leading economic indicator, came in better than expected, which led to a slight stock rally until banking/financial sector news hit the marketplace.

A good article can be found at http://bloomberg.com/apps/news?pid=20601087&sid=aTBBhUSe4UqM.

This showing of weakness in the financial marketplace comes in support of what I've been thinking and blogging for a short while now, that the economy seems to be in the midst of an artificial bubble, commonly known as a dead cat bounce .  Some economists are forecasting that the current economic situation is due to the government injecting unsustainable funds, and that once this subsides, the economy will slip again, possibly triggering a double dip recession.  While this is bad news for traders, investors, and anyone with interest in the stock market, it should force interest rates to remain at current low levels, possibly even push them lower, which would be great for those purchasing homes, and those looking to get a great deal on a refinance.

AND as a fun sports note, anyone interested in football (YES, its that time of year!) should read the fox sports article on Jerry Rice ripping wide receivers, specifically Brandon Marshall.  Link here