Our housing industry got an eye opener as well this morning as foreclosures rose 7.0% month on month and 32% year on year.  One in every 355 U.S. homes are in some stage of foreclosure, a new record.  Until we put people back to work, we will not see the end of this trend.  On the bright side, it should give Congress all the ammo they need to continue the $8,000.00 1^st time home buyer credit into 2010.  Stocks dipped on the news and bonds reversed early losses.  Currently, the 10 year note is up 7/32’s (yield 3.68%), mortgage backs are plus 5/32’s, and stocks up a baker’s dozen.  Overall, we see the three bears market to be just right, not to hot or not to cold.  Stocks holding their gains (on what I don’t know) and bonds challenging down trend resistance (good for mortgage pricing) are both working together.  This decoupling is good to see as instruments, no matter what sector, trade on value instead of anxiety.  Let’s call the market neutral/bullish as we are cautiously optimistic.

Program Overview

In an effort to monetize the $8,000 tax credit and to assist borrowers with down-payment and closing costs, TDHCA created the 90-Day Down Payment Assistance Program.

In accordance with FHA Mortgagee Letter 2009-15 dated May 29^th, 2009, TDHCA has the authority to offer tax credit advances with second liens.

90-Day Down Payment Program may be used with FHA 15 & 30 year fixed rate first lien mortgage loan.

Qualified and Eligible Borrowers

· Borrowers must meet the federal first time homebuyer requirements

o First time homebuyers purchasing a home – new or resale that will be used as a principal residence.  Includes single family detached homes, attached homes like townhomes and condominiums.

o First time homebuyer is a buyer who has not owned a principal residence during the 3 year period prior to the purchase.  For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

o Home purchase must occur on or after 01/01/09 and before 12/01/09.  The purchase date is the date when closing occurs and the title to the property transfers to the homeowner.

o Income limit for single taxpayers is $75K; the limit is $150K for married taxpayers filing a joint return.

Credit

• Min credit score of 620 is required.

Subordinate DPA Funds and Terms

• Funds Available:
  • $5 Million, First come First Served
• Amount of Assistance Available:
  • 5% of the total mortgage amount including MIP up to a maximum of $7,000
• First 90 Days
  • 0% Interest Rate (encourage borrowers to payoff 2^nd lien with tax credit refund)
  • Thereafter, 2-Year term at 10% interest rate

• Max CLTV
  • 100%.

Filing Amended IRS Returns

Borrowers wishing to amend their 2008 IRS tax return may do so utilizing the following forms:

o IRS Form 5405 – First Time Homebuyer Credit

– Provides general instructions and identifies who can or cannot claim the credit

o IRS Form 1040X – Amended U.S. Individual Income Tax Return

– Allow 8-12 weeks for processing

o Additional Resources: $8,000 Homebuyer Tax Credit At A Glance

– http://www.federalhousingtaxcredit.com/2009/glance.php

The chart supports this bearish condition as the 60 minute pattern has created an outside day down, always bearish in nature.  Currently, they are pounding the screen, down 1 and ½ points on the 10 year (3.37% yield, MBS down 17/32’s, and stocks down 178 points on the Dow.  Don’t expect a white knight until sometime next week.

While we see a stabilizing housing market in the making, the time period to work off the inventory and regain its health will take the balance of this year at a minimum. 

After an early flurry, trading has gone quite with most markets hanging around unchanged.  The 10 year note is off 6/32’s (yield 3.24%), mortgage backs are off 1/32^nd, and stocks are up a nickel on the big board.  Trading volume is running at only 80% of the norm, giving us a preview of what “summer time blues” trading is all about.  Readings on our chart work have turned neutral/bearish on daily time frames but overall, we see the market at “value” will little movement either way.  For your reference, a close above 3.25% on the note (bad) or a close below 3.18% (good) will be needed to move the market.

• energy fell 2.4% (should reverse next month due to oil prices), 
• food prices fell .2%, 
• tobacco prices and personal services jumped 2.6%, 
• and real average weekly earnings rose .1%.  

Overall, not a bad report which reflects little inflation and no deflation.  Also on the wire, Empire State (New York) Manufacturing Index improved but still posted a loss of minus 4.5 points.  While conditions in that region are still worsening, the pace is beginning to slow. Industrial Production/ Capacity Utilization were also released, down .5% IP and 69.1% Cap U.  Nothing in this report tells us that the economy is on fire. 

Last but not least, the Michigan Sentiment Survey rose 2.8 points to 67.9.  Consumer expectations drove the number higher but the index of current conditions fell 2.1 points, giving us a mixed bag type of read on the consumer. 

Given the high profile data this week, mortgage pricing and note yields have done well.  Currently, the 10 year note is off 11/32’s (yield 3.15%), mortgage backs down 4/32’s, and stocks off 52 on the big board.  Technically, the chart has started to project a more neutral trade, especially if we can close at or below the 3.15% yield mark.  Stocks grinding sideways and luke warm economic data support our fixed income market being at or near “value”.  Keep in mind that this market is very tricky, trading on anything it gets its hands on so don’t fall asleep at the wheel.  Have a great weekend.

Today’s stock swoon, due to  financial sector led selling, has given us a little boost this morning.  Earlier today, Leading Economic Indicators fell .3% to 98.1, .1% worse than expectations.  The board’s lagging indicator index fell .4% as only one of the seven components advanced.  While stock market gains, money supply liquidity, and low yields help this report, building permits and the index of supplier deliveries provided the overwhelming drag.  Fits well with our bias of the economy bumping along the bottom.  For the most part, light volume has been the theme to start the week. 

Stocks are off 250 points on the big board as B of A reported better than expected earnings but revealed escalating losses in commercial MBS and commercial/industrial loans.  Actually, the market is not sure whether Ken Lewis (CEO) is overly optimistic or just lying.  All of the above has given the 10 year note a goose higher, trading up 23/32’s to yield 2.85%.  Mortgage backs are along for the ride, up 5/32’s as I type. 

Pricing today has been more about timing than anything.  Late Friday, the market sold off to levels which were not priced into most price sheets.  In other works, mortgage pricing was “rich” to the street.  Today’s gains are nice but not enough to recoup the late day losses on Friday.  We would however, be another .125 to .25 worse today without our current rally.  Hope that makes sense.  Technically, the chart looked like a bad dog on Friday, closing with sell signals and bearish trends on most time frames.  The stability and gains today are challenging those bearish signals, including trend intensity.  We are now forming an inside day up, bullish in nature  but not a rejection of the larger time frame bear move.  To endorse a new bullish trend, the market will need to close at or below 2.81% on the note.  A trade above 3.0% will confirm that bears are in control and higher mortgage rates in vogue.  As you can see,  currently we are in no man’s land at 2.85%.  Good time to remain cautious.