First-Time Home Buyer Tax Credit

Opportunity of a Lifetime for First-Time Buyers For aspiring home owners who find their goal stubbornly elusive, newly enacted legislation providing a tax credit of as much as $7,500 for first-time home buyers might just be the opportunity of a lifetime.

But like so many of the good things in life, time is of the essence for buyers who want to take advantage of this outstanding opportunity. Only homes purchased on or after April 9, 2008 and before July 1, 2009 are eligible. Use the links below to learn more about the tax credit.

First-Time Home Buyer Tax Credit at a Glance

• The tax credit is available for first-time home buyers only.
• The maximum credit amount is $7,500.
• The credit is available for homes purchased on or after April 9, 2008 and before
  July 1, 2009.
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
• The tax credit works like an interest-free loan and must be repaid over a 15-year period.

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Freddie Mac to let residents rent homes after foreclosure

Freddie Mac on Friday plans to announce a first-of-a-kind plan that lets homeowners and tenants temporarily stay in homes in foreclosure by renting them back, an effort to stop many of the sudden evictions that have come along with the housing crisis.

The program will let thousands of qualified former homeowners, as well as families renting from landlords, enter into a monthly lease on their homes after they have been acquired by Freddie Mac through foreclosure.

Freddie Mac officials expect the program to help about 8,600 families in 2009.

The program gives homeowners and renters more time to find a new place to live and also keeps homes occupied. That's a plus for neighborhoods where numerous foreclosures have led to empty, unmaintained, vandalized properties.

"For tenants, it's a big difference," says Mark Zandi, an economist with Moody's Economy.com. "If this acts as a benchmark for other mortgage servicers, it would be a very positive development. It's a win-win. "

Details of the program:

•Leases will be on a month-to-month basis.

•Tenants and homeowners will only have to pay market-value or existing lease rents, not the mortgage payments. Freddie Mac will hire a property management company to determine that amount.

•Tenants and homeowners must be able to show proof that they have enough income to pay the monthly rental amount.

•Freddie Mac will also explore loan-modification options that might be available for some borrowers.

The Freddie Mac initiative comes as the government is stepping up efforts to stem a wave of foreclosures that caught more than 2.3 million homeowners last year, up 81% from 2007.

The Obama administration has pledged to spend up to $100 billion to help people avoid losing their homes.

In mid-December, Fannie Mae also rolled out a policy that allows renters in a property that is being foreclosed on to rent that home rather than be evicted. It does not include homeowners. Up to 10,000 families are expected to be helped by Fannie's rental policy; Freddie expects about a 30% acceptance rate.

The Federal Reserve this week announced a policy to help some distressed homeowners avoid foreclosure. The Fed said it would work with companies servicing mortgages now owned by the Fed to modify qualifying mortgages of homeowners that are 60 days or more delinquent on payments.

Stocks' January performance could be bad news for 2009

Here's a Wall Street adage that investors hope doesn't come true in 2009: As January goes, so goes the rest of the year.

Market historians have observed for decades that when stocks fall in January, they tend to post losses for the year. With the Dow Jones industrials and Standard & Poor's 500 losing 8.8% and 8.6% in January, respectively — their nastiest start to a year ever — followers of the so-called January Barometer are hunkered down for the worst.

"I'm hoping it's wrong," says Jeffrey Hirsch, editor of the Stock Trader's Almanac, which popularized the January Barometer in the early 1970s. "Nevertheless, we do have a negative January, and that's something to be concerned with." Consider:

•The January Barometer has frequently been correct. Since 1950, it has been wrong by a wide margin only five times, says the Stock Trader's Almanac.

•Investors who heeded the warning last year avoided much of the 2008 shellacking. The S&P 500 declined 6.1% in January 2008 — a year it ended with a 38.5% loss.

The biggest down years started with a down January. Every year the Dow fell 15% or more since 1973 started with a negative January, says Ken Winans of financial advisory firm Winans International. "This captured every single time hell broke loose," he says. The indicator has reliably predicted midyear corrections and below-average years back to 1928, he says.

One factor in support of the barometer is that a down January means stocks have to crawl out of a hole to end the 12 months higher. An up January gives a bit of a cushion for the rest of the year.

Also, many of the government policies that steer markets for the year are made known in January, says Bryan Taylor, market historian at Global Financial Data.

Some, though, aren't prepared to write off 2009 just yet. Still to come are the Obama administration's plans for aiding banking and housing, and passage of an economic stimulus plan.

Sam Stovall of S&P points out that the fact stocks fell in January 2008 and January 2009 is mildly bullish. Stocks have fallen two consecutive Januarys only five other times since 1929, and in three of them the market gained the second year.

Also, the January Barometer missed the market recoveries in 1982 and 2003.

The belief a month's returns can predict the rest of the year shows the folly of mining historical data looking for predictive patterns, says Burton Malkiel, professor of economics at Princeton and author of A Random Walk Down Wall Street.

"The problem with looking at past correlations is not that you won't find any," he says. "It's that they don't mean anything."

Motivation Speech for today's tough times...

" . . . it ain't about how hard you hit; it's about how hard you can get hit, and keep moving forward. How much you can take, and keep moving forward. That's how winning is done. Now, if you know what you're worth, then go out and get what you're worth."

Market Watch for 1.26.09

Mortgage Bonds start the week somewhat unchanged and continue their sideways trading pattern.

Existing Home Sales surprisingly came in a bit better than expected. Perhaps the current low interest rate environment - combined with firesale prices on many homes - is helping more homebuyers make their purchasing decisions.

The employment environment continues to be shaky. Home Depot announced a cut of 7000 jobs, Caterpillar announced they will be laying off 20,000 and Sprint is cutting 8,000 employees.

For today, I will recommend a floating stance, but in this wacky market anything can happen. I will let you know if anything changes.

The Fit Expo with Tito Ortiz

Today I hung out at the L.A Fit Expo at the Convention Center, had the opportunity to meet and chat with Former UFC Light HeavyWeight Champ; The Huntington Beach Bad Boy Tito Ortiz....One of the greatest MMA fighters of all time and nicest people you'll meet. Hate him or like him I recommend his book "This is Going to Hurt"....He is scheduled to fight in July 2009 stay tuned and watch him...

Rate Sheets Gone Wild!

What's going on? There's very little above par or "premium" pricing available...and the latest round of Fannie and Freddie pricing adjustments means more and more borrowers need to pay points. They don't understand why and they don't like it. Combine that with some investor rate sheets getting worse...at the very same time that mortgage backed securities are getting better...and we've got the makings of a wildly confusing situation. But here's the good news. There are very logical reasons for what is happening.

What Lenders Learned During Prior Refi Booms

If you've been in the business for a number of years, you know that 15 years ago it wasn't uncommon to see nice buy-up schedules on many products, with an increased yield spread premium being offered in return for a higher interest rate. In fact, you could even get par plus 5 or 6, with the buy-up schedule giving about 50bp in return for a .125% mark-up on the interest rate.

But then along came the refinancing - and re-refinancing and re-refinancing once again - frenzies of 1993 and 1998, followed by the big daddy refi bonanza of 2002 to 2003. As home loan rates dropped ever lower over the years, you can imagine how the investors felt as they watched "par plus" loans get originated with the payout of juicy premiums...only to see those same loans turn around and be paid off in relatively short order, as increasingly lower rates made it attractive for the client to refinance, sometimes multiple times. These losses on loans were very costly to lenders. Think about it - when a lender offers a premium in return for a higher than market interest rate, it takes some time for them to make up with future interest earnings what they paid out in hard cold cash for the premium pricing when the loan closed. So after learning their lesson many times over many years and many refinancing booms...the lenders got smarter and started to reduce the amount of par premiums, followed by making those premiums more expensive by demanding even higher rates in return for a smaller premium and eventually have now nearly eliminated that premium pricing which cost them so much money in the past. Fannie and Freddie Loan Level Price Adjustmtents Make Paying Points Almost a Given Now, let's add the string of Fannie and Freddie loan level price adjustments to the picture, another set arriving on the scene just recently. Who would have ever thought that a credit score of 680 or an LTV of 90% would be considered such risky business? But it's been a tough year for everyone, including the agencies, and risk-based pricing is one measure they can take to protect themselves. In the past, pricing hits or adjustments could more easily be built into the rate, with a small bump up in rate offering enough premium pricing to cover the hit. But as we explained above...those days are gone, often leaving the borrower with no choice but to pay points for the adjustment. This can be frustrating to clients who don't understand why the recent pricing adjustments have to translate into potentially thousands of dollars in cash out of pocket. Bottlenecks in the Pipeline Keep Rates Artificially Inflated But wait, the fun isn't over yet...let's add some current events to the party. Investors have been slammed with the recent uptick in volume, at a time when they have both shrunk in number and depleted their head count, in an effort to slash costs. So while the increase in volume is certainly a good thing, it is apparently "too much too soon" for some investors to handle...and the only way to slow down the volume is by an increase in pricing. And if you're an investor...hey, why not bump up pricing, even though the mortgage backed security market might dictate otherwise? If your capacity is maxed out, raising rates helps increase profits while making the workload manageable by slowing down the flow of incoming files. What's Temporary, What's Long-Term and What You Can Do What's the result of all this? Frustrated originators, frustrated clients and frustrated agents...but there are answers and opportunities once you understand what is happening and why. You'd have to be living in a cave to not to be aware that the financial and lending climate has changed dramatically...but it's up to me as your trusted advisor to explain these dynamics, simply and clearly. What might make sense to me doesn't necessarily make sense to my clients and referral partners. On the other hand, the issue of reduced premium pricing, loan level pricing adjustments and point paying may be here for awhile - and could perhaps get stricter still as delinquency and default issues continue on. Any originator who would just quote a rate - without asking a number of questions - is really not a professional at all.