Mortgages and Housing: Rich Ditch Owning, VAT, Principal Payments, HECMs, New HUD Website, Produce The Note, Live Free 16 Months, Military Borrower Squeeze?

 

Rich Americans Ditch Home Ownership For Renting – By: Joseph Pisani – … So in March he sold the Manhattan apartment he bought in 2008 for about the same price he paid and moved — along with his wife and child — a few steps away into a luxury, two-bedroom rental unit in a brand new building. … “I wanted to protect ourselves from prices going down,” says Lee, who is a managing director at a major bank. “I didn’t want to be an owner anymore.” … – CNBC

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VAT: Another Reason for a Housing Boom? – Casey Mulligan -  The U.S. does not have a national sales tax, or a value-added tax (VAT). Many other countries do have VAT, and a number of economists and accountants (not me!) have recommended that the U.S. get a VAT.  Suppose that we knew that, say, a 10% VAT was coming to the U.S. in the year 2015. … Thus, homes built before 2015 would be 10% more valuable that home built after 2015, because only the latter would pay tax. So anticipation of VAT would cause a temporary boom in housing construction and new housing prices … – Supply and Demand (In That Order) 

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(reinvesting MBS principal payments) Don’t Forget About the Fed’s Other Asset-Buying Effort – DANIEL INDIVIGLIO – In early November, the Federal Reserve Open Market Committee (FOMC) decided to begin a new program to buy $600 billion …  But that isn’t the whole story. This new quantitative easing measure, commonly referred to as QE2, is really just a more aggressive extension of a program that was initiated in the FOMC’s August meeting. The November minutes, released on Tuesday, provide some detail on the earlier program that helps paint a more complete picture of the Fed’s monthly purchases.   – The Atlantic
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Chart of the Day: Value of the HECM Portfolio? $5.8 Billion in 2017 – The latest actuarial report of the Federal Housing Administration’s reverse mortgage program shows estimates of the overall economic value of the HECM portfolio will fall to negative $503 million in fiscal year 2010 but increase to $5.8 billion in 2017. … The increase is due to various reasons, including higher premium rates, the introduction of the HECM Saver, and the forecasted house price recovery. … – Reverse Mortgage Daily

New HUD Website Provides Detailed Economic and Housing Data -  The Department of Housing and Urban Development released a new website that provides a detailed look at economic and housing data at a regional, state, metro and county level.  Using data from the Census Bureau, Labor Department, State and Local governments, housing industry sources, as well as HUD’s own field economists, the new website employs interactive maps that allow visitors to access a variety of reports  – Reverse Mortgage Daily 
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(you haven’t seen this) The mortgage foreclosure legislation Congress won’t touch – by Peter G. Miller -   Stashed away in a draw somewhere on Capitol Hill is a simple piece of legislation that would have done much to stop the mortgage mess, robo-signing, unfair foreclosures, and the growing claims against lenders. But Congress has not touched the Produce the Note Act since it was first introduced in February 2009 — nearly two years ago. – OurBroker.com 

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Why Pay the Mortgage or Rent when you can have 16 Months of Free Shelter?  How to Deal with this Important Question – Michael Shedlock – Those deeply underwater on their homes have a nice option that renters and those with equity in their homes don’t. That option is to stop making home payments, effectively living in their home or condo scotfree, for as long as they can.  Millions have take the option, and with each person doing so, the longer the delays. Thus, the more who take that option, the greater the reward for all who do.  The Wall Street Journal reports that it takes 492 Days From Default to Foreclosure, up from 244 days in August 2007. – MISH’S Global Economic Trend Analysis

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Underwriting Changes Could Squeeze Out Military Borrowers – by CHRIS BIRK – Military families might have to pay a steep price for the mortgage lending sins of the recent past.  The Senate this week tacked on a new amendment to the massive Financial Services bill it’s considering. –  But the Merkley amendment appears tailor-made for a classic overreach — the bill would now introduce new, needless layers of underwriting and verification to already proven lending programs, particularly the VA Loan Guaranty program. – The Bigger Pockets Blog

Markets Related: Microsoft Bonds, Gold As Money, Peak Energy, Long Bond Returns

 

Microsoft Record-Low Coupon Punishes Investors: Credit Markets – By Sapna Maheshwari – Investors that helped companies from Microsoft Corp. to Wal-Mart Stores Inc. sell bonds at record-low borrowing costs are being punished on concern Federal Reserve efforts to stave off deflation will drive up yields. … Debt from Wal-Mart, Microsoft and Coca-Cola Co. sold in the past two months with relative yields as low as 25 basis points is trailing investment-grade credit that pays an average spread of 175 basis points. Goldman Sachs Group Inc. is urging investors to buy bonds with spreads at least 200 basis points above U.S. Treasuries as the Fed seeks to purchase $600 billion of government debt to avert deflation and expand the economy. … – Bloomberg

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 Why Gold Is the Perfect Element For Money – Why did gold—and not osmium, lithium, ruthenium or any other element—become the one we humans use as money? Sanat Kumar, a chemical engineer at Columbia University, goes through the periodic table and explains why the rest wouldn’t work. – hattip John Cervarich – NPR 

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Peak Energy, Climate Change, and the Collapse of Global Civilization – Below is the summary of key points from a 252 page document called ‘Peak Energy, Climate Change, and the Collapse of Global Civilization’. (Full PDF) It’s a great attempt to document all the current knowledge in a single place. – has about 40 bullet points  – Plan B Economics

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U.S. Long Bond Becomes Bellwether as Fed Drives Trade – By Daniel Kruger -  For the first time since the 1990s the U.S. 30-year Treasury bond is becoming the benchmark for the world’s biggest debt investors.  The Federal Reserve’s plan to buy $600 billion of U.S. government debt will focus about 86 percent of its purchases in notes due in 2.5 years to 10 years, leaving the so-called long bond as the security that most closely reflects market expectations for inflation -  Bloomberg BusinessWeek

International Influences: Dollar War, Japan is Ageing, Irish Taxes, Basel III Shortfall, Hungary Pensions Scr*w’d

 

incredible must read interview – Dollar War in Detail – Eric Janszen, Interview with Dr. Michael Hudson – Credit Writedowns

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Japan is ageing faster than any country in history – … Within two generations the number of people of working age increased by 37m and Japan went from ruins to the world’s second-largest economy. In the next 40 years that process will go into reverse. … – The Economist

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(unintended consequence?)  US firms warn Irish over tax move –  The Irish government has been given a stark warning from some of the biggest American companies in Ireland on the risk of a mass exodus if the country’s low corporation tax rate is raised. – Telegraph.co.uk 

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Top Banks Face $100 Billion Basel Shortfall: Report – (Reuters) – The new Basel III banking rules will leave the biggest U.S. banks short of between $100 billion and $150 billion in equity capital, with 90 per cent of the shortfall concentrated in the top six banks, the Financial Times said, citing research from Barclays Capital. – ABC News Money

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Hungary Follows Argentina in Pension-Fund Ultimatum, `Nightmare’ for Some – By Zoltan Simon -  Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension. – … “This is effectively a nationalization of private pension funds,” David Nemeth, an economist at ING Groep NV in Budapest, said in a phone interview. “It’s the nightmare scenario.” … – Bloomberg

New Video – Is gold stuck between a rock and a hard place? – by Adam Hewison

The gold market has been pushing out its normal level of frustration and anxiety for the past several weeks.

So the question becomes, is the gold market pausing to move higher, and of course the Bulls would argue this, or is it forming the head and shoulders top that many technicians are looking for? Of course, this would be a bearish sign for gold if this technical formation is completed.

I’ve just finished a short video that shows you what we’re looking at right now in gold and how I think it is going to be resolved. The video is a little over 2 minutes. It’s quick and to the point while supplying you with what you need to take your place in or out of this market.

Watch the video here:

FREE GOLD WEBINAR

You may also wish to attend our gold webinar which we are holding on the 2nd of December at 4 PM EST. The webinar is free of charge, but you need to register in order to attend. This is no hype, but we have limited space and it will be on a first-come first served basis. The important thing is that you register as soon as possible.

Here is the link to register for the webinar

While you do need to register to attend our gold webinar, in order to watch today’s short video no registration is required nor is there any charge.

We hope to see you at this week’s Gold webinar so don’t forget to register.

All the best and enjoy today’s video.

Adam Hewison     President of INO.com     Co-founder of MarketClub

Mortgage jobs! HUD to impact warehouse lending; Banks resisting buybacks; Wells weighs in on risk retention; Are underwriting overlays discriminatory?

 

 

If one can borrow against their homes, why not borrow against their children?

Everyone in the mortgage industry knows people who are out of work. The latest reports show that mortgage industry employment fell in the third quarter of the year, the first downturn in nearly a year. Total mortgage industry employment was estimated at 246,000, less than half the 535,400 government figures reported at the industry’s peak in October 2005. Here is the article

On the other hand, there are certainly signs of growth out there, and just not with the government or large banks. In Florida, for example, Home Financing Center is hiring – it has been around 26 years and is the largest independently owned and operated mortgage banker in South Florida. The company also services its own loans, and partners with Florida credit unions and community banks. The company is looking for licensed loan processors (a Florida mortgage broker’s license, 2 or more years of experience, and so forth) and loan underwriters (experienced with a good understanding of underwriting policies and procedures, as well as investor guidelines and regulatory updates including knowledge of FHA, FNMA & DU, and FMLMC & LP guidelines and standards, etc.). If you’re interested, contact Aldo Colli at aldo@benefitlife.com.

(Speaking of Florida, the SAFE deadline for existing licensees in Florida to successfully submit an MU4 filing and be in a “Pending – Review” status is December 31.)
HUD-FHA also has new career opportunities for qualified individuals, such as Supervisory Auditor. Its announcements are posted at http://www.usajobs.gov for jobs around the nation.

What if Freddie or Fannie wanted you to buy back a loan, and you didn’t? I guess we’ll see.

Should everyone be entitled to a home loan? Or maybe the question is, “Are investors allowed to have underwriting overlays?” According to a source at BuckeySandler, attorneys for the financial industry, “the National Community Reinvestment Coalition (NCRC) sent letters to approximately 30 banks challenging their Federal Housing Administration (FHA) mortgage origination guidelines. The NCRC is alleging that banks with underwriting policies that include a FICO score cutoff above the minimum FICO score permitted by FHA guidelines are discriminating against African-American and Latino consumers who comprise a high percentage of FHA borrowers.  According to the NCRC, the FHA has issued guidelines that “require” FHA approved lenders to originate mortgages with loan-to-value ratios of 96.5 percent to qualified applicants with credit scores above 580.  Banks receiving the letter allegedly impose a higher FICO score minimum for FHA loans – some of which have a cutoff of 620.  The NCRC is claiming that this policy has the purpose and effect of discouraging the flow of credit into communities in which loan applicants are predominantly African-American and Latino in violation of the Equal Credit Opportunity Act and Regulation B. For more information, please contact infobytes@buckleysandler.com.”

A reader wrote in about the 5% risk retention proposals. “Wells Fargo is are pushing to have any loan with an LTV that’s greater than 70% to be considered not eligible for exclusion from the risk retention rule. The letter also suggested other provisions, including warranties on early payment defaults and a 5% vertical slice for risk retention that be held in trust. The company realizes that this would favor those with capital and ‘hose’ those without – Wells has capital.” Here is a copy of the letter.

Anyone servicing Fannie Mae loans who has had questions about problem drywall, policy, submitted 1099-A forms manually, or wondered about the delivery of repurchased loans, should check out Fannie’s latest servicer bulletin

A former Iowa mortgage banker has been charged in federal court with multiple fraud and conspiracy charge for allegedly defrauding banks and mortgage lenders. 56-year-old Winnifer Elvidge (they don’t make names like that any more) of LeClaire, Iowa, was arrested Monday and appeared in U.S. District Court in Davenport. (Davenport is where Cary Grant died from a stroke in 1986.) She has been indicted on three counts of mail fraud, four counts of bank fraud, 15 counts of wire fraud and one count of conspiracy in a scheme to defraud banks and mortgage lenders in 2005 and 2006 with the purchase of more than 20 properties in Davenport.

more news on HUD bearing the cost of any delays in the foreclosure process, HUD considering issuing guidance under RESPA to address possible changes in warehouse lending, MGIC, Wells wholesale, Suntrust, MBS market actioon, economic numbers, and Joe of the Day – click here.

Mortgages and Housing: Measuring Walk Aways, FCs in Maine, Property Tax Receipts, MBS Negative Convexity, Crash?, China Sells MBS

 

 

(has 4 step process)  Understanding the Housing ‘Walk Away’ Threat and Measuring Its Risk – Michael James McDonald -  Summary    The “strategic default” or “walk away” is the final hurdle housing must get over. It only exists in certain areas and regions but it is potentially very dangerous. It can trigger self-sustaining price declines that carry forward and destroy building rojects, investor profits and bank earnings. …  This article presents a conceptual approach to doing this. The important point is that the price risk can be quantified. Loan originators and home builders can statistically locate and avoid areas facing walk away risk and severe price declines and investors can now locate and sidestep potentially dangerous investments. – Seeking Alpha

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Bank of America, GMAC Suspend Foreclosures in Maine – November 24, 2010 – Bank of America Corp. agreed it won’t complete foreclosures in Maine and Ally Financial’s GMAC Mortgage unit said it will halt sales of foreclosed homes in the state, Maine Attorney General Janet T. Mills said. – Bloomberg BusinessWeek

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(Property tax receipts to fall?)  An Erroneous Conclusion – Michael Panzer  – In my latest post for DailyFinance, "The Coming Property Tax Cliff Means More Bad News for Municipals," I take issue with a recent Federal Reserve staff working paper that concludes, among other things, that "property tax revenues are unlikely to fall sharply in coming years." In my view, the current state of the housing market and this graph (from the study) indicate otherwise – Financial Armageddon Blog

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(QE2 votedown?) The negative convexity of MBS is kicking in -Scott Grannis – Yields on 10-yr Treasuries are up 50 bps from their October lows, which were the lowest yields since the panic of late 2008. We can safely assume that yields were driven to those extremely depressed levels by the prospect of another round of quantitative easing—the market was front-running the Fed’s plan to purchase Treasuries. Since then the Fed has confirmed its intention to purchase up to $600 billion of Treasuries, but yields have nevertheless jumped by half a percentage point. That’s the market’s way of flashing a big thumbs down to QE2. – Calafia Beach Pundit

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Back to our Regularly Scheduled Housing Crash – …. We got the October new home sales data this morning and it was flat out dismal: … My Take:  The pricing data is even worse than the putrid number of new homes that were sold.   Home prices have now fallen back to where they were selling when the housing bubble really got going back in 2003…. – The Housing Time Bomb

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Is China Betting Against a U.S. Housing Recovery – by Dave Forest – This just might be chart of the year. Chinese buying of U.S. government agency bonds. – OilPrice.com

Government Related: Dodd Frank Checklist, Ireland and Dec. 7, FDIC and Small Banks, FX Derivatives, It’s Debt, Loan Loss Provisions, The “Fixes” are In

 

 

Checklist For The New Dodd-Frank Act Bureaucracies – BY PHIL HALL – The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act represents the largest overhaul of the financial services industry since the Great Depression. It also significantly expands the size of the federal government, with the creation of new agencies and offices that will have an impact on how Washington regulates the financial services industry. – MortgageOrb

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December 7 Is The Drop-Dead Date For The Irish Budget – Joe Weisenthal – Lots and lots of budget talk out of Ireland today.  What you need to know is that EU budget minister Olli Rehn met privately with Irish MPs to urge the swift passage of a budget, according to RTE.  The date you need to pay attention to, based on the timeline, is December 7. – Money Game at Business Insider 

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F.D.I.C. Says Many Small Lenders Are Still at Risk – By ERIC DASH – Even as the nation’s biggest banks have rapidly recovered, hundreds of small lenders remain at risk, according to the government’s latest report card on the financial industry.  The Federal Deposit Insurance Corporation said on Tuesday that its list of “problem banks” — those with the highest risk of failing — had grown to 860, or nearly one in nine lenders. Most are small community banks, saddled with bad real estate loans – NY Times

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The biggest Wall Street banks are pushing the U.S. Treasury Department to exclude foreign exchange derivatives from new regulations, a move that would leave a $42 trillion market largely outside of federal oversight.  A coalition of 20 firms, including Deutsche Bank AG, Bank of New York Mellon Corp. and UBS AG, contends that foreign exchange is less complex than other derivatives and had no role in the financial crisis, unlike credit-default swaps that led to the near-collapse of American International Group Inc. – Bloomberg

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Debt Delenda Est – by Bill Bonner – …  The authorities … governments and central banks…if they caught on to the problem now, they’d probably have to resign.  They pretend that the problem is a lack of “liquidity.” Or a failure of capitalism. Or that the regulators dropped the ball. It is none of those things. … The real problem is debt. … – Lew Rockwell.com

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(FDIC) Banks warned on loan-loss provisions – By Dave Clarke and Rachelle Younglai – (Reuters) – Banks showed further signs of recovery in the third quarter, helped by the lowest level of loan-loss provisions since before the 2007-2009 financial crisis, but drew a warning from a top regulator not to go too far.  Federal Deposit Insurance Corp Chairman Sheila Bair said banks should not cut reserves too quickly given the fragile economy. 

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(Government ‘Fixes’) The "Fixes" – Bruce Krasting – It’s not just the Bush tax cuts that expire at the end of the year. The maximum lending limits at Fannie Mae, Freddie Mac and FHA  were set to expire. The Build America Bond (“BAB”) program is another. They both have been “fixed”. We kicked the can down the road (again) while no one was looking. … folks, we are on life support. We have been since 2008. Nothing will change in 2011. QE has been extended, the tax cuts will be extended, BABs and the Agency loan limits are being extended. The IV is full and inserted into the arm. The juice that is keeping us alive is still flowing. But make no mistake about this. Without the IV the lights will go out very quickly. 2011 is the last year for these extensions. When we wake up to the fact that we are alive only as a result of medicine we take on a daily basis there is going to be another “event”.  … -  Bruce Krasting Blog

HUD: Will Not Change Interpretive Rule

MORTGAGE COMPLIANCE

On June 25, 2010, we notified you about the National Association of Realtors asking the Department of Housing and Urban Development (HUD) for clarification on an unofficial staff interpretation HUD had issued on February 21, 2008 regarding Home Warranty Companies.

In that interpretation, HUD’s Office of General Counsel opined that services performed by real estate brokers and agents on behalf of a home warranty company (HWC) are compensable as additional settlement services if the services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and allowed that the real estate broker or agent may accept a portion of the charge for the homeowner warranty only if the broker or agent provides services that are not nominal and for which there is not a duplicative charge.

After reviewing the comments received, on November 23, 2010 HUD determined that changes are not needed to the interpretative rule.

Therefore, this interpretive rule does not constitute a change in HUD’s interpretation of RESPA or the RESPA regulations, but is an "articulation" of HUD’s interpretation of RESPA and the implementing regulations that specifically apply to home warranty company payments to real estate brokers and agents.

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Current Selections From My Mailbox – by Jack Guttentag

 

Mortgage Insurers are Not Obliged to Help Distressed Borrowers, But They Might Anyway

I am currently in default on my mortgage.  I have been paying premiums to a private mortgage insurer for 6 years, is there any way these premium dollars can be applied to my mortgage payment?

Mortgage insurance protects the lender, not the borrower, and you have no legal claim on the premiums you have paid. However, your insurer is on the hook for losses if your default ends in foreclosure, which means that they have a financial interest in preventing this from happening. All the insurers have programs under which they will assist borrowers in distress who they believe can avoid foreclosure with their help. Contact your insurer ASAP.

Responding to Solicitations From Mortgage Lenders Is a Bad Idea, Even Worse If the Lender Is Abroad

I am currently involved in trying to get an overseas mortgage from an online company abroad, XXXX.com. I have already sent them 300 Euros for an automated valuation in France, I was supposed to receive it 2 weeks ago but it has not yet arrived. I’m worried. Can you please tell me what you know about XXXX.com?

I don’t know anything about them, which is hardly surprising, There are many thousands of mortgage loan originators in the US alone, and adding Western Europe might double the number.

Borrowers who allow themselves to be selected by a lender are looking for trouble. Not all lenders who solicit borrowers are predators, but all predatory lenders solicit, which means that the odds are stacked against the borrower responding to a solicitation. If the soliciting lender is abroad, the odds are even worse.

The analogy I like to use is selecting mushrooms. One summer in New Hampshire, I camped in a wood that was carpeted with wild mushrooms, which I love, but many of them were poisonous. I went to the local “expert” who knew some that were good that he had eaten, and those were the ones I picked. There are a lot of pretty mushrooms I left alone, and would have left alone even if they had implored me to pick them. That is the proper way to select a mortgage lender.

The Sooner You Make Extra Payments. The More Money You Save, Regardless of What Type of Mortgage You Have

“My loan officer has told me that on a 5/1 ARM, paying $1000 more each month for 60 months won’t generate any savings over paying $60,000 in month 60, just before the interest rate and payment reset. Is this true?”

No, he is wrong. If you pay $1,000 a month for 60 months, the loan balance will be smaller in month 60 than if you applied $60,000 to the balance in month 60. The reason is that extra payments received early reduce the balance early, which reduces the monthly interest due on all future payments, which increases the portion of all future payments that is applied to principal.

The higher the interest rate, the larger the savings. For example, at 5%, paying an extra $1,000 a month on a $300,000 loan will result in a loan balance 3.7% smaller after 60 months than applying $60,000 to the balance in month 60. At 10%, the balance would be 7.6% lower.

This principle holds whether the loan is an ARM or an FRM, whether it is a standard monthly accrual mortgage or a simple interest (daily accrual) mortgage, or whether the scheduled payment is fully amortizing or interest only. The only kind of mortgage on which it would not hold is one on which the loan contract prevents the borrower from making extra payments, and to my knowledge there are no such home mortgages in the US.

In the Post-Crisis Market, Some Lenders Will Not Do Condo Loans

“I have been preapproved for an FHA loan but the lender says that it is not good if I purchase a property that has an HOA fee. Why is that?”

It is a roundabout way of telling you that this lender does not make loans on condominiums, since all condominiums have a home owners association (HOA) fee. Many condominium projects have been having trouble collecting these fees from members, especially where significant numbers are in default on their mortgages. This may result in needed maintenance not being made, which can erode the value of all the units in a project. It can also impose an additional financial burden on residents who are not in default, who may be obliged to pick up the HOA fee shortfall.

On the other hand, many condominiums have no HOA fee shortfalls and are well maintained, making the individual units excellent collateral for a mortgage loan. Your lender does not want to do the homework needed to identify the condos that are good risks. Say goodbye and look to another lender. Giving up the pre-approval means giving up what has no value to you.

Even FHA Borrowers Have a Right to Change Their Minds About Where They Live

“I am thinking of refinancing into an FHA loan in order to take some cash out for home improvement.  My intent is to stay in the house, but there is a possibility that I may need to move out in 7 months or so and rent this house before moving back in at a later time. Can I do this?”

FHA loans are for permanent occupants, not investors. However, people are allowed to change their minds in response to changed circumstances, so if you are obliged to rent it out at some point, nobody is going to throw you in jail. In my view, the fact that you anticipate that this could happen does not invalidate your declaration that you are buying the house as your permanent residence.

Note that the loan application does not ask you about possible future changes in your lifestyle and there is no reason for you to bring it up.

 

Jack M. Guttentag, now Professor of Finance Emeritus, formerly Jacob Safra Professor of International Banking, at the Wharton School of the University of Pennsylvania. Earlier he was Chief of the Domestic Research Division of the Federal Reserve Bank of New York, on the senior staff of the National Bureau of Economic Research, and managing editor of both the Journal of Finance (1974-77) and the Housing Finance Review (1983-89).

Comments on the 5% mortgage reserve requirement and mortgage interest tax deductibility; Rates improve slightly on Ireland news

 

 

I don’t remember the exact moment that I decided to start my own investigation of the foreclosure issue. I figured that with Congress, 50 states attorneys, the OCC, the OTS, the FDIC, FHFA, and probably several dozen high-powered law firms around the nation doing their own investigations and investigations for various MBS investors, I may-as-well do one. Heck, even the FTC issued a “Mortgage Assistance Relief Services Rule two weeks ago, stating that by year-end, so-called “mortgage foreclosure rescue” and loan modification firms will be prohibited from collecting fees until homeowners have a written offer from their mortgage lender or loan servicer that they deem acceptable.

The owners of MBS’s are pushing for a resolution of the 50-state probe of foreclosure practices. The attorney general from Arizona said, “The mortgage backed securities are worth pennies on the dollar, so any kind of recovery would be better.” State officials have begun informal talks with some investors, but for the last month and a half all 50 U.S. states have been investigating whether banks and loan servicers used false documents and signatures to justify hundreds of thousands of foreclosures.  Bloomberg story here.

What’s the next huge problem to face our industry? “The potential liability facing bankers arises from the $2 trillion in subprime, alt-A and option-adjustable rate mortgages that they underwrote and sold to investors, mostly as mortgage-backed securities during the home-lending boom of 2005 to 2007. The losses on the mortgages will be horrendous before the dust settles—over $700 billion on these and other so-called non-agency mortgage securities…”  Barron’s article here.

Last week I wrote about the Federal Reserve’s comment period regarding the exclusion of certain “safe” loans from the 5% holding requirements. “I have watching the Federal Reserve’s ‘safe mortgage’ news with interest. For a while people in the business talked about having all Fannie & Freddie, FHA, and VA loans be ‘safe’. The problem with this is two-fold. One, some of the underwriting guidelines they approve for certain programs I don’t view as safe – and the programs they had a few years ago were even worse. But more importantly, what if Freddie and Fannie don’t even exist in a year? Then what will regulators say is ‘safe’ and exempt from reserving 5% in capital?”

Another wrote, “Do regulators know that forcing mortgage bankers to retain 5% in capital of what they originate will force our business to grind to a halt? Even requiring the top 5 investors to do this would be a nightmare. Is it going to be based on LTV? DTI? FICO? Originator? Agency? Obviously it can’t be the last two – originators are susceptible to going out of business, and the government may do away with Fannie and Freddie entirely – then what?”

Two bored Congressman were absentmindedly chatting a few weeks ago. “What do you want to do?” “I don’t know. What do you want to do?” “I dunno. How about we question whether or not to keep the mortgage interest tax deduction?” Of course, this was picked up by a reporter, and now we have folks talking about it for about the 18th time that I can remember. The news comes from the president’s deficit reduction study, and as I wrote about a few weeks back, it seems that the viability of the treasured mortgage interest deduction is being questioned again. (That’s just what the housing market needs, right? Let’s see what happens to values in whatever segment of the market in which the deduction is ended.)

One senior VP at WestStar Mortgage wrote to me saying, ““In our business, of course, the tax break helps promote home ownership, since people have to come with less of a down payment. An interesting question to ask a borrower is whether or not they’d buy a home if the tax deduction went away. In countries that don’t offer the tax break, like England, home ownership is about the same as the US, but house prices are much lower. And the argument can always be made that economies are better off when people are making decisions based on economic principals rather than tax considerations, and in fact the current crisis is due in part to increased borrower debt magnifying risk. Many economists feel that any system meant to encourage people to take on more debt is not a great thing.”

He continued, “What many people fail to realize is that the current tax deduction for mortgage interest is simply an acceleration of the type of deductions that we take for other investments.  For instance, if you trade stocks on margin, you incur margin interest costs which are deductible from your gains at the end of the year.  You can also deduct broker commissions, costs to improve commercial real estate, etc. – the same should apply to home mortgage interest.

“As Economists will tell you, eliminating the annual deduction simply reduces the present discounted value of the home to the homeowner and, consequently, will result in a reduction in home values in the marketplace.  As such, the elimination of the annual deduction is, at best, a revenue-neutral action and would actually reduce the long-term value of the largest piece of personal “capital” that any of us own – our home.  At the margin (as economists like to say), this would have a significant negative “income effect” for homeowners and those industries related to home ownership the reduction in associated income taxes would probably more than offset any enhanced tax revenues from elimination of the deduction.”

more news on markets, economy, Ireland situation, rates, and Joke of the Day – click here.