With the jostling in the wholesale arena, it serves a purpose to take a step back and look at the top lenders, by volume, during the first half of 2010. Obviously many are banks, and many have a wholesale channel. (My apologies for saying that Wells was the last big bank with wholesale - that is too subjective.) By total volume we have Wells Fargo, Bank of America, Chase, GMAC, CitiMortgage, U.S. Bank Home Mortgage, PHH Mortgage, SunTrust Mortgage, MetLife Home Loans, Branch Banking & Trust (BB&T), Flagstar, Quicken Loans, Provident Funding, USAA Federal Savings Bank, Franklin American Mortgage, Fifth Third Mortgage, ING Bank, PNC Mortgage/National City, AmTrust Bank, and Regions Mortgage.
Remember when Wells Fargo took over Wachovia, wrote down the option ARM's, and thought that was the end of the problem? It wasn't: at least 531 Illinois homeowners will be offered mortgage loan modifications by Wells after an investigation into allegedly deceptive marketing of Option ARM's. Illinois and seven other states investigated Wachovia and Golden West's marketing of pay-option ARM's. Under the settlement, Illinois borrowers will be offered $39.5 million in mortgage relief in the form of loan modifications, including almost $17 million in principal forgiveness. Wells Fargo will also pay $2.2 million to the state to compensate affected borrowers who have lost their homes to foreclosure, to cover the cost of the investigation and to provide assistance to struggling Illinois mortgage borrowers. OptionARMs
Earlier this week HUD stripped 20 mortgage lenders of their ability to write FHA mortgages. Yesterday it did the same to a JPMorgan Chase branch on Long Island. HUD terminates approvals if enough FHA-insured loans originated at one branch no longer perform. If a branch's FHA defaults exceed 200 within two years, the approval can be stripped. Lenders who lose origination approval can still purchase, hold, or service the loans, and a terminated lender can apply for reinstatement after six months if it has maintained certain requirements. Regardless, that's one phone call you don't want to receive.
This foreclosure nightmare is bringing many things to light, and in fact many are wondering about the lending business in general. "Why would anyone pay their mortgage ever again? Why would any business want to make mortgages, or buy them as an investment ever again? Compensation is about to change, individual loan officer TILA liability, being asked to do certain refi's at no compensation to lenders. There are many federal agencies pushing lenders to write down principal on loans underwater. Will borrowers who are making their payments on time be viewed as 'stupid'? Anarchy in mortgage lending!"
And what are investors thinking about this foreclosure issue? If a foreclosure is delayed, the servicer must typically keep advancing payments that will go to all bondholders, including the junior debt holders, even though the home loan itself is producing no revenue stream. Costs of reprocessing foreclosures will have to be absorbed. But the delay and confusion makes subordinate bond holders happy, and they don't mind the wait. But senior debt holders want banks to foreclose faster to reduce expenses. Junior bondholders are generally happy to stretch things out. An article in the WSJ reminds us that "mortgage servicers enter into contracts called pooling and servicing agreements with bondholders that spell out the servicers' obligations to manage the loans in the best interests of the investors. These agreements provide that the servicers be reimbursed by funds in the trust for all costs related to litigation and extra processing of foreclosures, provided they follow standard industry practices." GMAC & Chase think the reviews will take a few weeks - unless system-wide problems are found, and/or documents are missing. Uh oh.
It is obviously a very tough situation, as you don't just want to throw away contract law, and forget what a "debt" means.Who would ever want to lend large sums of money if the borrower can walk with no penalty? On the other hand, someone wrote, "Maybe buyers should be allowed back into the market sooner after foreclosure. People who lost their home already - not now - and earlier on in the crisis, before modifications, before buy and bails were prevalent, could be given some type of leniency. A job loss, or an escalating option ARM, might be acceptable reasons. I don't agree with walking away from a home that you can make the payments on, but a majority of the earlier default loans in this crisis were not preventable by the borrowers."
Any time the market sees a move in rates, up or down, investors inevitably either remind clients of rate lock policies, or change them. Chase was the latest, adjusting its float down policy for Best Effort loans locked or relocked on or after tomorrow. "Chase will no longer offer the float down option on extended rate locks on 5/1, 7/1, and 10/1 ARMs, but a float down option continues to be available on the Rate Cap Program option." And what is an "MCC"? Dating from 1984, Mortgage Credit Certificates, issued by state or local financial agencies, allow the borrower to claim a tax credit for a specified percentage of the mortgage interest payments made during a given tax year. Chase currently permits the use of Mortgage Credit Certificates (MCCs) for the purposes of qualification on FHA transactions only. "However, due to low volume and increased risk, Chase is eliminating the availability of MCCs for loan qualification purposes."
RMIC sees things getting better out there. It is making changes to its market classifications. Twenty seven markets improved from their previous classification, including large markets such as Atlanta, Boston, Chicago, and Minneapolis-St. Paul, and only one market became more restrictive (Grand Junction, CO).
Fifth Third announced a change, albeit a little confusing, to its title transfer policy. For all products now, "If the title was held by an ineligible entity (i.e. LLC) in the last 24 months, OR since the borrower purchased the property if less than 24 months, the transaction is ineligible. An eligible entity is defined as any entity that is not a natural person, qualifying Inter Vivo Revocable Trust or Illinois Land Trust. Title vested in an LLC (or other ineligible entity) is unacceptable and cannot be transferred back to individual(s) for eligibility purposes. The following information is stated in the Mortgage document signed by the borrower at closing: If all or any part of the property or any interest in the property is sold or transferred (or if the Borrower is not a natural person and a beneficial interest in the Borrower is sold or transferred) without Lender's prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument."
There was an interesting HARP & mortgage pooling write-up done by Paul Jacob of Banc of Manhattan. "Though we haven't seen any official announcements, there have been widespread reports that the GSEs are now prohibiting originators from marketing pools as "HARP-only" or "MHA-only". By way of background, HARP refers to the Home Affordable Refi Program, by which borrowers whose loans are already guaranteed by Fannie or Freddie, but whose current LTVs are very high because of declining home prices, can refi into lower-rate loans despite the high LTVs. LTVs > 105 have to go into non-TBA pool types (FNCQ for Fannie, FGU6 for Freddie). But HARP loans with 80-105 LTVs can go into TBA-eligible pools that carry regular pool types; these are the ones the GSEs are mad about. Here's what originators won't be able to do going forward: Label pools as "HARP-only". Here's what they will be able to do: pool high-LTV loans separately and sell them as "high LTVs" in the same way that they sell max-$85 K. We've heard talk that some originators may pool "high LTV + refi-only" to further refine the category. The vast majority of these borrowers won't be able to get "best rates" refi's until they get enough home price appreciation to get their LTVs back around 80 - and that's going to take awhile in this housing market."
Prepayment speeds were released yesterday. What difference do those make? If you're an investor, hoping to hang on to those high-rate mortgages for a while, they've very important. And in general, how long mortgages stay on books impacts all mortgage pricing. Speeds came in at the lower end of estimates: lower coupons remained the most responsive to lower mortgage rates in the latest report, owing to their excellent credit profile and large loan size. Freddie's speeds were a little faster than Fannie, possibly reflective of a higher concentration of more efficient servicers? Higher coupons continued to display little sensitivity to rates - those folks can't refinance. Across vintages, the 2002 vintage continued to prepay faster than 2003, which in turn was faster than the 2004/05 production.
We had another good day yesterday for rates. And stocks rallied also, leading pundits to repeat their belief that either bonds are "wrong" or stocks are "wrong". And although mortgage prices initially were stagnant during the improvement in Treasury yields following a worse than expected ADP number, they caught up. It helped that only $1.2 billion in MBS's were sold. Mortgage traders saw buying from originators buying back hedges, money managers, servicers, etc. By the end of the day the 10-yr note was better by .625 in price & down to 2.40%, and current coupon mortgage security prices were better by .375. 30-yr Fannie 3.5% securities, into which would go 3.75-4.125% mortgages, closed at 101.375 - a nice 1.375 rebate!
The only news today is Jobless Claims, which showed a drop of 11,000 from an upwardly revised figure from the prior week, but it had little impact on rates. The 2-yr note is yielding .36%, the 10-yr note 2.39%, and mortgages are roughly unchanged-to-slightly-better.
Wednesday, October 13, 2010
Tuesday, September 21, 2010
Recession ended in June 2009, economic panel says
Courtesy of the AP:
By Jeannine Aversa
The Associated Press
WASHINGTON -- The longest recession the country has endured since the Great Depression ended in June 2009, a group that dates the beginning and end of recessions said Monday.
The National Bureau of Economic Research, a panel of academic economists based in Cambridge, Mass., said the recession began in December 2007 and lasted 18 months. Previously, the longest post-World War II downturns were those in 1973-75 and in 1981-82. Both lasted 16 months.
The bureau decision makes official what many economists have believed for some time, that the recession ended in the summer of 2009. But it won't make much difference to most Americans, especially the nearly 15 million without jobs.
Americans are coping with 9.6 percent unemployment, scant wage gains, weak home values and the worst foreclosure market in decades.
President Barack Obama saw little reason to celebrate the group's finding.
Appearing at a town-hall meeting sponsored by CNBC, Obama said times are still very hard for people "who are struggling," including those who are out of work and many others who are having difficulty paying their bills.
"The hole was so deep that a lot of people out there are still hurting," the president said. It's going "to take more time to solve" an economic problem that was years in the making, he added.
The economy started growing again in the third quarter of 2009, after a record four straight quarters of declines. So the second quarter of 2009 marked the last quarter when the economy was shrinking. At that time, it contracted 0.7 percent, after suffering through much deeper declines. That factored into the bureau's decision to pinpoint the end of the recession in June.
Any downturn would mark the start of a new recession, not the continuation of the December 2007 recession, the bureau said. That's important because if the economy starts shrinking again, it could mark the onset of a "double-dip" recession. For many economists, the last time that happened was in 1981-82.
To make its determination, the bureau looks at figures that make up the nation's gross domestic product, which measures the total value of goods and services produced within the United States. It also reviews incomes, employment and industrial activity.
The economy lost 7.3 million jobs in the 2007-09 recession, also the most in the post-World War II period.
The Great Depression lasted much longer. The United States suffered through a 43-month recession that ended in 1933. Then, it slid back into recession, which lasted for 13 months. That ended in 1938.
The bureau normally takes its time declaring that a recession has started or ended. For instance, it announced in December 2008 that the recession had started one year earlier.
Similarly, it declared in July 2003 that the 2001 recession was over; it ended 20 months earlier, in November 2001.
Its determination is of interest to economic historians -- and political leaders. Recessions that occur on their watch pose political risks.
In President George W. Bush's eight years in office, the United States fell into two recessions. The first was March to November 2001. The second one started in December 2007.
Unemployment usually keeps rising well after a recession ends.
Unemployment spiked to 10.1 percent in October 2009, which was the highest in just over a quarter-century.
Some think that that figure could climb higher, perhaps hitting 10.3 percent by early next year. After the 2001 recession, for instance, unemployment didn't peak until June 2003 -- 19 months later.
By Jeannine Aversa
The Associated Press
WASHINGTON -- The longest recession the country has endured since the Great Depression ended in June 2009, a group that dates the beginning and end of recessions said Monday.
The National Bureau of Economic Research, a panel of academic economists based in Cambridge, Mass., said the recession began in December 2007 and lasted 18 months. Previously, the longest post-World War II downturns were those in 1973-75 and in 1981-82. Both lasted 16 months.
The bureau decision makes official what many economists have believed for some time, that the recession ended in the summer of 2009. But it won't make much difference to most Americans, especially the nearly 15 million without jobs.
Americans are coping with 9.6 percent unemployment, scant wage gains, weak home values and the worst foreclosure market in decades.
President Barack Obama saw little reason to celebrate the group's finding.
Appearing at a town-hall meeting sponsored by CNBC, Obama said times are still very hard for people "who are struggling," including those who are out of work and many others who are having difficulty paying their bills.
"The hole was so deep that a lot of people out there are still hurting," the president said. It's going "to take more time to solve" an economic problem that was years in the making, he added.
The economy started growing again in the third quarter of 2009, after a record four straight quarters of declines. So the second quarter of 2009 marked the last quarter when the economy was shrinking. At that time, it contracted 0.7 percent, after suffering through much deeper declines. That factored into the bureau's decision to pinpoint the end of the recession in June.
Any downturn would mark the start of a new recession, not the continuation of the December 2007 recession, the bureau said. That's important because if the economy starts shrinking again, it could mark the onset of a "double-dip" recession. For many economists, the last time that happened was in 1981-82.
To make its determination, the bureau looks at figures that make up the nation's gross domestic product, which measures the total value of goods and services produced within the United States. It also reviews incomes, employment and industrial activity.
The economy lost 7.3 million jobs in the 2007-09 recession, also the most in the post-World War II period.
The Great Depression lasted much longer. The United States suffered through a 43-month recession that ended in 1933. Then, it slid back into recession, which lasted for 13 months. That ended in 1938.
The bureau normally takes its time declaring that a recession has started or ended. For instance, it announced in December 2008 that the recession had started one year earlier.
Similarly, it declared in July 2003 that the 2001 recession was over; it ended 20 months earlier, in November 2001.
Its determination is of interest to economic historians -- and political leaders. Recessions that occur on their watch pose political risks.
In President George W. Bush's eight years in office, the United States fell into two recessions. The first was March to November 2001. The second one started in December 2007.
Unemployment usually keeps rising well after a recession ends.
Unemployment spiked to 10.1 percent in October 2009, which was the highest in just over a quarter-century.
Some think that that figure could climb higher, perhaps hitting 10.3 percent by early next year. After the 2001 recession, for instance, unemployment didn't peak until June 2003 -- 19 months later.
Monday, July 26, 2010
Foreclosures, Short Sales and Deeds in Lieu
Courtesy of Old Republic Exchange Company:
While most people understand that foreclosures, short sales and deeds in lieu of foreclosure have significant economic consequences (loss of property; loss of equity; and loss of credit rating), what is not apparent to most people is that there are significant taxable consequences even if the owner walks away with no cash. While an IRC §1031 tax deferred exchange can, in theory, be utilized under these circumstances to defer the capital gain tax consequences, certain practical and technical challenges may make a tax deferred exchange problematic for many taxpayers.
Foreclosures, Short Sales and Deeds in Lieu, are defined, as follows:
Foreclosure: Foreclosure is an involuntary process whereby a lender repossesses property that was pledged as collateral for mortgage debt. Foreclosure can occur judicially (i.e. through a court action) or non-judicially, where a third party, such as a trustee, has the power to conduct a sale of the property after the lender has declared a default of the loan.
Short Sale: A short sale occurs when an owner sells property for less than the debt owed on the property. The lender must consent to the sale, agree to accept less than the full loan amount, and agree to release the property from the mortgage lien.
Deed in Lieu of Foreclosure: A deed in lieu of foreclosure occurs when an owner conveys property to the existing lender in exchange for cancellation of the mortgage debt—i.e. “in lieu” of a foreclosure by the lender.
Taxable Consequences of Foreclosures, Short Sales and Deeds in Lieu:
Each of the above circumstances results in two potential taxable consequences to the owner; (1) tax on gain; and/or (2) tax on cancelled or forgiven debt. Whether the debt is recourse or non recourse dictates whether there is one or both of these tax consequences.
Non-Recourse Debt: (borrower not personally liable)
There is one tax consequence. Capital gain is taxed at the applicable capital gains rate—either 5% (for those in the 10% and 15% income tax brackets) or 15% (for those in the 25% or higher income tax brackets). The amount taxed is the difference between the debt and the adjusted basis. There is no tax on cancellation or forgiveness of debt.
Recourse Debt: (personal liability to borrower)
There are two tax consequences:
(1) Cancellation or forgiveness of debt is taxed as ordinary income. The amount taxed is the difference between the debt and the fair market value (“FMV”); and
(2) Capital gain is taxed at the applicable capital gains rate—either 5% (for those in the 10% and 15% income tax brackets) or 15% (for those in the 25% or higher income tax brackets). The amount taxed is the difference between the adjusted basis and the FMV.
Given the foregoing, there is always the possibility that there is a taxable gain even when the owner receives no cash.
For example: Smith buys an apartment building in 1978 for $400,000 cash. The property appreciates in value, and in 1992, he obtains a loan of $350,000. The property continues to appreciate and—by 2004—the building’s FMV is $2 million. Smith obtains a second loan of $850,000. However, in 2010, the property diminishes in value to $1 million, but his outstanding loans total $1.2 million and he is struggling to make the payments. Smith considers a short sale for the FMV of $1 million. Since Smith has owned the building for over 33 years, he has fully depreciated it and the adjusted basis is $0.
Tax consequences if debt is non-recourse:
If the debt which is the subject of the foreclosure, short sale or deed in lieu of foreclosure, is non-recourse, capital gain must be recognized to the extent the debt exceeds the owner’s adjusted basis.
In the example above, Smith’s debt is $1.2 million and his adjusted basis is $0. Hence, he must pay federal capital gains tax (either 5% or 15%, depending on his income tax bracket) on $1,200,000 (5% would be $60,000—15% would be $180,000). Additionally, unless he lives in a state with no income tax, he will pay state income tax on his capital gain.
Tax consequences if debt is recourse:
If the debt which is the subject of the foreclosure, short sale or deed in lieu of foreclosure, is recourse,capital gain must be recognized to the extent of the difference between the FMV of the property (here, $1 million) and the adjusted basis (here, $0). Hence, Mr. Smith must pay capital gains tax (either 5% or 15%) on $1 million.
In addition, there is a second tax consequence—i.e. cancellation of debt income. Mr. Smith must pay ordinary income tax (anywhere between 10% and 35%, depending on his income) on the difference between the FMV ($1 million) and the existing debt ($1.2 million). Thus, he must pay income tax on $200,000.
In sum, if the debt is non-recourse, Mr. Smith pays capital gains tax on $1.2 million. Alternatively, if Mr. Smith’s debt is recourse, he will pay capital gains tax on $1 million and he will pay ordinary income tax on $200,000.
Can the tax consequences of a foreclosure, short sale or deed in lieu be ameliorated by a §1031 exchange?
In theory, although structuring a foreclosure, short sale or deed in lieu in the context of an exchange may ameliorate the capital gain tax consequences, these transactions present practical and technical difficulties—if not, complete obstacles – to including them as part of a tax deferred exchange, such as:
• No cash is available to complete acquisition of replacement property;
• Credit is adversely impacted and thus financing to purchase replacement
• property is unlikely;
• In a foreclosure there is no contract of sale for the taxpayer to assign to the Qualified
• Intermediary (required by the Treasury Regulations for an exchange);
• A short sale or deed in lieu may have a written agreement to assign to the Qualified
• Intermediary, but it is questionable as to whether the IRS would accept such an
• assignment.
In sum, owners should recognize that even though their property is under water and they will receive no cash from its disposition, the tax consequences remain significant. Owners facing foreclosure, short sale or a deed in lieu should plan as far in advance as possible for the taxable consequence resulting from the transaction.
For further information regarding the above, you may wish to visit the following link located on the IRS website: http://www.irs.gov/newsroom/article/0,,id=174034,00.html
While most people understand that foreclosures, short sales and deeds in lieu of foreclosure have significant economic consequences (loss of property; loss of equity; and loss of credit rating), what is not apparent to most people is that there are significant taxable consequences even if the owner walks away with no cash. While an IRC §1031 tax deferred exchange can, in theory, be utilized under these circumstances to defer the capital gain tax consequences, certain practical and technical challenges may make a tax deferred exchange problematic for many taxpayers.
Foreclosures, Short Sales and Deeds in Lieu, are defined, as follows:
Foreclosure: Foreclosure is an involuntary process whereby a lender repossesses property that was pledged as collateral for mortgage debt. Foreclosure can occur judicially (i.e. through a court action) or non-judicially, where a third party, such as a trustee, has the power to conduct a sale of the property after the lender has declared a default of the loan.
Short Sale: A short sale occurs when an owner sells property for less than the debt owed on the property. The lender must consent to the sale, agree to accept less than the full loan amount, and agree to release the property from the mortgage lien.
Deed in Lieu of Foreclosure: A deed in lieu of foreclosure occurs when an owner conveys property to the existing lender in exchange for cancellation of the mortgage debt—i.e. “in lieu” of a foreclosure by the lender.
Taxable Consequences of Foreclosures, Short Sales and Deeds in Lieu:
Each of the above circumstances results in two potential taxable consequences to the owner; (1) tax on gain; and/or (2) tax on cancelled or forgiven debt. Whether the debt is recourse or non recourse dictates whether there is one or both of these tax consequences.
Non-Recourse Debt: (borrower not personally liable)
There is one tax consequence. Capital gain is taxed at the applicable capital gains rate—either 5% (for those in the 10% and 15% income tax brackets) or 15% (for those in the 25% or higher income tax brackets). The amount taxed is the difference between the debt and the adjusted basis. There is no tax on cancellation or forgiveness of debt.
Recourse Debt: (personal liability to borrower)
There are two tax consequences:
(1) Cancellation or forgiveness of debt is taxed as ordinary income. The amount taxed is the difference between the debt and the fair market value (“FMV”); and
(2) Capital gain is taxed at the applicable capital gains rate—either 5% (for those in the 10% and 15% income tax brackets) or 15% (for those in the 25% or higher income tax brackets). The amount taxed is the difference between the adjusted basis and the FMV.
Given the foregoing, there is always the possibility that there is a taxable gain even when the owner receives no cash.
For example: Smith buys an apartment building in 1978 for $400,000 cash. The property appreciates in value, and in 1992, he obtains a loan of $350,000. The property continues to appreciate and—by 2004—the building’s FMV is $2 million. Smith obtains a second loan of $850,000. However, in 2010, the property diminishes in value to $1 million, but his outstanding loans total $1.2 million and he is struggling to make the payments. Smith considers a short sale for the FMV of $1 million. Since Smith has owned the building for over 33 years, he has fully depreciated it and the adjusted basis is $0.
Tax consequences if debt is non-recourse:
If the debt which is the subject of the foreclosure, short sale or deed in lieu of foreclosure, is non-recourse, capital gain must be recognized to the extent the debt exceeds the owner’s adjusted basis.
In the example above, Smith’s debt is $1.2 million and his adjusted basis is $0. Hence, he must pay federal capital gains tax (either 5% or 15%, depending on his income tax bracket) on $1,200,000 (5% would be $60,000—15% would be $180,000). Additionally, unless he lives in a state with no income tax, he will pay state income tax on his capital gain.
Tax consequences if debt is recourse:
If the debt which is the subject of the foreclosure, short sale or deed in lieu of foreclosure, is recourse,capital gain must be recognized to the extent of the difference between the FMV of the property (here, $1 million) and the adjusted basis (here, $0). Hence, Mr. Smith must pay capital gains tax (either 5% or 15%) on $1 million.
In addition, there is a second tax consequence—i.e. cancellation of debt income. Mr. Smith must pay ordinary income tax (anywhere between 10% and 35%, depending on his income) on the difference between the FMV ($1 million) and the existing debt ($1.2 million). Thus, he must pay income tax on $200,000.
In sum, if the debt is non-recourse, Mr. Smith pays capital gains tax on $1.2 million. Alternatively, if Mr. Smith’s debt is recourse, he will pay capital gains tax on $1 million and he will pay ordinary income tax on $200,000.
Can the tax consequences of a foreclosure, short sale or deed in lieu be ameliorated by a §1031 exchange?
In theory, although structuring a foreclosure, short sale or deed in lieu in the context of an exchange may ameliorate the capital gain tax consequences, these transactions present practical and technical difficulties—if not, complete obstacles – to including them as part of a tax deferred exchange, such as:
• No cash is available to complete acquisition of replacement property;
• Credit is adversely impacted and thus financing to purchase replacement
• property is unlikely;
• In a foreclosure there is no contract of sale for the taxpayer to assign to the Qualified
• Intermediary (required by the Treasury Regulations for an exchange);
• A short sale or deed in lieu may have a written agreement to assign to the Qualified
• Intermediary, but it is questionable as to whether the IRS would accept such an
• assignment.
In sum, owners should recognize that even though their property is under water and they will receive no cash from its disposition, the tax consequences remain significant. Owners facing foreclosure, short sale or a deed in lieu should plan as far in advance as possible for the taxable consequence resulting from the transaction.
For further information regarding the above, you may wish to visit the following link located on the IRS website: http://www.irs.gov/newsroom/article/0,,id=174034,00.html
Friday, July 16, 2010
Double Dip? Don't Think So
After a promising start to the year, the market (as measured by the S&P 500 Index) suffered its worst two-month return ending June 2010 since the two-month period ending February 2009, which was during the depths of the financial market meltdown. The market had much to worry about as concerns over the fiscal issues in Southern Europe, the compounding problem of the Gulf Coast oil spill, an impending contentious mid-term election cycle, and the unknown consequences of Congress’ financial regulation reform kept investors’ fears on the rise and market returns on the decline.
Despite the many external factors weighing on the market, it was perhaps the uneven and somewhat deteriorating economic data, especially in the labor and housing arenas, which turned the stock market recovery into a significant market pullback. The primary question that investors sought an answer to was whether the market was beginning to show signs of a developing “double dip” back into recession or whether the last few months are simply a “soft spot” in an otherwise robust economic recovery and expansion?
The question highlights the longstanding market dilemma of trying to figure out the difference between an economy’s changes in direction versus changes in speed. Like a car, the economy can be either in forward (expansion) or reverse (recession). But it can also be increasing its speed (accelerating or improving economic conditions) or reducing speed (decelerating or worsening economic conditions). During the last few months, economic data has indeed seen softness, which begs the question: are we on the verge of reversing (double dip) or just slowing down (soft spot)?
As far as double dip scenarios, the market has limited history to examine. Only during the Great Depression and the severe recessions of the early 1980s were there ever double dip recessionary episodes. Could now be the next? The likelihood is strongly against it. In order for an economic recovery to turn back into a recession, significant negative catalysts are needed to derail economic growth.
While not downplaying the negative effect of the problems in Greece or the Gulf Coast oil spill on global growth, these events are just not big enough to shift the economic gears from forward to reverse—meaning from expansion to recession. During the Great Depression, it took a significant monetary policy mistake—increasing interest rates which slowed down a very fragile economy—to prompt the double dip. During the 1980s, the Federal Reserve again shifted gears early to slow down economic growth, but this time to fend off soaring inflation, as exhibited by 16% mortgage rates and 14% interest rates. The strategy worked, maybe a bit too well, as the deliberate economic slowdown turned into a double dip recession.
But right now, the economic backdrop is far different. Albeit slower than we would all want, the employment picture is improving, consumers are spending, and businesses are once again changing their focus from cutting costs to investing for the future. But more importantly, the Federal Reserve remains firmly committed to maintaining accommodative monetary policies through ultra-low interest rates in order to continue providing this economy with much needed stimulus. As a result, mortgage rates are at all time lows and loans to fuel business growth are under very favorable terms. All in all, the economic canvas on which this market will paint future returns is supportive of sustainable growth and higher asset prices.
With the threat of a double dip virtually off the table, the most likely explanation for the sluggish economy and resulting market pullback is what is commonly referred to as a soft spot or simply put, a reduction in the speed of the recovery. Soft spots occur in every recovery, usually between 6 and 12 months after the end of a recession. At 11 months after the assumed end of the 2007-09 recession, this soft spot is right on cue. Soft spots are triggered not by any threat of a change in direction (i.e. double dip), but rather at the inflection point when the economic recovery shifts from the robust growth immediately following the recession to the modest, sustainable growth that fuels longer term economic expansions. Back to the car analogy, soft spots occur when the rapid acceleration on a highway onramp shifts to the sustainable speeds of highway driving.
While the global economy continues to face many obstacles, all of which bring down the speed of this economic recovery, I remain convinced that this economy is facing an economic soft spot and not any threat of a recessionary double dip. The market is always concerned when economic growth speed slows, which makes complete sense. But the recent equity market sell-off has priced in a greater likelihood of a severe change in direction (double dip) rather than the more moderate impacts of a soft spot. As a result, I believe that once the economy emerges from its current transition to slower, but still advancing speeds, asset values will be poised to benefit and investment opportunities taken advantage of at these attractive market levels will likely be rewarded. As always, please contact me with any questions.
Despite the many external factors weighing on the market, it was perhaps the uneven and somewhat deteriorating economic data, especially in the labor and housing arenas, which turned the stock market recovery into a significant market pullback. The primary question that investors sought an answer to was whether the market was beginning to show signs of a developing “double dip” back into recession or whether the last few months are simply a “soft spot” in an otherwise robust economic recovery and expansion?
The question highlights the longstanding market dilemma of trying to figure out the difference between an economy’s changes in direction versus changes in speed. Like a car, the economy can be either in forward (expansion) or reverse (recession). But it can also be increasing its speed (accelerating or improving economic conditions) or reducing speed (decelerating or worsening economic conditions). During the last few months, economic data has indeed seen softness, which begs the question: are we on the verge of reversing (double dip) or just slowing down (soft spot)?
As far as double dip scenarios, the market has limited history to examine. Only during the Great Depression and the severe recessions of the early 1980s were there ever double dip recessionary episodes. Could now be the next? The likelihood is strongly against it. In order for an economic recovery to turn back into a recession, significant negative catalysts are needed to derail economic growth.
While not downplaying the negative effect of the problems in Greece or the Gulf Coast oil spill on global growth, these events are just not big enough to shift the economic gears from forward to reverse—meaning from expansion to recession. During the Great Depression, it took a significant monetary policy mistake—increasing interest rates which slowed down a very fragile economy—to prompt the double dip. During the 1980s, the Federal Reserve again shifted gears early to slow down economic growth, but this time to fend off soaring inflation, as exhibited by 16% mortgage rates and 14% interest rates. The strategy worked, maybe a bit too well, as the deliberate economic slowdown turned into a double dip recession.
But right now, the economic backdrop is far different. Albeit slower than we would all want, the employment picture is improving, consumers are spending, and businesses are once again changing their focus from cutting costs to investing for the future. But more importantly, the Federal Reserve remains firmly committed to maintaining accommodative monetary policies through ultra-low interest rates in order to continue providing this economy with much needed stimulus. As a result, mortgage rates are at all time lows and loans to fuel business growth are under very favorable terms. All in all, the economic canvas on which this market will paint future returns is supportive of sustainable growth and higher asset prices.
With the threat of a double dip virtually off the table, the most likely explanation for the sluggish economy and resulting market pullback is what is commonly referred to as a soft spot or simply put, a reduction in the speed of the recovery. Soft spots occur in every recovery, usually between 6 and 12 months after the end of a recession. At 11 months after the assumed end of the 2007-09 recession, this soft spot is right on cue. Soft spots are triggered not by any threat of a change in direction (i.e. double dip), but rather at the inflection point when the economic recovery shifts from the robust growth immediately following the recession to the modest, sustainable growth that fuels longer term economic expansions. Back to the car analogy, soft spots occur when the rapid acceleration on a highway onramp shifts to the sustainable speeds of highway driving.
While the global economy continues to face many obstacles, all of which bring down the speed of this economic recovery, I remain convinced that this economy is facing an economic soft spot and not any threat of a recessionary double dip. The market is always concerned when economic growth speed slows, which makes complete sense. But the recent equity market sell-off has priced in a greater likelihood of a severe change in direction (double dip) rather than the more moderate impacts of a soft spot. As a result, I believe that once the economy emerges from its current transition to slower, but still advancing speeds, asset values will be poised to benefit and investment opportunities taken advantage of at these attractive market levels will likely be rewarded. As always, please contact me with any questions.
Tuesday, June 22, 2010
California Median House Price Rises 23% on Use of Tax Credits
California house prices rose 23 percent in May from a year earlier as homebuyers took advantage of government tax credits, the state’s Realtors group said.
The median price of an existing single-family home was $324,430, the California Association of Realtors said today in a statement. It was the fifth straight monthly increase of at least 10 percent, the Los Angeles-based group said. Prices rose 5.9 percent from April.
California home prices were helped by homebuyer tax credits, the association said. To qualify for a federal credit, buyers were required to sign a contract by April 30 and complete the purchase by July 1. A state credit of as much as $10,000 began May 1.
http://www.bloomberg.com/news/2010-06-22/california-median-house-price-rises-23-on-use-of-tax-credits.html
The median price of an existing single-family home was $324,430, the California Association of Realtors said today in a statement. It was the fifth straight monthly increase of at least 10 percent, the Los Angeles-based group said. Prices rose 5.9 percent from April.
California home prices were helped by homebuyer tax credits, the association said. To qualify for a federal credit, buyers were required to sign a contract by April 30 and complete the purchase by July 1. A state credit of as much as $10,000 began May 1.
http://www.bloomberg.com/news/2010-06-22/california-median-house-price-rises-23-on-use-of-tax-credits.html
Friday, May 28, 2010
99.5% Financing and Qualifying with Low Credit
Have you ever worried about your credit rating while considering buying a home? Well, worry no more! With the help of the loan programs available through our affiliates, you can get qualified for a 99.5% financing program and get qualified for a loan with a credit score as low as 530! Here's some more information:
99.5% Percent Financing Program Highlights:
Our program works in conjunction with FHA loans that now will only lend up to 96.5%. Our program gives you the additional 3% needed for in order to secure an FHA loan for a total of 99.5% financing. The other .5% needs to come from you or can be a gift from a family member.
If you are currently employed and have paid your bills on time for the last year, there is a good chance you will qualify for our program.
How Do I qualify:
Must be gainfully employed at least 2 years in same job or profession.
We will need you to provide us with pay stubs and tax returns documenting your income.
Must be current on all bills with no negative reporting in the last 12 months.
Bankruptcy is ok if it is 2 years or older.
Foreclosure/Shortsale is ok if it is 3 years or older.
Collections are ok if not too many active and if none in the last 12 months.
You will need 3 credit references to report positive payments for last 12 months. If you do not have active tradelines reporting on your credit report, we can accept nontraditional forms of credit such as utilities bill or rent payments (For more information on nontraditional forms of credit ask one of our loan officers to send you the nontraditional document).
For Borrowers w/ No Fico Score or Limited Credit:
Provide at least three (3) credit references rated at least 12 months. At least 1
reference must be from Group 1 (Group 1 references should be exhausted before using
Group 2 as Group 1 is more indicative of a borrower’s future housing payment
performance.)
Borrower’s with NO Group 1 references will not have sufficient credit.
Group 1: Rental Housing Payment or Utilities (Gas, Electric, Water, Home Phone, cable
TV). If renting from a family member, provide cancelled checks for documentation.
Group 2: Insurance coverage(Auto, medical, life, renters), Cell Phone, Internet Services, Child Care payments, School Tuition, Retail Stores(Department, Furniture, Appliances, Speciality Stores, Rent-to-Own) 12 month savings by regular deposits with NO Non Sufficient Funds (NSF’s), Auto Leases, Personal loan, Storage Units, etc..
In order to use these other forms of credit you will need to provide us with 12 -24
months of cancelled checks or bank statements showing they are paid with bill pay.
You will also need to contact the providers of these services and ask them to issue you a credit letter on their letter head with their information stating your account history for the last 12 -24 months.
For more information, please visit us at: http://www.appliedproperties.com
99.5% Percent Financing Program Highlights:
Our program works in conjunction with FHA loans that now will only lend up to 96.5%. Our program gives you the additional 3% needed for in order to secure an FHA loan for a total of 99.5% financing. The other .5% needs to come from you or can be a gift from a family member.
If you are currently employed and have paid your bills on time for the last year, there is a good chance you will qualify for our program.
How Do I qualify:
Must be gainfully employed at least 2 years in same job or profession.
We will need you to provide us with pay stubs and tax returns documenting your income.
Must be current on all bills with no negative reporting in the last 12 months.
Bankruptcy is ok if it is 2 years or older.
Foreclosure/Shortsale is ok if it is 3 years or older.
Collections are ok if not too many active and if none in the last 12 months.
You will need 3 credit references to report positive payments for last 12 months. If you do not have active tradelines reporting on your credit report, we can accept nontraditional forms of credit such as utilities bill or rent payments (For more information on nontraditional forms of credit ask one of our loan officers to send you the nontraditional document).
For Borrowers w/ No Fico Score or Limited Credit:
Provide at least three (3) credit references rated at least 12 months. At least 1
reference must be from Group 1 (Group 1 references should be exhausted before using
Group 2 as Group 1 is more indicative of a borrower’s future housing payment
performance.)
Borrower’s with NO Group 1 references will not have sufficient credit.
Group 1: Rental Housing Payment or Utilities (Gas, Electric, Water, Home Phone, cable
TV). If renting from a family member, provide cancelled checks for documentation.
Group 2: Insurance coverage(Auto, medical, life, renters), Cell Phone, Internet Services, Child Care payments, School Tuition, Retail Stores(Department, Furniture, Appliances, Speciality Stores, Rent-to-Own) 12 month savings by regular deposits with NO Non Sufficient Funds (NSF’s), Auto Leases, Personal loan, Storage Units, etc..
In order to use these other forms of credit you will need to provide us with 12 -24
months of cancelled checks or bank statements showing they are paid with bill pay.
You will also need to contact the providers of these services and ask them to issue you a credit letter on their letter head with their information stating your account history for the last 12 -24 months.
For more information, please visit us at: http://www.appliedproperties.com
Friday, May 21, 2010
1031 Exchanges Come Roaring Back to the Market
For two years 1031s had been few and far between. All of a sudden, a new wave of exchange buyers is looking for product adding to an already excessive buying demand. Read the full article by Robert Knakal, Chairman and Founding Partner of Massey Knakal Realty Services in New York City.
Click here for full article
Click here for full article
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