Interesting developments in the TARP program and a wrinkle for agent across the country:

RE: Home Affordable Modification Program

The FHA will be offering U.S. banks that are holding mortgages that are underwater (25% or more of existing mortgages--CNN Money.com 2/23), 97.75% of present market value of those mortgage values. This will enable:

1. Banks to use the loss as a lesser "write down", than if the homeowners foreclosed.

2. Offer a lesser payment based on that new value, as a bonus to homeowners to keep their homes.

3. Many unemployed homeowners could receive three to six months of reduced mortgage payments while they look for a job.

4. Results in a more rapid recovery to end this never ending stream of forclosures and glut that we can never seem to get out of.

Keep in mind:

-assuming that the prospective homeowners do NOT have a 2nd lien, HELOC or wotherwise, than the current lender being bought out by FHA WILL RETAIN A SMALL 2nd lien against the property at a level NO MORE THAN 115% of current market value.

-banks have to be willing to participate. The current admisinistration is offering cash incentives at the corporate level to incentivize these banks to get on board.

-this program may not be off the ground until summer.

Here’s how that would work. Say you have a 30-year fixed mortgage with a balance of $250,000, an interest rate of 9 percent and monthly payments of $2,000 a month. Home prices have plunged, however, meaning the house is now worth only $180,000. Under HAMP, your lender will receive financial incentives to reduce the loan balance by roughly $33,000, cutting the monthly payment to $1,300.

There’s no such thing as a free lunch, of course. The government is funding the overhaul with $14 billion in taxpayer funds allocated to bail out banks under TARP. The efforts to plug HAMP also will dent bank earnings, since lenders (and their shareholders) are being asked to swallow larger losses.

My thoughts? Well, with 10-20 miliion foreclosures forecasted to occur within the next 3 years, something HAS to be done to stop this endless bloodshed.

After all, as the saying goes, if you want to live with the classes, you have to sell to the masses. With the middle class having less and less money in their pockets, and less jobs to count on, all agents should be adamant about pushing more programs like this.

Question: OMG! FHA is increasing the upfront mortgage insurance!  What does that mean to our clients?

  Answer:  FHA is increasing the upfront mortgage insurance from 1.75% of the loan amount back to the original 2.25%.  On a $200,000 loan amount a difference of……wait for it: five dollars a month.  The upfront mortgage insurance was reduced two years ago and HUD is reinstating the premium.   No need to get your knickers in a bunch.

The upfront mortgage insurance is refundable, on a sliding scale, if the home is sold; or refinanced out of an FHA loan into a conventional within the first five years.  But the home owner is responsible for requesting the refund.  FHA will not send it voluntarily.

FHA also has monthly insurance.  Today, that rate is .55% of the loan amount divided by 12.  That calculates to $91.67 per month on a $200,000 loan amount. 

The monthly m.i. is non-negotiable.  If your client is putting 20% down, FHA still wants their mortgage insurance.  In today’s lending world it may make more sense to place a lower credit score borrower with a hefty down payment in an FHA loan than a conventional.  They may not like paying the monthly m.i. but if they want to purchase a home that may be their only choice.

The monthly premium can only be removed if it is paid down. FHA mandates that you are required to have the monthly mortgage insurance for five years.  After that time if you have PAID down the loan to less than 80% (78% to be exact) the mortgage insurance can be petitioned to be erased.  Appraisals for removal of FHA mortgage insurance are non-existent.  It is all about paying the loan down and keeping the mortgage insurance for at least 5 years.

FYI:  FHA is fighting to keep the 3.5% down payment requirement.  And rumor has it that the monthly mortgage insurance premium may be increased.  Stay tuned.

Things your client should know about the tax credit that they aren’t being told:

CPA Shares Little-Known Facts About the 2009 Home Buyer Tax Credit Extension

Like most government legislation, the Nov 6, 2009 homebuyer tax credit extension created more questions than answers. However, according to Doug Geissler, a certified public accountant, the Internal Revenue Service is literally writing the "refund rules" as they go along.

Unbeknown to homebuyers, real estate agents and the mortgage industry, the IRS is giving behind-the-scenes instructions (that are not available to the general public) to CPAs and tax advisors on how to file for the homebuyer tax credit after Nov. 6, 2009. It will be completely different than what you might have advised your clients previously-and your clients are not going to like these changes!

The first shocker? Your clients cannot file a 1040 EZ to claim the tax credit. Nor can they file tax returns electronically if claiming the tax credit.

Why no electronic filing or 1040 EZ forms? It's the first step in stopping fraudulent tax credit refunds. Believe it or not, the IRS never had a way to determine if a person owned a home-no auditing software in place-to determine if they previously claimed a "mortgage interest" deduction within a three-year time period. The IRS is building auditing software now to "catch" previous homeowners who are trying to claim a FTHB tax credit.

Secondly, the IRS now requires that the HUD-1 or closing statement be attached to the 5405 form (and that cannot be attached electronically). Here's the link to the 5405 Revised Form dated December 2009: http://www.irs.gov/pub/irs-pdf/f5405.pdf

And to give them time to audit the document, the IRS is telling tax advisors to expect an average of a 16-week turn around time-which means that it could either be the refund or a request for additional documentation. Mr. Geissler says that one of his clients recently received an IRS notice, requesting a letter from a landlord, a copy of a driver's license and the closing statement on an amended tax return where the client was claiming the FTHB tax credit. Yes, the new law allows them to ask for additional info on amended returns.

According to the ICSC-Goldman Sachs index, retail sales rose 2.9% for the week ending March 6. It was the biggest weekly gain in nine years. On a year-over-year basis, retailers saw sales increase 3.4%, the best showing in two-and-a-half years.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications for the week ending March 5 rose 0.5%. Purchase volume increased 5.7%. Refinancing applications fell 1.5%.

The Commerce Department said wholesalers cut their inventories by 0.2% in January following a downward revised 1% drop in December. Meanwhile, sales at the wholesale level rose 1.3% in January, marking the 10th straight monthly gain.

The trade deficit unexpectedly fell 6.6% to $37.3 billion in January from a revised $39.9 billion gap in December. Economists had expected the trade deficit to widen to $41 billion. Exports slipped 0.3% to $142.7 billion. Imports fell 1.7% to $180 billion.

Initial claims for unemployment benefits fell by 6,000 to 462,000 in the week ending March 6. Continuing claims for the week ending February 27 rose by 37,000 to 4.558 million.

Retail sales rose 0.3% in February, following a revised 0.1% increase in January. Economists had anticipated retail sales to decline 0.2% in February. On a year-over-year basis, retail sales increased 3.9%.

The Reuters/University of Michigan consumer sentiment index for March’s preliminary reading fell to 72.5 from February's final reading of 73.6. One year ago, the mid-March reading was 57.3. During the economic expansion that ended in December 2007, the index averaged 88.9.

Upcoming on the economic calendar are reports on the housing market index on March 15, housing starts on March 16 and the index of leading economic indicators on March 18.

 Fannie Mae had made a significant change to their policy concerning closing services.  In the past, Fannie chose the Title Company or closing attorney.  That has for now, come to an END. Effective earlier this month Fannie Mae is allowing the buyer to pick their title company.

March 11 (Bloomberg) -- John Hale’s four-bedroom house near Seattle is worth about $2 million and is 90 percent paid for. It still took him nine months to find a bank that would give him a $250,000 home equity line of credit.

Rising home prices and an improving economy will spark a modest rebound this year in U.S. home equity lending, the driver of about 2 percent of consumer spending in the first half of the decade. This time around, lenders and homeowners will be more cautious about converting their equity to cash, muting any boost to the economy after the worst slump since the Great Depression, said Greg McBride, senior financial analyst with Bankrate.com.

“Home equity borrowing won’t be the economic crutch it was a few years ago,” McBride, based in North Palm Beach, Florida, said in an interview. “This is not an economy in which consumers are going to be able to go nuts.”

As borrowers like Hale tap into the value of their properties, lenders will make about $36 billion in new home equity loans in the next 12 months, according to a forecast by Moody’s Economy.com in West Chester, Pennsylvania. That will increase the outstanding balances of the loans by 4.2 percent to $903.5 billion from a two-year low of $867.3 billion this quarter.

About $34 billion of home equity loans were made at the peak, in 2008, according to Moody’s Economy.com. The difference this time around will be how the money is spent, said Frank Nothaft, chief economist of Freddie Mac, the government-run mortgage buyer based in McLean, Virginia. Borrowers are less likely now to use their home’s equity for luxury purchases.

Consumer Spending

Consumers spent about $677.3 billion, or about $113 billion a year, from home equity loans on purchases such as cars or televisions during the 2000 to 2005 real estate boom, according to a 2007 paper by former Federal Reserve Chairman Alan Greenspan and Fed economist James Kennedy. Another $376.2 billion, or about $63 billion a year, went toward home renovations.

“Consumers are better managing their own personal balance sheet as a result of the difficult recession we went through,” Nothaft said in an interview. “Many households had taken on too much debt and were overextended, and now people are focused on paying that off.”

Any growth in equity lending during 2010 will necessarily be limited to homeowners whose properties are worth more than what they owe. More than a fifth of U.S. homes with mortgages had negative equity in the fourth quarter, according to Zillow.com, a Seattle-based real estate data provider.

Bank of America

Bank of America Corp., the largest U.S. lender, holds $43 billion of home equity loans in which the debt exceeds the property’s value, Chief Executive Officer Brian Moynihan said yesterday at a New York investor conference. It is writing off home equity loans at about $1.5 billion to $2 billion a quarter, he said.

“The amount of people who both have equity in their home and feel like they want to borrow it out is a really limited group,” said Moynihan, whose Charlotte, North Carolina-based bank has a $149 billion home-equity loan portfolio.

Chris Lafakis, an analyst at Economy.com, said there likely will be “modest” growth in home equity lending in 2010.

“There is a lot of distress out there, but initial claims for unemployment insurance are coming down, most of the home price declines are behind us, and banks are pretty much done tightening their lending standards,” Lafakis said.

Economic Growth

The jobless rate held at 9.7 percent in February, down from a 26-year peak of 10.1 percent in October, and employers cut fewer jobs than economists estimated in the month, the Labor Department said March 5. The U.S. economy expanded at a 5.9 percent annual rate in the fourth quarter, the biggest gain in more than six years, the Commerce Department said Feb. 26.

Property prices probably will rise this year for the first time since 2006, boosting homeowners’ equity. The median U.S. home price likely will increase to $177,200 in the second quarter from $167,600 in the current period, according to the National Association of Realtors. It will climb 2.8 percent for the year, the Chicago-based trade group said.

“Lenders are always going to be looking for opportunities for home equity lending in areas where they think prices will go up,” said David Berson, chief economist for PMI Group Inc., based in Walnut Creek, California.

Home Price Drop

U.S. home prices fell 13 percent last year to a median of $172,500, the largest annual drop since the 1930s, according to the National Association of Realtors. The decline followed a 9.5 percent drop in 2008, NAR said.

“The people who bought in 2006 and 2007 have seen their equity wiped out because of falling prices, but if you bought in 2003 or 2004, you probably still have enough of a stake” to qualify for a home equity loan, said Economy.com’s Lafakis.

Hale, the homeowner near Seattle, has seen the value of his property double since he bought it in 2000. He said he plans to use the funds from his home equity loan to renovate his living room, kitchen and bathroom. Three lenders turned him down before he was approved last month by US Bancorp of Minneapolis.

“It took far longer than I ever imagined,” said Hale, 65, who owns a business development company called J Link in Issaquah, Washington. “For people in my situation -- with equity -- it should be a no-brainer.”

Leanne Jernigan 202/383-1290 ljernigan@realtors.org

NAR and DocuSign Unveil Exclusive Realtor® Electronic Signature Edition

Washington, March 09, 2010

The National Association of Realtors® announced today the release of the DocuSign REALTOR® Edition, an exclusive online eSignature service designed specifically for Realtors®. NAR and DocuSign formed a business alliance late last year through the REALTOR Benefits® Program.

DocuSign, the leading provider of on-demand electronic signature solutions, is the official and exclusive provider of ESIGN services under the REALTOR Benefits® Program. Its REALTOR® Edition allows NAR members to electronically sign agreements with buyers and sellers, saving Realtors® time and providing client convenience.

“DocuSign’s REALTOR® Edition represents the power of partnership within the real estate industry, and more importantly, reinforces how Realtors® benefit from NAR’s REALTOR Benefits® Program,” said Bob Goldberg, senior vice president of Marketing and Business Development, Commercial Services and Business Specialties. “DocuSign has established itself as a market leader in the real estate segment and this new product for Realtors® will continue to revolutionize the industry.”

The REALTOR® Edition builds on DocuSign’s award-winning eSignature offerings and includes new exclusive e-signing features. NAR members have the option to adopt a Realtor® branded e-signature for a more personalized client experience. The product is also designed for mobile functionality with online electronic signing of documents from any type of mobile device. To accelerate the signing process, Realtors® will have the ability to control the recipient signing order and have automated receipt signing reminders and envelope expirations. The eSignature service also works with a variety of real estate form applications, including eForms provider zipLogix, another NAR partner.

“We are extremely excited about the new REALTOR® Edition exclusively designed for NAR members, as well as the opportunity to participate in the REALTOR Benefits® Program,” said Dave Thorpe, director of Business Development at DocuSign. “More than 20,000 real estate professionals have used DocuSign to accelerate their business and increase client satisfaction. As this number increases, we will continue to provide innovative valuable solutions that help real estate professionals be more productive and grow their business.”

NAR members will receive a 20 percent savings on DocuSign Basic and DocuSign Standard editions. DocuSign Basic is a limited edition while DocuSign Standard is an expanded version offering full functionality and a robust feature set. Subscribers must present a valid NRDS member identification to qualify. Pricing and additional product information can be found on the DocuSign Web site for NAR members at www.docusign.com/NAR. Learn more on NAR’S Web site at www.realtor.org/realtor_benefits/benefits_partners/docusign.

Americans deleveraged their balance sheets aggressively in 2009, reducing household debt for the first year on record as they coped with the aftermath of the recession, Federal Reserve figures showed on Thursday.

US household debt contracted by 1.75 per cent in 2009, according to the closely watched “flow of funds” data. It was the first annual decline since the Fed began tracking household borrowing in 1946 and marks a sharp shift from the euphoric borrowing that led up to the recession.

While consumers and homeowners retrenched, US state governments and the Federal government continued to borrow heavily to support measures to stimulate the economy.

Federal borrowing grew at an annual rate of 22.7 per cent last year, while state and local governments upped borrowing by 4.8 per cent. By comparison, in 2007 when the recession officially began, Federal borrowing rose by just 4.9 per cent.

Borrowing was also off at businesses, falling by 1.8 per cent last year after rising by 5.2 per cent in 2008, as consumer demand remained weak and banks were reluctant to lend. According to the Fed, the 1.75 per cent decline of non-financial business debt last year was the sharpest since the early 1990s.

“It’s the un-holy alliance that banks don’t want to lend and people aren’t interested in borrowing,” said Brian Bethune, an economist at IHS Global Insight. “The only borrowers are our friendly governments.”

On Wednesday, Tim Geithner, US Treasury secretary, said that the US economy and financial system face “substantial” challenges, but that stimulus measures have been effective in addressing the crisis.

Mr Bethune noted that the downturn in debt is not necessarily due to greater discipline. High levels of home foreclosures have translated into weaker credit ratings and lower credit card debt is due to banks cancelling cards and writing off the losses.

Meanwhile, US households continued to get richer in the fourth quarter of last year, with net worth rising by $700bn to $54,200bn. It was the third quarter running that household wealth increased, thanks to rising home prices and the strength of the stockmarket.

For the year, household wealth rose by $2,800bn, making a small dent in the $14,000bn of wealth that was demolished by the recession, when net worth in US households plunged by 26.4 per cent from peak to trough.

Mike Englund, an economist at Action Economics, projects that US households will not return to their previous levels of wealth until mid-2012.

“That could delay some retirement plans,” Mr Englund said.

March 11 (Bloomberg) -- JPMorgan Chase & Co. and Citigroup Inc. helped cause the collapse of Lehman Brothers Holding Inc. by demanding more collateral and changing guarantee agreements, a bankruptcy examiner said today in a report.

“The demands for collateral by Lehman’s lenders had direct impact on Lehman’s liquidity pool,” said Anton Valukas, the U.S. Trustee-appointed examiner, in a 2,200-page report filed in Manhattan federal court. “Lehman’s available liquidity is central to the question of why Lehman failed.”

Former Lehman Chief Executive Officer Richard Fuld, former Chief Financial Officer Erin Callan, former executive vice president Ian Lowitt and former managing director Christopher O’Meara certified misleading statements, the report said. Fuld was “at least grossly negligent,” the report said. Lehman collapsed in September 2008 with $639 billion in assets, the biggest bankruptcy in U.S. history.

Commenting on Barclays Plc’s purchase of Lehman’s North American brokerage, Valukas said a “limited amount of assets” belonging to Lehman were “improperly transferred to Barclays.”

Kerrie Cohen, a Barclays spokeswoman in New York, and JPMorgan spokesman Brian Marchiony declined to comment. Citigroup spokeswoman Danielle Romero-Apsilos didn’t have an immediate comment. Lowitt, who is now at Barclays, didn’t immediately repond to an e-mail seeking comment. Barclays is Britain’s second-biggest bank. Citigroup is the third biggest U.S. bank, and JPMorgan is second.

Fuld Warning

Fuld was warned months before the bankruptcy by Treasury Secretary Henry Paulson that Lehman might fail if it continued to report losses without finding a buyer or putting in place a survival plan, according to the report.

Lehman’s chief was “at least grossly negligent in causing Lehman to file misleading periodic reports” while its risks were rising because of long-term assets financed with short-term debt, Valukas said in the report.

Lehman’s executives engaged in conduct ranging from “non- culpable errors of business judgment” to “actionable balance sheet manipulation,” as they used “accounting gimmicks” to move assets off the balance sheet without disclosing that to the government, rating agencies, investors or Lehman’s board.

Fuld’s lawyer, Patricia Hynes, disputed the examiner’s claim that the Lehman estate has a colorable claim against him relating to transactions called “Repo 105 transactions.”

Didn’t Know

“Mr. Fuld did not know what those transactions were -- he didn’t structure or negotiate them, nor was he aware of their accounting treatment,” Hynes said in a statement. Hynes also said none of Lehman’s senior financial officers, lawyers or outside auditors raised concerns about the transactions with Fuld.

Valukas said in his report that Ernst & Young, Lehman’s auditing firm, failed to question inadequate disclosures by the Lehman executives.

Valukas said that Lehman’s directors are “immunized from personal liability” concerning the way the company handled risk because management hadn’t presented any “red flags” to them.

Valukas, 66, spent a year and $38 million producing the report on whether banks triggered Lehman’s bankruptcy or if Barclays improperly benefitted from it and what role was played by the U.S. Federal Reserve System. Valukas interviewed more than 100 people including U.S. Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and former Securities and Exchange Commission Chairman Christopher Cox, and scrutinized more than 10 million documents, plus 20 million pages of e-mails from Lehman, according to filings in U.S. Bankruptcy Court in New York.

Colorable Claims

“The Examiner has determined that there are a limited number of colorable claims for avoidance actions against JPMorgan and Citibank,” Valukas said in the report. Valukas defined a colorable claim in the report as sufficient credible evidence to persuade a jury to award damages at trial.

Barclays bought Lehman’s brokerage for $1.54 billion. Lehman has sued Barclays for $5 billion or more, saying it made a “windfall” on the purchase, and Barclays responded that it is owed $3 billion. A bankruptcy-court trial is scheduled for April 26.

JPMorgan and Citigroup were two of New York-based Lehman’s main short-term lenders. On Feb. 24, Lehman said it settled with JPMorgan over the last of $29 billion in claims the bank filed against Lehman.

New Guarantee

Citigroup, which handled currency trades for Lehman, received a new guarantee from Lehman when Lehman was already insolvent and didn’t give enough value in return, the report said.

“The Examiner concludes that a colorable claim exists to avoid the Amended Guaranty as constructively fraudulent,” Valukas’s report says.

Lehman Chief Executive Officer Bryan Marsal said in an e- mail the bankrupt investment bank would “carefully evaluate” Valukas’s report to assess how it might help “ongoing efforts to advance creditor interests.”

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).