Stimulus Highlights - SMOKE AND MIRRORS

As you read this remember that every dollar that will be spent needs to be repaid.  The question you need to ask is will the dollars be spent in a way that will provide long term benefits that will in turn generate the tax dollars that will pay back these dollars?  If not, we will have to be taxed, our kids and grand kids will have to be taxed either in dollars or with a lower standard of living.  Another question should be "why has no one been dragged into court to pay for the greed and misrepresentation that contributed to this?  Are the politicians afraid that they will be blamed?  If not, let's have another ENRON crucifiction and send a signal that criminal action will not be "bailed out"!

New Housing Plan Released:
On Tuesday, President Obama released his administration's new housing plan.  The plan is designed to slow foreclosures in an effort to stabilize the housing industry.  The following are the key points of this far reaching plan:

•-      It aims to help 4 to 5 million responsible homeowners to refinance and to lower the risk of imminent default of another 3 million homeowners with $75 Billion Dollars. 

•o   Encourage mortgage holders to accept loan modifications to get the housing ratio for the borrower down to 38% through lowering the principal and or lowering their current rate.

•o   The government will then use tax payer's money to buy the loan down from a 38% debt ratio to a 31% debt ratio.  (Dollars spent in this way will put pressure on interest rates in the future.)

•-      They will invest another $100 Billion Dollars each in additional preferred stock purchases of Fannie and Freddie to bring the total preferred stock owned at $200 Billion Dollars each. (Perhaps this will be worth money in the future?)

•-      They will increase the amount of portfolio loans (the cap) with Fannie and Freddie by another $50 billion. (More risk - PORTFOLIO?  Does that mean bad loans?)

•-      Servicers will receive $1000 upfront for loan modification fees.  (Where do I sign up for this handout?)

•-      Borrower's to receive incentives for keeping their mortgage current. (How about me? ( How about YOU!)

•-      $10 Billion Dollar fund to insure lenders against further declines in home values.  (Who is helping me?  My value is dropping as well!)

•-      Only provides help for owner-occupied properties.

•-      Will support lower rates for Fannie and Freddie (no specifics how) -(BECAUSE THEY CAN NOT DO IT IF THEY KEEP BORROWING TO FUND EVERYTHING ELSE!)

•-      Allows Fannie and Freddie to refinance loans that they already own or guarantee by removing the provision that limits them to lending only up to 80% (Fannie and Freddie has never been allowed to lend over 80% LTV...that is why PMI exists to get around that).  This will remove the impediment of tougher PMI restrictions. (Instead, they will charge higher fees to self-insure and be subsidized by us instead of letting the market price this coverage.)

•-      If you are financial institution that has received TARP funds or any other tax payer funds (hint almost every major bank) then you must adhere to this plan. 

•-      No help for Jumbos - "help for middle class families"

•-      Treasury and Federal Reserve will continue to purchase MBSs based on ALREADY approved numbers.  It is unclear if any significant purchases will be made over and above what has already been announced - this is important because this is one item that can actually cause rates to decrease. I will be watching this for you.

What happened to rates last week?

We gained a modest 9BPS in pricing (rates got better) from last week.

Tuesday was our best rates of the week in anticipation of the housing plan that is outlined above.

However once the market realized that the mortgage holders have a lot to lose with this plan, we gave up all of gains to close almost even with rates from last week.






 What to watch out for this week:

The following are the major economic reports that will hit the market this week.  They each have the ability to affect mortgage rates. I will watch these reports closely for you and let you know if there are any big surprises.

I know you are busy and it is virtually impossible for you to keep track of what is going on in the economy.  I monitor the trading of Mortgage Backed Securities; the only thing conventional mortgage rates are based upon. So I know if there is going to be a trend reversal in mortgage rates.

Have agreat day!

Respectfully,

 Angelo Cusinato

Resource Plus Mortgage

847-359-5300

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