Long Beach, Ca.  Take the time to watch the Frontline video, "Inside the Meltdown."   It covers pretty well what the government has been addressing for the last six months.  It definitely is making it very clear that the more money that is being pumped into the banking system is not necessarily having the results that Washington and the Treasury would like to see.  Most interesting is how Hank Paulsen had so easily jettisoned the "moral hazard" argument off the wagon.   In fact, it seems that we are being sucked into even more bail outs because the basic idea is to prolong the pain rather then make serious adjustments to our economy, government, political structure and the Republic(more on that later on). 

Back at the ranch.    One frustrating aspect of this whole real estate down turn is how the banks have completely did a 180 degree turn on underwriting to the point of almost being ridiculous!  The pendulum has swung so far the other way that if the lenders are not careful, only a handful of borrowers will be left to be able to purchase!   

See the new changes in underwriting below: 

FHA
Standard

· Lowered the maximum LTV for cash-out refinance transactions to 85%.

• Increased the minimum credit score requirement on Standard FHA to 620. This requirement applies to all FHA loan types including streamline refinance transactions.

o Credit reports utilized for streamline refinances seasoned 12 months or more need only contain the mortgage payment history and the credit scores.

o Streamline refinances seasoned less than 12 months require a full credit report and must meet additional credit parameters.

o If a full credit report is provided when not required, the Underwriter
has approval discretion based on the overall merits of the file.

Jumbo
• Increased the minimum credit score on FHA Jumbo purchase and rate-term refinance transactions to match the minimum credit score on cash-out at 660. FHA Jumbo is defined as base loan amounts > $417,000 for a 1-unit

property, or > $533,850 for a 2-unit property.

The Obama administration's housing stability plan does not address jumbo mortgages, leaving borrowers with loans too big for purchase by Fannie Mae and Freddie Mac with few options to reduce their payments. Even those with stable incomes, 20 percent equity and good credit cannot refinance in the current market, forcing some to tap into 401(k) plans or other investments to pay down their mortgages so that they are eligible for a fixed-rate conforming loan. Some banks are setting jumbo rates high to discourage borrowers, and realty professionals say some upscale communities are experiencing additional home-price declines in response to the inability of borrowers to obtain jumbo loans.  GMAC has offered some fairly aggressive pricing on their jumbo ARMS, and are rumored to be close to offering a lower 30 year fixed rate as well. 

AIG may ask the government for another $60B (bringing total to $210B) and attempt to convert the outstanding preferred shares to common stock to try and reduce the pressure on the company's cash flow.  Isn't it great when you have an unlimited checkbook.   Global equities and US stock futures are down. Right now, the futures market is pricing in a 74% chance that the Fed keeps rates somewhere between 0 and .25% through June 24th, 2009. Currently, the Ten Year yield is at 2.75% (2.85% yesterday) Mortgaged Backed Securites are trading in a narrow range and are currently down .125% in price from yesterday close.

Kirk Mulhearn is the Manager for the Long Beach office of Prudential California Realty, "The Bixby Knolls Office."  In addition, Mr. Mulhearn co-manages a branch of GEM Mortgage,  a direct lender that originates Conventional, FHA, and VA loans.  He may be contacted at:  562-989-4608 ext. 110

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