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Wells Fargo & Co., aiming to translate home-lending clout into bigger profits, is building a team to package and trade mortgage-backed securities and curb reliance on Wall Street firms as a market recovery takes hold. The lender named Mike Buttner to head the residential loan- backed securities unit and expanded its mortgage-bond desk to 30 employees from five, Tim Mullins, 45, head of fixed-income trading at the San Francisco-based company, said in an interview yesterday. The bank expects the market for securitizations to strengthen by year’s end after investor demand for loans lacking government guarantees collapsed during the credit crisis.

Realtors, home buyers and sellers are rushing to complete sales agreements before the tax credit for home purchases expires this week.

Jim Bounds/Bloomberg News

The tax credit caused a surge in sales in many areas as first-time home buyers rushed to sign contracts before it expired.

Home buyers must have a deal by April 30 and close by June 30 to qualify for the federal tax break, up to $8,000 for first-timers and $6,500 for those merely moving to a different residence.

Though the Treasury Department and the real estate industry have termed the program a success, helping 1.8 million people buy homes, many tax policy experts say it has been singularly cost-ineffective: most of the $12.6 billion in credits through end of February was collected by people who would have bought homes anyway or who in some cases were not even eligible.

The credit has caused a surge in sales and has been widely lauded for helping to stabilize prices. In places like Lafayette, Ind., where the number of homes sold in March was up 48 percent over last year, real estate agents say they have been inundated with buyers like James and Aubrey Green, students at Purdue University, who said the credit had persuaded them to jump into the market.

“We were happy in our apartment, but $8,000 was just too much to pass up,” said Mr. Green, 29, who shopped furiously with his wife for two months before signing a contract in March to buy a three-bedroom ranch.

“We bid on a couple places that didn’t work out,” he said, “but we always made sure we had a backup plan because we didn’t want to miss the deadline for the credit. And when we finally agreed to a contract, it was this huge relief.”

For every home buyer like the Greens, real estate agents say there are at least three others who collected the credit even though they would have bought without it. That means for each new buyer who was truly lured into the market by the credit, the federal government paid more than $30,000.

In addition to legitimate buyers, tens of thousands of people who collected the credit were not qualified. An audit by the Treasury Department’s inspector general released last year found that hundreds of millions of dollars in credits went to people who had not yet bought homes or who were not first-time home buyers, as the program initially required.

Hundreds of others who received the credit were not old enough to sign a binding contract, the audit found, with some as young as 4 years old.

“There’s a political appeal to offering government aid to homeowners because it affects a lot of people,” said George K. Yin, former chief of staff of the Congressional Joint Committee on Taxation, who now teaches at the University of Virginia. “But if you weigh the cost and the results, you have to wonder whether it’s a failure of imagination.”

The home buyers’ credit was actually an amalgam of three separate programs. It began in spring of 2008 as a $7,500 tax credit that taxpayers were required to repay on their tax returns over a 15-year period.

After the financial crisis that fall and taxpayer anger over the hundreds of billions in bailout money being directed to banks and Wall Street firms, a broad subsidy for middle-class homeowners had wide political appeal. So Congress sweetened the plan — dropping the repayment requirement and increasing the credit to $8,000 — and included it in the economic stimulus bills.

Last November, with the residential market beginning to rebound, Congress extended the period for five months and added a $6,500 credit for existing homeowners looking to relocate.

After the number of homes sold in January and February dropped to record lows, sales rose 6.8 percent in March from a year earlier, as buyers raced to cash in before the credit expired. Nearly half of all March home sales involved first-time buyers, according to the National Association of Realtors.

“It’s true that a lot of people who got the credit might have bought without it, but they might have bought in 2012 or 2013,” said Senator Johnny Isakson, a Republican from Georgia, who worked for 30 years as an agent. “This got them to buy in 2009 and 2010, when we needed to shore things up.”

But the program was open to widespread misuse. The first two phases of the credit did not require taxpayers to prove that they had actually bought a house. The Treasury’s inspector general found in October 2009 that the I.R.S. had allowed $139 million in credits to people who had not yet bought homes, and $479 million to taxpayers who were not first-time buyers.

The I.R.S. resisted proposals to require proof that a home had been bought, with officials saying that the additional paperwork would be too onerous because it would prevent returns from being filed electronically. Tighter restrictions were nonetheless enacted: as of last fall, those claiming the credit were required to file a paper return and provide documentation that they had bought a house.

I.R.S. officials say that examiners found more than 70,000 taxpayers who had improperly claimed the credit, but were unable to say how much money had been recovered. Frank Keith, an I.R.S. spokesman, said that given the complexities of the program, “we did an effective job” administering it.

Some tax policy experts suggest that the federal government might have used the money more effectively by creating a program to help unemployed homeowners stave off foreclosure.

“If you tried to address the supply side of the housing market rather than the demand side, you could target your resources more effectively,” said Roberton Williams, an analyst at the Tax Policy Center. “And you’d also have the benefit of helping to keep people from losing their homes instead of subsidizing people who were going to buy anyway.”

But other economists say that, whatever its inefficiencies, the home buyers’ credit had a valuable effect on the psychology of millions of Americans who were alarmed to watch their largest investment lose value.

“The tax credit helped to stanch the price declines, which had substantial benefit for the entire economy,” said Mark Zandi at Moody’s Economy.com. “The home is still the largest asset on most people’s balance sheet, so when prices are falling, nothing works for most families. But now people can take a deep breath and think clearly again.”

Post Published: 28 April 2010
Author: Jeffrey Lee Nelson
Found in section: News

Market Overview | FNMA 4.5% 100.41 now +25 bps: | 10:00 +25 | Open 100.16 | Treasuries and mortgages opened strong this morning as the debt concerns spread in Europe. The magnificent five: PIIGS: Portugal, Italy, Ireland, Greece & Spain. Ranking wise, it’s Greece leading the problem but as each day passes with nothing accomplished the contagion is spreading to include Portugal, Spain and likely will include Ireland in the coming weeks. The growing debt problems in Europe are continuing to fuel safe haven moves to US treasuries and mortgages are taking the ride with them.

After a busy week of economic reports last week, this week doesn’t slow up at all. On tap is a look at how consumers feel about the slowly recovering economy with the Consumer Confidence report on Tuesday and the Consumer Sentiment Index on Friday. In the prior reports, Consumer Confidence came in higher than expectations, while Consumer Sentiment dropped. The markets will be watching both these reports for indications of how consumers feel about the job market and their finances.
We’ll also hear from the Fed this week with the Fed’s Monetary Policy and Fed Funds Rate decision on Wednesday. With future inflation concerns on the minds of some Fed members, it will be interesting to see if the Fed continues to use the now famous statement, "rates will stay exceptionally low for an extended period."
The weekly Initial Jobless Claims report comes out Thursday, and after a worse-than-expected report last week, the markets will be tuned in closely to this week’s update.
Finally, the week ends on a busy note. Friday, we’ll get a look at labor costs with the Employment Cost Index, the manufacturing industry with the Chicago PMI, and goods and services in the US with the Gross Domestic Product report.
In addition to these reports, the Treasury Department will auction off the $129 Billion of debt mentioned above. That breaks down to auctions of $11 Billion in 5-year TIPS (treasury inflated-protected securities) on Monday, $44 Billion in 2-year Notes on Tuesday, $42 Billion in 5-year Notes on Wednesday and $32 Billion in 7-year Notes on Thursday. That’s a whopping amount of supply, and it could move the markets depending on how it’s received.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

Home Buyers Tax Credit will expire this week!.
Thousands of Dollars Could Slip Through Your Fingers!
Last November, the government expanded and extended the new Homebuyers Tax Credit. According to the program, first-time homebuyers are eligible for a tax credit of up to 10% of the purchase price of the home, with a maximum credit of $8,000. And current homeowners are eligible for up to $6,500.
Although military personnel may qualify for a special extension, the vast majority of homeowners must have contracts in effect no later than April 30, 2010 and must close no later than June 30, 2010 to qualify for the credit.
This means that homebuyers now have less than one week to get their paperwork going to qualify for this credit, before it goes away!
Here are some important details about this tax credit.
Dollar-for-Dollar Benefit
The benefit of a tax credit is that it’s a dollar-for-dollar benefit, rather than a "tax deduction" or reduction in tax liability that would only reduce $1,000 to $1,500 when all was said and done.
So, if a first-time homebuyer who qualified for the entire benefit were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she would owe nothing.
Even Better… It’s Refundable!
Remember, because it’s a tax credit, it’s refundable! That means a homebuyer can receive a check for the credit if he or she has little or no income tax liability.
For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!
What are the Income Caps?
Single tax filers with incomes up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers with incomes of $145,000 and above are ineligible.
Joint filers with incomes up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers with incomes of $245,000 and above are ineligible.
What’s the Maximum Purchase Price?
Qualifying buyers may purchase a property with a maximum sales price of $800,000.
If you or someone you know is in the process of purchasing a home, this is an important week to take action – feel free to forward this article to anyone who it might benefit. And give me a call with any questions – the clock is ticking and the deadline is Friday!!

The government’s tax credit kicked new home sales into gear last month. New home sales increased an astounding 26.9% in March to an annual rate of 441k. Meanwhile the prior month was revised higher. New home sales are now up 23.8% from March of last year, only their second yearly increase since November 2005. The strong advance and year-over-year gain is welcomed news however, the new home market remains weak with sales still off 70.4% from their peak level reached in July 2005. The inventory of homes available for sale fell 2.1% to 228k, its lowest level in 39 years. Combined with the sales surge last month, the month’s supply dropped to 6.7 from 8.6 in February. New home supply is approaching its long term average of around 6 months. Home prices were mixed with the median new home price up 4.3% over the past year to $214,000 while average prices slipped 0.5% to $258,600. New home sales recovered modestly between January and October last year, then retreated sharply through the winter months. Now, sales are increasing once again as many buyers move to take advantage of the $8000 tax credit before it expires at the end of this month. After a post tax-credit pull-back, new home sales are expected to slowly trend higher this year if the economy continues to strengthen, job gains hold and rates remain low.

According to the latest Campbell Surveys poll of more than 1,500 real estate agents nationwide.
Of all home purchases in the month, first-time homebuyers accounted for 48.2%. The new monthly record eclipsed the previous peak of 46.9% last October when the expected November expiration of the original homebuyer tax credit drove up the share of first-time homebuyers. The March uptick comes ahead of the extended tax credit deadline.
“The strong participation of first-time homebuyers this spring is a welcome surprise,” said Thomas Popik, research director for Campbell Surveys. “Many observers had felt that the pool of first time homebuyers had been depleted last fall, but this is turning out not to be the case. Instead, the normal spring-summer buying season is combining with the tax credit to produce blow-out results for first-time homebuyers.”
The surge in first-time homebuyer activity in March came at the same time the volume of distressed properties in the housing market climbed to more than 50%, according to the survey.
The latest survey found that short sales accounted for 18.6% of the housing market in March.
“None of the survey results take into account the new Home Affordable Foreclosures Alternative (HAFA) program for short sales,” Popik said. “This government program took effect in early April, so we expect short sales to account for an even greater proportion of the real estate market in coming months.”
Source Housing Wire

SAN FRANCISCO—Mortgage default notices for California homeowners fell 4 percent in the first quarter of the year, another sign that foreclosures could be easing in lower-cost areas, a research firm said Tuesday.

County officials recorded 81,054 notices of default—the first step in the formal foreclosure process—during the January-to-March period, according to San Diego-based MDA DataQuick.

The number is down from 84,568 default notices in the fourth quarter of 2009 and 135,431 in the first quarter of 2009, when the filings peaked.

The number of default notices among homes worth at least $500,000 rose 1.5 percent in the first quarter of this year but remained low relative to the overall market, the firm said.

“There are increasingly signs that the problems are migrating up the price ladder, and maybe we’ve seen the worst in the lower-cost neighborhoods,” said MDA DataQuick analyst Andrew LePage.

“They may be off their peaks in terms of foreclosure activity, but the levels are still high historically, and they’re still having a real impact on people in those areas,” he added.

The 4 percent decline in default notices in the first quarter followed a 24 percent drop during the previous quarter.

Though fewer homes are entering the formal foreclosure process, financial distress among California homeowners remained high. However, more lenders are modifying home loans or allowing short sales in which lenders agree to

accept less than what a homeowner owes on the mortgage, LePage said.

Mortgages were least likely to go into default in Marin, San Francisco and San Mateo counties, and most likely to go into default in Merced, Stanislaus and San Joaquin counties.

“It looks like in the short run at least, we won’t see a spike in the number of homes lost to foreclosure,” LePage said.

Source Mercury News
Post Published: 20 April 2010
Author: Jeffrey Lee Nelson
Found in section: News

Friday the bond and mortgage markets were driven lower in yields on the announcement from the SEC that it was filing civil fraud charges against Goldman-Sachs, implying the firm allowed Paulson& Co. to select sub prime loans that went into a CDO security that Goldman was putting together to sell to investors. Paulson, according to the SEC was openly going to short the CDO and picked the worst possible mortgages to put in the CDO. Investors including Royal Bank of Scotland Group Plc and Germany’s IKB Deutsche Industriebank AG lost about $1 billion from the trade. Goldman Sachs denies wrongdoing. Goldman has indicated it did nothing wrong and will defend itself “vigorously”. The suit may also strengthen political pressure for more regulation of derivatives and similar complex financial structures, threatening earnings. The SEC is investigating transactions by Deutsche Bank, UBS and the former Merrill Lynch in the mortgage securities market, the New York Post reported today, without saying where it obtained the information.

It was late 2006, and an argument had broken out inside the Wall Street bank’s prized mortgage unit — a dispute that would reach all the way up to the executive suite. One camp of traders was insisting that the American housing market was safe. Another thought it was poised for collapse. Among those who saw disaster looming were an effusive young Frenchman, Fabrice P. Tourre, and his quiet colleague, Jonathan M. Egol, the mastermind behind a series of mortgage deals known as the Abacus investments. Their elite mortgage unit is now at the center of allegations that Goldman and Mr. Tourre, 31, defrauded investors with one of those complex deals.

After a relatively slow economic report week, the calendar picks up again during this week. On Wednesday, we’ll see more news about the labor market when the ADP National Employment Report is released with new data on the employment front. Then on Thursday, we’ll see another round of Initial Jobless Claims. After last week’s increase in new unemployment claims, you can bet the markets will be waiting to see how this report comes in.
Wednesday brings an update on the all-important topic of inflation when the Consumer Price Index is released. The Fed still officially feels that inflation is not a present concern – but some Fed members have expressed their opinions that upcoming monetary decisions should be made with a “data-dependent” eye. This means that the upcoming data – like the Consumer Price Index – will be analyzed very carefully.
We’ll also see updates on the manufacturing sector of the economy, with reports on Industrial Production and Capacity Utilization as well as the Philadelphia Fed Index on Thursday.
Finally, Friday brings another dose of news on the health of the housing industry, with reports on the number of Housing Starts and Building Permits recorded during March.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.
As you can see in the chart below, there has been a great deal of volatility in the market of late – and particularly with the Fed having exited their buying program, the wild ride isn’t likely going to be over anytime soon. If you have any questions about home loan rates – and the volatility seen over the past several weeks, just give me a call or send me an email. I’m always glad to hear from you!
Chart: Fannie Mae 4.5% Mortgage Bond (Friday Apr 09, 2010)

The measure, which is expected to be signed by Gov. Arnold Schwarzenegger, would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale.
Reporting from Sacramento Thousands of Californians whose homes were foreclosed on or sold at a loss would get tax relief under a measure approved Thursday by the state Legislature.
The bill would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale. It is expected to affect about 34,000 taxpayers.
Gov. Arnold Schwarzenegger said he would sign the measure, which would also provide about $60 million in tax credits to green-energy companies, when it reached his desk. Californians can already claim the tax breaks on federal returns. Lawmakers passed the measure in time for people to take advantage of it by the April 15 deadline for filing tax returns. “The mortgage-debt tax relief provision in this bill will provide financial shelter for tens of thousands of Californians who have lost their hopes and dreams in the housing market crash, and it’s about time we gave these folks a helping hand,” said state Sen. Ron Calderon (D-Montebello).
The short-sale provision would mean about $34 million less in tax revenue for the state over three years, according to the Franchise Tax Board.
The “green” credits are a response to the federal American Recovery and Reinvestment Act, which provides grants to firms for power plants that produce renewable energy. The federal government does not tax the grant money. Under the bill approved Thursday, California would provide similar relief. Other parts of the measure, SB 401 by Sen. Lois Wolk (D-Davis), were called tax increases by Republicans. Even though they supported the tax-relief element, several GOP members of the Senate and Assembly voted against the bill, which was opposed by the Howard Jarvis Taxpayers Assn.The Republicans objected to a provision that would reduce deductions for charitable gifts, and to changes that would allow the state to tax more income earned by minor dependents.
The changes would also make it harder to qualify a home as a principal residence for purposes of escaping capital gains taxes when the property is sold, and some penalties and interest charges to corporations would be increased, according to Therese M. Twomey, a principal consultant for the Senate Republican Policy Office. These changes would bring in more than $10 million in new revenue over five years, Twomey said.“It’s an issue of fairness,” said Sen. George Runner (R-Lancaster). “You are giving money to one group of people and taking it away from another group of people.”
With the plunge in the real estate market, many Californians have found themselves owing much more on their mortgages than their homes are worth. Some have been foreclosed upon or asked their lender to approve a short sale, in which a home is sold for less than the debt, some of which is waived.The amount waived has been considered taxable income under California law. The measure passed Thursday would eliminate that tax when a bank agrees to accept less than what is owed on a home.
The governor vetoed a similar bill last month because it included a provision, since removed, that would have increased penalties against businesses and wealthy individuals who abuse tax credits.
Business groups including the California Chamber of Commerce and Western States Petroleum Assn. complained that the provision would have made businesses reluctant to claim the tax breaks for fear of making a costly error. The businesses also said California’s tax penalties were already tougher than those in other states. Wolk said the penalties would not have applied to honest mistakes.
The new measure would lift a great burden from the shoulders of Valarie Wood and her husband, who were facing a $10,000 state tax bill on debt that was forgiven in a short sale of their property in Ventura. The 10-acre property, which included an avocado grove, had plummeted in value far below what they owed. Health problems and a “mortgage gone awry” forced the couple to renegotiate their loan with their bank, which agreed to waive about $300,000 of debt on the house and property, Wood said. “We’ve lost our dream home. We are in our 60s, and it was going to be our retirement,” she said, her voice choking with emotion. “This bill is crucial for people like us. We are extremely relieved.”Schwarzenegger said during a news conference Thursday that he wants to give homeowners and businesses “the relief they need.” “We want to be helpful in every way we can, so we will sign it,” he said.
Source LA Times