Kevin Breeland

What happened today with rates and what to expect? That is the question many will be asking and I will try an attempt to give some insights. The selling started last Thursday when Bill Gross from PIMCO questioned the AAA credit rating of the US. That is was bad but then Credit Suisse said that the Fed may be slowing down their MBS purchase program. Not good, then we had better than expected Consumer Confidence yesterday and a slightly better Existing Home Sales Report today. It doesn't stop there, these factors along with the notion that inflation could be a problem if the economy turns north, sent investors to an extreme selling panic. Since the high of Thursday ($100.41) to today's low ($96.78), the 4% MBS has lost 363bp closing down a whopping 206bp ending at $96.84. When a dramatic move to either side occurs, it should bounce back somewhat to the other side. But when will it bounce back, that is what everyone wants to know. The answer....not sure but this much I do know. The Treasury has committed to $1.25 Trillion in MBS (Mortgage Backed Securities) purchase. So far the Treasury has purchase somewhere in the neighborhood, according to the data I found, over $575 billion. The pressure seems to be coming for many different sources and it may take a few weeks for this to sort out. Where is the pressure, Oil for one. Oil is now up to $63/barrel. This is pushing prices at the pump to over $2.40 a gallon. What is the biggest threat to bonds, inflation. While the government will give us numbers minus food and energy, the bond market pays attention to the whole number. Another threat, money supply or as it has been pointed out the OVER money supply. The Government has been printing money as if they are at the copier for a Monday Morning meeting and someone forgot the copies for the meeting. While we need a healthy market, we are getting close if not already over the top, on having printed too much money. Another threat, well as dumb as this sounds the belief the economy is recovering. While it is important to see signs of improvement lets remember we are a long way form seeing the end of this. Example, homes are still delinquent at record numbers, at some point and time lenders will start foreclosing again, and the Government refinance programs will not provide enough incentives to save all the people who are trying. Lenders have servicing agreements with time frames that have to be met and the foreclosures are not done....yet. It is possible we can still see prices declining even further before the bottom is hit. Are we close to the bottom, I think so but remember this will not be resolved in weeks, think months and maybe years before all pieces of the economy will recover. Some other signs of a deepen recession, look at unemployment. In South Carolina this number is now 11.5% and nationally the number is 8.6% with many experts believing this number could hit 9.5%..some even think higher. Oil prices will stagger a recovery the closer to $3.00 a gallon we get, slow growth because people who do have jobs will be spending more money just getting to work, will have less money because food cost more, therefore increasing inflation fears as prices rise and the circle continues. Now I am not trying to say the end is near in either direction, just keeping the focus where it should be...today. Everyday is and will continue to be in uncharted waters. Lets not get too far ahead of ourselves. One other note...today Senator John McCain on twitter sent a tweet that the US Government (and us the taxpayer) would end up through the bankruptcy of GM with 70% ownership and another $50 billion on the hook. So, I responded to Senator McCain asking if all American would get employee pricing on all GM makes and models and he never answered. If you are going to tweet, you should answer when asked a question. Sorry for the lack of pictures the excess of words. Kevin M. Breeland General Manager Residential Mortgage of South Carolina, LLC 427 Johnnie Dodds Mount Pleasant, SC 29464 breelandk@residentialmortgagesc.com www.residentialscdailyrates.com

Monetize, I am not embarrassed to say that two days ago was the first time in my 52 years I ever saw this word. Since it was in a sentence I had a general idea what it meant, but honestly I wasn't sure. So, at 52, when you see a word you don't know what do you do??? Google it???? No....ol' school....I looked it up in the Fourth Edition The American Heritage College Dictionary I keep in my office.

So what is the definition of Monetize? I quote "mon e tize 1) To establish legal tender. 2) To coin (money) 3) To convert (government debt) from securities into currency that can be used to purchase goods and services." I think we have been doing a lot of #3 lately...but that is not what this is about...

So, we are going to "monetize" the $8000 tax credit but do we really know how that will be done. The answer, NO. While HUD issued "guidance" on this issue in Mortgagee Letter 09-15 in typical HUD fashion they issued no specifics...big shock there. Before you load up your cars with a bunch of First-Time Home Buyers my recommendation is this...WAIT!!!! STEP AWAY FROM THE TEMPTATION!!! The old argument is if I don't someone else will, well maybe but not with any success. Why, let me give you a few things to consider.

First, if a borrower only needs $5000 but qualifies for $8000 they can only use the "monetize" Tax Credit for $5000. The borrower CAN NOT....I REPEAT...CAN NOT receive CASH BACK!!! These second liens have to be counted in your borrowers debt ratios EVEN IF the payments are deferred. In the words of someone associated with FHA-approved nonprofits it appears the repayment works essentially on the honor system and appears to be TOO RISKY....however looking for more guidance to determine the level of potential risk. FHA approved mortgagees can do a "bridge loan" against the Tax Credit....did someone change the definition for a "secured loan"? Also, is the secondary market going to be willing to purchase these loans? It is not clear how you would "secure" these loans. Last but not least...FEES AND CHARGES. HUD ISSUED NO GUIDANCE. I CAN ASSURE YOU THERE WILL BE ABUSES AGAINST THE CONSUMER WITH NO GUIDANCE OR LIMITS IN THIS AREA. For now I would caution anyone moving down this path. It is one more example of the administration issuing policy with no idea of how to implement it. Stay Tuned for more!!!!!!! HAVE A GREAT DAY!!!!

Kevin M. Breeland

General Manager

Residential Mortgage of South Carolina, LLC

427 Johnnie Dodds Rd.

Mount Pleasant, SC 29464

breelandk@residentialmtg.com

www.residentialscdailyrates.com

Competitive by nature...the Best by choice!

Yesterday, Secretary Shaun Donovan spoke to the National Association of Realtors Real Estate Summit. In that speech he announced HUD would allow the $8000 Tax Credit for First-Time Home Buyers to be "monetize" as he put it. Here are the details as outlined in Mortgagee Letter 09-15.

Remember the guidelines the govern the Tax Credit are IRS guidelines and not HUD. The guidelines have not changed. They are as follows:

• Credit is the smaller of $8000 or 10% of the purchase price of the home.
• Phase out of the credit begins when modified adjusted gross income exceeds $75,000 is single, $150,000 if married filing jointly and is eliminated completely at $95,000 (single), $170,000 (jointly).
• As a refundable tax credit if taxes are owed they are deducted from the refund. If the Taxpayer is receiving a refund anyway, then the tax credit is added to that amount.

Claiming the tax credit you can go to http://www.irs.gov/pub/irs-pdf/f5405.pdf. Confused now...just wait there is more.

FHA Guidance on Secondary Financing all for second mortgages from Federal, state, and local governmental agencies and nonprofit instrumentalities of government. Also FHA-approved nonprofits and you can find additional information on this at http://www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm .

But there is more....The Tax Credit: Short Term Loan: this entities that the tax credit can be advanced with short-term loans. Again from the list above AND FHA-approved Mortgagees....who may provide "short-term Bridge Loans" secured only by the anticipated tax credit due the homeowner as collateral. How does it work...well that is the $64 dollar question BUT in principal like this:

The amount that can be borrowed using this tax credit can not exceed the anticipated tax credit DUE THE HOMEBUYER based on the COMPUTATIONS OF FORM IRS 5405. FEES AND CHARGES for the tax credit advance loan are not to exceed a nominal amount necessary for preparing and administering the loan. Of course leave it to HUD to leave this part open ended....I can assure you we will see case after case of abuse in FEES and CHARGES.

HAVE A GREAT DAY!

Kevin M. Breeland

General Manager

Residential Mortgage of South Carolina, LLC

427 Johnnie Dodds Rd.

Mount Pleasant, SC 29464

breelandk@residentialmtg.com

www.residentialscdailyrates.com

Competitive by nature...the Best by choice!

Photo taken by my daughter Tara