Kirk Mulhearn

Long Beach, Ca. After an exceptionally inspiring and charismatic speech, our National Leader gave some of the best sound bites I have ever heard last night in an extremely populist speech. Indeed, to watch many of the star struck senators and congressmen anxiously line up to have their programs autographed by Obama makes one wonder about the head rush of euphoria going through the law makers of our country as they prepare trillions of more spending bills. However, the real problem with all of the bail out and stimulus projects with the government pumping trillions of even more money into our economy is that it is going to all have to be paid back with interest for by the next several generations of Americans at a very heavy economic cost to the economy.

Federal Reserve Chairman Ben Bernanke expects the country's down cycle to continue through at least June but believes growth could resume later this year if "actions taken by the [Obama] administration, the Congress and the Federal Reserve are successful in restoring some measure of financial stability." Wow, he is dumping the responsibility of the economic future of America on to the backs of Congress after the FED had a Monopoly on money making decisions for almost a century, nice spin.....

So far, it is being reported that 90,000 borrowers are at least three months behind in their mortgage payments have been invited to take part in Fannie Mae and Freddie Mac's streamlined modification program, which seeks to lower monthly payments to 38 percent of a borrower's income via interest-rate reductions, longer terms and principal reductions. However, Federal Housing Finance Agency chief economist Patrick Lawler says, "Early indications are that several of the program guidelines should be liberalized to reach a broader population and to create a lower, more affordable payment." Joseph Evers, deputy comptroller at the Office of the Comptroller of the Currency, told lawmakers yesterday that roughly 57 percent of Fannie and Freddie's loan modifications made in the first quarter of last year defaulted again within six months of the modification when the borrower fails to pay their taxes.

The cram down provision we have talked about before is now under consideration by the U.S. House that would let bankruptcy judges reduce principal owed on mortgages and make other changes, insisting that the proposal would boost mortgage rates and lenders' losses. The proposed legislation could help more than 1 million struggling homeowners, says the Congressional Budget Office, which estimates that 350,000 of them likely will file for bankruptcy during the next decade. In a letter to administration officials, the Mortgage Bankers Association said, "Judicial modification should be a last resort and only available where other non-judicial options have been exhausted or are not available." As we have said this will only increase the cost of future home loans, but we will have to see how this works.

How confident are you about the economy? Yesterday it was reported that Consumer Confidence fell to its lowest level since 1967, which is when the survey began. We did see a little price improvement yesterday due to Ben Bernanke's remarks, along with a decent 2-yr auction, but then prices sank somewhat. Bernanke conjectured that the recession could last into 2010, along with assuring the market that the government does not desire to nationalize the big banks, most notably Citi and BofA. The Treasury Department sold $40 billion in two-year notes at a yield of .961% ($32 billion in 5-year notes today and $22 billion in 7-year notes tomorrow) As everyone in mortgage banking knows, the Fed is focusing on purchases of agency debt and mortgage-backed securities as well as extending loans to the private sector to jump-start business and consumer lending - some dealers report that they are the ONLY buyer. You heard correctly, the FED is the only buyer. It is a very serious situation when only the FED shows up to buy. That is why we have kept saying to you about the pricing, it is in a artificial bubble. For the marketplace to work, we need to see other people develop the confidence to become buyers

Kirk Mulhearn, a Long Beach real estate Broker is the Manager for Prudential California Realty, "The Bixby Knolls Office," and Co-Manager for a net branch of GEM Mortgage, a direct lender that originates FHA, VA, and Conventional Loans.

He may be contacted at: 562-989-4608 ext. 110

Subscribe to this blog at: www.longbeachrealestateandloans.com

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

Subscribe to this blog at: www.longbeachrealestateandloans.com

Long Beach, CA. Notice to all school teachers: Take advantage of the 80/17/3 CalSTRS lending program as soon as you can. This is no doubt the easiest way to purchase a home if you are a school teacher. The way it works is like this: The investor will make a first trust deed at 80% of the sales price. There will also be a silent second trust deed behind the first trust deed at the same interest rate as the first for five years. Today's rate is 5.5% for both the first and silent second for a 30 year fixed loan. The only down payment required from the teacher is 3% of the sales price! Note this is .5% less then what HUD is requiring through an FHA loan and better pricing, too! If you are a school teacher, contact Kirk Mulhearn at 562-989-4608 ext. 110 and get pre-qualified and your DU Certificate today.

Surprise, nationwide new homes sales fell to an annualized rate of 324000 units, that means that less then 27000 new homes are moving a month. It is very evident that some of the best buying opportunities are in the existing homes inventory on the multiple listing services. We need to absorb the available housing that we have rather then continue to build. Although, builders are trying to be very creative in giving bonuses, free kitchen appliances, and upgrades the sales will still be sluggish until the credit markets ease up.

Last week the equity market continued in negative territory waiting for the government to decide to nationalize or provide more capital to the Banks. Bank regulators said they stand "firmly" behind the nation's banks and will begin examining this week whether they have enough capital to survive if the downturn in the economy becomes any sharper. Banks that are not able to raise money privately will have access to government funds. Treasuries have fallen this morning, especially on the long end of the curve, on speculation that the government may purchase up to a 40% stake in Citi, leading to more treasury auctions to fund this transaction. Stock market is currently down 80 plus points. Gold is $989, oil is $40.00 a barrel and the Ten Year yield is at 2.85% (2.76% on Friday). The 30 year fixed MBS market is current off .125% from the close on Friday.

Part of this bank examination is where the regulators will conduct "stress tests" on the financial condition of the nation's 20 largest banks in an effort to determine how they will fare if the ongoing economic slump deepens. The tests come as concerns mount among analysts and investors regarding the Treasury Department's broad plan to shore up America's banking system, details of which may not be available for weeks. As further proof of the distress banks are under, Citigroup reportedly was in active negotiations with regulators this past week concerning plans for the federal government to take a larger ownership interest in the bank.

Meanwhile several Republican governors are debating President Obama's economic stimulus package and how to address budget shortfalls at the state level. At the annual winter meeting of the National Governors Association, some governors said the GOP should compromise with Democrats, but their more conservative colleagues said they should reject new spending and taxes to regain the trust of the party's base. And in the case of upmanship, the California Governor said he will accept any bailout money other states would not accept. Those of you in California, now know the State budget passed, get ready for some added serious money to come from your wallet for taxes and when you register your vehicle

It is truly insane to raise taxes during an economic downturn; nevertheless, our politicos in Sacramento did just that! Look, the State of California has over 200000 employees, and they have hired over 70 people a day, either directly or indirectly for the last 10 years. No wonder, we are sinking into the Pacific.

And last week, Secretary of State Hillary Clinton urged China to continue buying U.S. Treasury bonds to help finance President Barack Obama's stimulus plan, saying "we are truly going to rise or fall together." Do you think she could have told them to buy Mortgaged Backed Bonds as well? If you think we have it bad, consider being one of the over 25 milllion Chinese that have been recently terminated. Reason? Lack of export demand; especially from the USA.

Kirk Mulhearn, a Long Beach Real Estate Broker and Professional Mortgage Planner can be reached at: 562-989-4608 ext. 110

Subscribe to the blog at: www.longbeachrealestateandloans.com

Long Beach, Ca. Housing starts shrank to the lowest levels on record due to lack of credit and declining prices. Today, President Obama announced a plan to stem foreclosures by subsidizing mortgage payments for millions of homeowners. The plan will cost $50B. GM is seeking another $16.6B in new US aid. One trader from Cantor Fitz mentioned that, "GM seems like a pension plan that occasionally makes a car somebody occasionally buys." Currently, the Ten Year yield is at 2.66% (2.73% yesterday). 30 year mortgage backed bonds are down slightly. We had some late price changes from a few investors yesterday, even though the MBS market opened up nearly .50% better. Many of you wondered why did we not see improved pricing. There a number of answers, but bottom line, MBS pricing is determined by when the treasury and FED buy

Big news today is the announcements by the White House for a foreclosure prevention and major housing plan. CNBC headline and the article attached states 275 billion to help 9 million families. The plan and the official name of Homeowners Affordability and Stability Plan is supposed to include rescuing families who played by the rules and acted responsibly. I also establishes a 75 billion fund to reduce monthly payments for another 3 to 4 million people in sub prime mortgages due to skyrocketing interest rates or personal misfortune. A quote from the President. Hey, I did not write the speech. The Treasury Department will double its financial support for housing finance giants Fannie Mae and Freddie Mac to allow them to play a bigger role supporting housing. Meaning the government plans on keeping them around. The Treasury said it was increasing its preferred stock purchase agreements with the two government-controlled companies to $200 billion each from $100 billion. Here is the link: http://www.cnbc.com/id/29256424

The second part of this program is supposed to allow for a refinance as long as the borrowers mortgage is owned by Freddie or Fannie and their mortgage is not more than 105%. The homeowner can then apply for a refinance and lock in a lower rate. We just are unsure how this will be implemented. When we have more details, we will see how this can benefit our originations. http://www.cnbc.com/id/29257409

Coupled with this information, the President will support revamping U.S. bankruptcy rules to let judges reduce mortgages on primary residences to fair- market value as long as borrowers pay their debts under a court- ordered plan. The Obama plan will use $75 billion from the $700 billion financial bailout fund to match reductions lenders make in interest payments that lower borrowers' payments to 31 percent of their monthly income. Under the program, a lender would be responsible for reducing monthly payments to no more than 38 percent of a borrower's income, with government sharing the cost to further cut the rate to 31 percent. Treasury will share the cost when lenders reduce monthly payments by forgiving a portion of the borrower's mortgage balance, the government said. The program may help as many as 4 million borrowers, the administration said. The average borrower's home value could be stabilized against a price decline by up to $6,000, the White House fact sheet said.

Kirk Mulhearn, a Long Beach Real Estate Broker and Professional Mortgage Planner can be reached at 562-989-4608 ext. 110

Subscribe to this blog at: www.longbeachrealestateandloans.com

Long Beach, Ca. Twenty thousand State employees will receive their termination notices this week. Considering there are over 200,000 State employees, that may not be a bad thing. There is a great brouhaha in Sacramento as State Senators fight it out over the new fiscal budget, which will have over a 40 billion dollar deficit by next June. Unthinkable as it seems in a recession, the State politicos want to raise taxes by 14 billion. There is rebellion amongst certain California Counties who do not want to send the State anymore money until they get their act together. It is like watching frustrated passengers argue over who gets which deck chair on the Titanic. Although it has never happened, murmurs of a State bankruptcy can be heard. This type of volatile market is forcing people to reconsider the real estate markets over the equity markets considering the safe harbor of real property. I'm receiving many investor calls who want to purchase property for cash in lieu of having any debt. The key there is cashflow. Indeed, cashflow is king, not cash these days.

The Obama administration is expected to unveil a foreclosure-prevention initiative on Feb. 18 that includes carrots and sticks to encourage lenders to lower monthly payments for struggling borrowers. For example, Obama is likely to offer government subsidies for reducing a borrower's interest rate; but he also could push for legislation that would allow bankruptcy judges to restructure mortgages. If so we are concerned this will increase future costs of mortgages. It will also encourage people to consider bankruptcy when perhaps that is not the only alternative. The plan to subsidize lower interest rates for distressed homeowners would involve the government and the lender each contributing matching amounts to reduce a person's monthly payment, possibly by several hundred dollars a month. Supporters contend that the measure will be comparatively simple to execute and less expensive than many other options that have been considered. Mr. Obama's top advisers have vowed to spend at least $50 billion to help homeowners keep their houses, and they already have the authority to tap the remaining $350 billion in the Treasury Department's financial industry bailout fund. Now, not sure how this is going to be decided, but my guess is those people that have paid on time, might start feeling a bit of resentment. Isn't government intervention grand?

While waiting for the Obama administration to announce plans to curtail foreclosures--which may include possible assistance to borrowers who are not yet delinquent--temporary foreclosure bans lasting a few weeks have been put in place by JPMorgan, Bank of America, Citi and Morgan Stanley. Meanwhile, Fannie Mae and Freddie Mac continue to delay foreclosures. So we are wondering, perhaps we will declare a foreclosure holiday. That will probably bring the housing crisis to a quick halt. No one loses their house. Wonder why they have not come up with that one yet.

The new Stimulus Bill includes an expansion of the first-time homebuyer tax credit ($8k, no pay-back) and restores to $729,750 (in the 2008 Stimulus Act) the upper loan limit in high-cost areas for Fannie Mae, Freddie Mac and FHA loan guarantee programs. For HECM (reverse mortgages) the Act allows for an increase in the current loan limits. The bill has over $50 billion in it for foreclosure mitigation.

Stocks tumbled on Tuesday as investors confronted fresh signs that the recession is worsening and worried that efforts to stabilize the beleaguered financial system may not prove sufficient. The slide took the benchmark S&P 500 below the 800 level for the first time since the bear market low of November 21, weighed by financials, energy companies and big manufacturers.

President Obama signs the $787B stimulus package today. With little economic data this morning Treasuries are rallying as investors are seeking safer assets as the equity market seems to be concerned about the lack of details from the treasury and continued bailout money need for the domestic car manufactures. Currently, the Ten Year yield is at 2.73% (2.78% Friday). Our 30 year fixed rate mortgage pricing should be better dependent upon how aggressive our investors choose to reflect the improved pricing which at the moment are better by .375%.

Kirk Mulhearn, a Long Beach real estate broker and Professional Mortgage Planner, may be contacted at: 562-989-4608 ext. 110

Subscribe to this blog at: www.longbeachrealestateandloans.com