A New Lifeline from FHA

If foreclosure, short sale or bankruptcy closed the door on your homeownership dreams, FHA just opened it back up with their Back to Work program

Typically there has been 2 sets of seasoning requirements for borrower’s with a distressed property sale in their past.  On conventional financing, borrowers must wait a minimum of 2 years from the closing of a short sale or 7 years from the completion of a foreclosure.  On FHA loans, 3 years minimum seasoning has been required for both short sales and foreclosures.
In August, HUD, the office of Housing and Urban Develop (the agency which administers FHA), issued new guideline for lenders providing FHA loans.  In this mortgagee letter, HUD made it possible for borrowers who would otherwise be ineligible for an FHA-insured mortgage due to FHA’s waiting period for bankruptcies, foreclosures, deeds-in-lieu, and short sales, as well as delinquencies and/or indications of derogatory credit, including collections and judgments, may be eligible for an FHA-insured mortgage.

There are a few requirements the borrower must meet in order to qualify for the Back to Work Program.  A few of them are:

 

·         620 minimum credit score

·         The borrower’s total debt cannot exceed 43% of the borrower’s gross income

·         The foreclosure, short-sale or bankruptcy must have been the result of a documented “economic event”.  This may be something like a reduction in employment hours or total loss of job.  Divorce is not considered a qualifying economic event

·         The borrower must have 12 months of perfect payment history after the economic event that lead to the credit challenges

·         Housing counseling is required

 

The housing counseling requirement is to help the borrower prevent a future credit challenge.  The borrower has the right to choose their preferred class, but it must be HUD approved and at least 1 hour in length.  The counseling class can be done via the internet, but must be completed at least 30 days prior to applying for the new mortgage.  The class must address the cause of the economic event, actions taken to overcome the event and reduce the likelihood of it recurring.

This new FHA program is a great opportunity for qualified borrowers who would otherwise not be able to purchase a home until their waiting period elapsed.  Many lenders are not offering this new product so check with your local mortgage bank first.

 

Fed’s Monetary Stimulus Meets “Fiscal Cliff”

The contrast could not be sharper: Economists are all but certain the U.S. Federal Reserve will expand its monetary stimulus this week, but they have no clue how the fiscal battle in Congress will shake out.

U.S. central bankers look set to extend their monetary stimulus, known as Quantitative Easing, into the new year at a meeting on Tuesday and Wednesday. Analysts expect the Fed to continue buying $85 billion worth of securities per month.

"The Fed would not have emphasized the number ‘$85 billion' in securities purchases in its statement if it wasn't prepared to continue at that pace well beyond the end of the year," said Roberto Perli, a senior managing director at investment research firm ISI.

No matter what it does, Fed Chairman Ben Bernanke has made it clear the central bank lacks the firepower to counter the possible drag from the looming $600 billion combination of expiring tax cuts and automatic spending reductions popularly known as the "fiscal cliff."

Alarm over an immediate, looming deadline may be overstated. Some analysts say the cliff is better described as a slope, since not all provisions will kick in at once. But Congress' budget watchdog and the Fed both think it spells recession.

The world is watching with bated breath, particularly given the fragile state of other major economies.

Geithner predicts Republicans will yield on taxes

Treasury Secretary Timothy Geithner pushed Republicans on Sunday to offer specific ideas to cut the deficit, and predicted that they would agree to raise tax rates on the rich to obtain a year-end deal and avoid possible economic doom.  But the top U.S. Republican, Speaker of the U.S. House of Representatives John Boehner, stood firm and renewed his stand against increased tax rates, leaving talks at a stalemate.

"Here's the problem," Boehner told "Fox News Sunday" as both sides took their battle to TV talks shows. "When you go and increase rates, you make it more difficult for our economy to grow," he said.  Besides, Boehner said, if Republicans agreed to give President Barack Obama $1.6 trillion in new tax revenue, "He's going to spend it," not reduce the deficit.

Geithner, Obama's top negotiator, said in a separate appearance on Fox that Republicans must step up.

The treasury secretary said Republicans will be responsible if no deal is reached by the end of the month, triggering the "fiscal cliff," deep automatic spending cuts and across-the-board tax hikes that could plunge the country into a recession.  "There's not going to be an agreement without rates heading up," Geithner said on CNN's "State of the Union."

With polls showing most Americans favor raising tax rates on the wealthy and cracks starting to appear in what had been a solid wall of Republican opposition to such a move, the Obama administration figures it has the upper hand.

"The president has seen a lot of options from us. There are a lot of them on the table and I'm hopeful that the conversation will continue," Boehner said.

Boehner also reaffirmed his party's opposition to Congress giving the president sole authority to increase the U.S. debt limit, a power both Democrats and Republicans value.  "Silliness. Congress is never going to give up this power," Boehner said, explaining it provides lawmakers needed leverage in dealing with the White House.

Bernanke Presses Lawmakers to Resolve Fiscal Cliff

Federal Reserve Chairman Ben Bernanke was in New York City Tuesday to send a message back to Washington: Cut a deal to avoid the fiscal cliff, and don’t play politics with the federal debt limit again.

Confusion over the course of U.S. tax and spending policy is weighing on the spending decisions of households and businesses, as well as on financial markets, Bernanke said in remarks to the New York Economic Club.

“Uncertainty about how the fiscal cliff, the raising of the debt limit and the longer-term budget situation will be addressed appears already to be affecting private spending and investment decisions, and may be contributing to an increased sense of caution in financial markets,” he said.  Economists say the most visible sign of uncertainty over the fiscal cliff is in the lack of capital-spending growth since the summer.

Orders for nondefense capital goods excluding aircraft, a key metric of demand, was flat in September after a 0.2% gain in the prior month. This came on the heels of close to an 8% slide in June and July.

“Such uncertainties will only be increased by discord and delay,” according to Bernanke.  He urged the members of Congress not to kick the can down the road. Putting off policy choices would only “prolong and intensify these uncertainties,” he said.  “In contrast, cooperation and creativity to deliver fiscal clarity — in particular a plan for resolving the nation’s longer-term budgetary issues without harming the recovery — could make the new year a very good one for the American economy.”

Without action by the White House and Congress on the fiscal cliff, about $500 billion in spending cuts and tax increases are set to begin in 2013. Economists, the Congressional Budget Office, and Fed economists have warned that America could slip back into recession if the so-called fiscal cliff is not addressed before the end of the year.

In a question-and-answer session, Bernanke warned that Fed policy could not protect the economy if it goes over the cliff.  “I don’t think the Fed has the tools to offset that,” he said.

Betting on Housing Market Recovery

Low interest rates and the Fed's efforts to curtail unemployment all point to a likely housing recovery. Ben Bernanke disclosed in September that the Fed continues to purchase mortgage-backed securities that will put downward pressure on mortgage rates--thus increasing refinancing at lower rates and boosting overall demand for housing. Housing prices are also starting to build up, indicating an increase in demand. Hurricane Sandy is further boosting new-housing and repair demand on the East coast. Bloomberg reports that construction in the US is growing at the fastest rate in four years. With all these indicators pointing to an improving housing sector, needless to say, now may be the right time to bet on it. 

One housing market company destined to win in this recovery is Home Depot (NYSE: HD), the largest home-improvement retailer in the world. Home Depot reported its third quarter earnings the day before yesterday. The retailer reported Q3 EPS of $0.74, which beat analyst forecasts by $0.04, and revenue of $18.1B, which beat forecasts by $150M. The stock closed at $63.38 the same day, close to its 52 week high which is the highest the stock has reached in over a decade.

Home Depot's CEO, Frank Blake, yesterday reaffirmed that housing is now becoming “an asset rather than a negative.” According to Home Depot's CFO, Carol Tome, housing turnover this year is about 4.5 million units on an annualized basis which is impacting the company's comparables about 50 basis points this year.

Bernanke Successor May Face Challenges

President Barack Obama's next choice to head the U.S. Federal Reserve could have his or her hands tied if Ben Bernanke and company continue to re-write the policymaking rule book at their current clip.

Under Chairman Bernanke, who is expected to step down when his current term expires in January 2014, the U.S. central bank has embraced the goal of making the historically shrouded business of setting monetary policy far more transparent. It has adopted a string of new rules and guidelines to clarify its policy intentions, including an inflation target and a conditional vow to hold interest rates near zero until at least mid-2015.

The next step is being hotly debated now. Fed policymakers are striving to agree on a set of economic variables, or thresholds -- probably particular levels of unemployment and inflation -- that would signal when the time to raise interest rates was finally drawing near.

The trick is making a credible commitment that convinces investors to keep longer-term borrowing costs low, thus
stimulating the economy, while at the same time ensuring the Fed can react swiftly to changing economic realities. The concern is that these rules and guidelines will crimp the central bank's flexibility in years to come as it deals with
the fits and starts of a protracted U.S. economic recovery. "The more they do it over the next year, the more the next
chair will be constrained," said Vincent Reinhart, chief U.S. economist at Morgan Stanley and a former Fed economist.

The "constructive ambiguity" the central bank has famously used over the years to safeguard its policy-setting discretion is slowly disappearing, he said.

Bernanke Likely Won’t Seek Third Term as Fed Chairman

Federal Reserve Chairman Ben Bernanke has told close friends he probably will not stand for a third term at the central bank even if President Barack Obama wins the November 6 election, the New York Times reported.

Republican presidential nominee Mitt Romney has already said he would not re-nominate Bernanke if he wins the presidency. Bernanke’s term as chairman ends in January 2014.

Bernanke, who was first appointed to run the U.S. central bank by former president George W. Bush and was given a second term by Obama, has declined to comment publicly on whether he would accept another four-year term.

“I am very focused on my work, I don’t have any decision or any information to give you on my personal plans,” he told a news conference last month after the Fed announced a new and open-ended round of bond buying to support the U.S. economy.

The Fed’s unconventional efforts to spur growth have been criticized by many Republicans and some economists who argue that they threaten future inflation and abet profligate spending in Washington.

Treasury Secretary Timothy Geithner has already made it clear he wants to leave by the end of the year.

Former Treasury Secretary Lawrence Summers would be at the top of Obama’s list to replace Bernanke, although his reputation for not being a team player could count against him, New York Times columnist Andrew Ross Sorkin wrote.

Longer shots include Janet Yellen, the vice chairwoman at the Fed, and economist Alan Krueger, a former assistant secretary of the Treasury for economic policy, or even Geithner, Sorkin wrote in his “Dealbook” column.

Glenn Hubbard, who headed the Council of Economic Advisers under George W. Bush, is often mentioned as Romney’s most likely nominee for the Fed chairmanship or the top job at the Treasury Department.