My daughter came to me the other day and wanted some money, which I refused to give her. She then began ranting about “microloans”, how in 2006 the Nobel Prize for economics went to the fellow who pioneered the concept, and about how I was stifling the US economy by not giving her money. I told her that if she really wanted a loan and not a handout, she should go to http://www.kiva.org/ and get one for herself. (I also explained that loaning money to mid-size companies was just as, if not more, important as loaning money to individuals, since they are often the real engines of economic growth and supply incomes for the majority of job holders in the world.) At this point she gave me a 14-yr old girl glare and went off to ask her mother.

Should you loan, or give, a borrower money so that they can go out and get a loan? That is not a simple question – but probably not. For example, the statement made by Shaun Donovan, HUD secretary, on how the FHA will allow the $8,000 tax credit to be used for down payment at a NAR conference earlier this week was apparently “off base”. The information was removed from the website and the “Mortgagee Letter has been pulled for the time being although no official announcement has been made they are treating this as rescinded.  HUD will let us know if there is a change in status regarding reissuance."

Speaking of the tax credit itself, the amount of the tax credit is generally the smaller of: $8000 or 10% of the purchase price of the home. A phase-out of the credit begins when the taxpayer’s modified adjusted income exceeds $75,000 or $150,000 if married filing jointly, and is eliminated completely at $95,000 or $170,000 if married filing jointly. As a “refundable” tax credit, taxes owed by or refunds due to the taxpayer are factored into the calculation.

What are warehouse lenders after? Here's a snapshot of what a typical deal might look like. First, for the amount of the line, a new client originator would start out with a line of $10 to $20 million. The net worth required to get there is around $2.5 million with no significant loans held for investment, real estate or other assets/liabilities inconsistent with a mortgage company, and you should be in business for 3 or more years. The most leverage right now seems to be about 10 or 12 to 1, meaning that for every $1 of net worth you have, you’d be able to receive $10 of warehouse. Warehouse banks like to see consistent profitable years, but understand if there are swings in profit and loss – but you’d better be profitable and have cash set aside of about 30% of net worth. Lastly, the owners had better be ready to fully guarantee the line.

Yesterday was pretty quiet in terms of the investors out there, but the market is showing some volatility. Many feel that since rates have shot up in recent weeks, they can easily come back down, and in fact have been doing exactly that. Some believe that the yield on the 10-yr will get back to 3.0%, especially since the next round of Treasury auctions isn’t until the last week in May. Later this morning we’ll see Industrial Production, Capacity Utilization, and a couple surveys on general economic conditions. What we already do have, however, is the Consumer Price Index. U.S. consumer prices were unchanged in April, as expected. If you look back over the last 12 months, however, we have seen the largest drop in CPI (-.7%) since 1955! Our friend the core rate, for those of us who don’t eat or use energy, was +.3% after being +.2% in March. After the news the 10-yr is at 3.11%, and both the 5-yr Treasury note and mortgage securities are worse by about .125 in price.

THE TINY CABIN
A social worker from a big city in Massachusetts recently transferred to the mountains of South Carolina and Georgia and was on the first tour of her new territory when she came upon the tiniest cabin she had ever seen in her life. Intrigued, she went up and knocked on the door.

“Anybody home?” she asked.
“Yep,” came a kid's voice through the door.
“Is your father there?” asked the social worker.
“Pa? Nope. He left afore Ma came in,” said the kid.
“Well, is your mother there?” persisted the social worker.
“Ma? Nope, she left just afore I got here,” said the kid.
“But,” protested the social worker, “are you never together as a family?”
“Sure, but not here,” said the kid through the door. “This is the Outhouse!”

Rob

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