Letter of Intent

This Letter of Intent sets forth the basic terms and conditions upon which the Buyer is willing to purchase the above referenced properties, from the Seller.[...]

Loan Demand at Stand Still. Are You Nervous About the Year Ahead?

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending March 12, 2010.

The survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts.  The data gives economists a look into consumer demand for mortgage loans.  A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole.  Furthermore, in a low mortgage rate environment, such a trend implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt.

From the release…

The Market Composite Index, a measure of mortgage loan application volume, decreased 1.9 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 1.7 percent compared with the previous week. The four week moving average for the seasonally adjusted Market Index isrn up 0.8 percent.

The Refinance Index decreased 1.7 percent from the previous week. The four week moving average is up 0.8 percent. The refinance share of mortgage activity increased to 67.3 percent of rntotal applications from 67.2 percent the previous week

The seasonally adjusted Purchase Index decreased 2.3 percent from one week earlier.  The unadjusted Purchase Index decreased 1.8 percent compared with the previous week and was 13.9 percent lower than the same week one year ago.  The four week moving average is up 1.1 percent for the seasonally adjusted Purchase Index.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.91 percent from 5.01 percent, with points increasing to 1.30 from 0.82 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.  This is the lowest 30-year fixed-rate observed in the survey since mid-December of 2009, yet the effective rate was unchanged from last week due to the significant increase in points.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.24 percent from 4.32 percent, with points increasing to 1.47 from 0.88 (including the origination fee) for 80 percent LTV loans. This is the second time in the last three weeks that the contract 15-year fixed-rate has reached a record low in the survey.  However, the increase in points led to an increase in the effective rate from last week.

The average contract interest rate for one-year ARMs decreased to 6.75 percent from 6.80 percent, with points remaining unchanged at 0.30 (including the origination fee) for 80 percent LTV loans. The adjustable-rate mortgage (ARM) share of activity decreased to 4.6 rnpercent from 5.1 percent of total applications from the previous week.

Below is a chart comparing the refinance index to the average 30 year fixed mortgage rate during the most recent refinance wave.

When the Fed announced the MBS Purchase Program in late November 2008, mortgage rates fell fast and refinance loan apps skyrocketed. Then rates rose from 5.00% to 5.20% and refinance demand fell off just as fast as it rose. Rates soon reversed course and hit record lows in March/April 2009, the refinance index reacted with a sharp rebound higher. After moving sideways at all-time lows, mortgage rates then rose in late May/early June…this had the effect one might expect on refinance loan demand…it plummeted.

The point I am making here is there used to be a direct correlation between refinance loan demand and low mortgage rates. However, this correlation has faded. While rates recovered from the early summer spike, refinance applications never did. Since then…regardless of mortgage rates below 5.00%, both purchase and refinance loan demand have been stagnate.

My question: HOW NERVOUS ARE YOU ABOUT YOUR BUSINESS OVER THE NEXT YEAR? TWO YEARS? THREE YEARS? When do you think demand comes back? Nothing seems to be working at the moment….

J.O.B.S

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Reaction to Dodd Financial Reform Bill Depends on Perspective

Remember the tale of sixrnblind men who were asked to describe an elephant so each grabbed hold of a piecernof the beast.  The man who took hold ofrnthe tail described the elephant as a rope, the one who touched the leg said itrnwas a pillar, and the one who felt the trunk said the elephant must look like arnsnake.

Pretty much the same thingrnhappened when Senator Christopher Dodd released his proposed bill to RestorernAmerican Financial Stability. While some of the people who might be expected tornreact such as The U.S. Chamber of Commerce and the New York Stock Exchange havernthus far been silent, a lot of individuals and groups have grabbed the piece ofrnit that they care about and are either praising the bill – or bashing the hellrnout of it.

WashingtonrnPost columnist Steven Pearlsteinrnin an interview on MSNBC yesterday called the bill "one of the silliestrncompromises I've seen in Washington in a long time."  He said that the bill's requirement that thernFederal Reserve regulate the largest banks and only the largest banks hangs arnsign over those bank's doors saying "too big to fail."  He also faulted the number of loopholesrnexempting various types of derivatives from the law's requirements.

ThernMortgage Bankers Association focused on the bill's efforts to modernize thernregulatory structure for mortgage banking firms.  In a press release that almost beat Dodd'srnbill into the hands of the press, Robert E. Story, Jr. CMB, Chairman of thernassociation said that MBA was "concerned that this bill could be headedrndown several of the same wrong paths as the legislation that moved through thernHouse late last year."  He said thatrnthe bill "does not provide uniform national regulation of all mortgagernbanking firms, and thus further solidifies the patchwork of state and localrnlaws that increase costs for borrowers and lenders alike."

He applaudedrnthe bill for moving away from the "one size fits all" approach tornrisk retention" by recognizing that some underwriting requirements, loanrntypes, and business models are inherently low risk but said that the billrnshould provide explicit exemptions for qualified loans that exhibit certain lowrnrisk characteristics from bill's provision that the underwriter retain arnportion of those loans on its books in a risk sharing arrangement.  He singled out, in particular, commercial realrnestate loans and residential loans meeting conventional underwritingrnguidelines.

The American BankersrnAssociation (ABA) said it opposes the new bill as it now stands and "isrnsuggesting a number of areas thatrnneed to be changed:  including thernapproach to consumer protection, which continues to separate prudential andrnconsumer regulation; the elimination of the thrift charter; the elimination ofrnthe Federal Reserve's authority over state member banks; issues within thernresolution mechanism; the weakening of federal preemption; and the failure tornaddress accounting issues in any fashion.

"We oppose this bill because it will subject traditional banks, which didrnnot cause this crisis, to heavy new regulation, while non-banks will have evenrnfurther competitive advantage," said Edward L. Yingling, ABA's president andrnchief executive officer.  "The future ofrntraditional banks will be unnecessarily put at risk and their ability tornprovide the credit our economy needs will be undermined.  Progress hasrnbeen made, there is still an opportunity to achieve regulatory reform, and ABArnwill support the continuing efforts of Chairman Dodd and the rest of the SenaternBanking Committee to reach agreement on a workable bill."

ThernCouncil of Institutional Investors, a nonprofitrnassociation of public, union and corporate pension funds, applauded the bill'srnefforts to "address the serious failures by corporate boards thatrncontribute to the financial crisis.

The Council said, it was pleased atrnthe corporate governance provisions requiring directors of public companies tornbe elected by a majority vote of shareholders and reaffirms the Security andrnExchange Commission's (SEC) authority to issue "proxy access" rulesrnthat would make it easier for investors to nominate board candidates.

 ThernCouncil also expressed satisfaction with provisions to strengthen thernregulation of credit rating agencies, trading in over-the-counter derivatives,rnand improve the resources and independence of the SEC.

Republicans immediately criticizedrnthe process leading to creation of the bill. Senator Dodd had been working as arncommittee of two with Bob Corker, (R-TN), a member of the Senate BankingrnCommittee to craft the bill, but recently had gone off on his own to finish thernprocess.  The Wall Street Journal quoted Corker as saying that, while he wasrndisappointed that bipartisan efforts had reached an impasse he would continuernwork toward a bipartisan bill.  He said,rnhowever, that he would not support any bill that included an independent,rnstandalone Consumer Financial Protection Agency.

Sen.rnDavid Vitter (R., La.), another member of the committee said, "I think Dodd's been pulledrnback by the White House and pushed to take a pure partisan bill."  He also called the Consumer FinancialrnProtection agency "a complete nonstarter," one that no Republicans onrnthe committee would support.

Harvard Law professor ElizabethrnWarren, chairperson of the Congressional Oversight Panel that oversees thernTroubled Asset Relief Program (TARP) has become the public face of advocacy forrnconsumer financial protection.  She expressedrnsupport for the bill and criticized the banking communities' "ferociousrnlobbying for business as usual." rnShe said that Senator Dodd had taken a important step by advancing newrnlaws to prevent the next banking crises and that the upcoming series of votesrnwill make the choice clear, "families or banks."

Treasury Secretary Timothy Geithner said in a press release, "This is arnstrong bill. We hope the Committee and the Senate will move forward quickly tornpass comprehensive reform. We need a strong, independent consumer financialrnprotection agency that is accountable for setting and enforcing clear rulesrnacross the financial marketplace.   And we need strong authority tornlimit risk-taking and protect the taxpayer.  Enacting reform will helprnreduce uncertainty about the rules of the road going forward.  Passingrnstrong reforms here at home will also give us the ability to put in place arnlevel playing field internationally, with high standards.  As thernPresident said, as the bill moves forward, we will take every opportunity tornwork with Chairman Dodd and his colleagues to strengthen the bill and willrnfight against efforts to weaken it."

So a Wiseman said to all ofrnthe blind men, their hands still all over the elephant, "All of you arernright. The reason every one of you is telling it differently is because eachrnone of you touched the different part of the elephant."

Or maybe this is arndifferent tale – one that ends with the moral "it all depends on whose oxrnis gored."

HERE is a recap of the bill

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Stocks Continue to Tick Higher Before PPI and Fed Speak

Despite yesterday’s news that housing starts fell nearly 6% in February (led by weakness in multi-family starts), stock markets managed to move upwards yesterday and this morning that upward trend continues. Sentiment was in part bolstered from the language of the FOMC statement, wherein the central bank said it would maintain "low levels of the federal funds rate for an extended period" and the "labor market was stabilizing".

Two hours before the opening bell, Dow futures are up 30 points to 10,654 and S&P 500 futures are 3.75 points higher at 1,158.50.

With equities up, the US dollar is looking weaker. Meantime, the Euro rose overnight and the pound was the top performing currency.

Commodities are also heading upwards with WTI crude oil 79 cents higher at $82.49 per barrel and Spot Gold up $3.90 to $1,131.60. Later today the US Energy Information Administration will release the latest inventory report.

Speaking yesterday, Treasury Secretary Timothy Geithner reiterated there was “no way” Moody’s or other  credit rating agencies would downgrade the triple-A status of the US.

“There's no way that's going to happen,” Geithner said according to Reuters, adding that the administration was working to lower the deficit “dramatically” over the next five years.

“There's not a chance that that's going to happen to this country but it's very important for people to recognize that … this recovery will be weaker if we don't do a better job together over time of demonstrating that we're going to have the political will to make tough choices.”

Key Events Today:

8:30 â€

Dodd Releases Huge Financial Reform Package. MND Initial Recap

Yesterday,rnjust one day shy of the second anniversary of the Bear Stearns collapse, SenatorrnChristopher J. Dodd (D-CT), chairman of the Senate Banking Committee, releasedrnhis long awaited proposal to overhaul the nation's financial regulations.  The changes, viewed by many as the mostrnsweeping since the Depression, are apparently backed by the Obamarnadministration.

Doddrnsaid that the overhaul is designed to stabilize the nation's financial systemrnin the hopes of preventing a repeat of the near collapse of major players inrnthe fall of 2008.  However, forces arernboth the right and the left appear ready to do battle over many parts of thernproposal.

Dodd had been working on thernproposal with one of the leading members of the committee, Senator Bob Corker (R-TN), but recently decided to finishrnthe proposals on his own.  Rankingrncommittee member Richard Shelby said he was in substantial agreement with aboutrn80 percent of the bill, however, none of the Republicans on the committee havernyet endorsed it.

Here are the chiefrnprovisions of the bill which Dodd has named RestoringrnAmerican Financial Stability

Establishment of a Consumer Financial Protection Bureau
This agency will be lead by an independent director appointed by the President and confirmed by the Senate.  In what promises to be one of the more controversial aspects of Dodd's proposal, the agency will be housed within and funded by the Federal Reserve.  The agency will be able to independently write rules for consumer protection that will cover banks and credit unions with more than $10 billion in assets and all mortgage-related businesses.  Included under its mandate will be lenders, servicers, mortgage brokers, payday lenders, debt collectors, consumer reporting agencies, and foreclosure prevention operators.  Banks that exceed the $10 billion asset benchmark will continue to be handled by the appropriate regulators.

The agency will establish an Office of Financial Literacy charged with educating the public about financial matters and a complaint hot line so consumers will have a single point to report problems with financial products.

Creation of a Financial Stability Oversight Council
This independent nine-member council will be chaired by the Treasury secretary and made up of regulators representing the Federal Reserve Board, the Securities and Exchange Commission (SEC), Office of Comptroller of the Currency (OCC), The Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Agency (FHFA), and the Commodity Futures Trading Commission (CFTC) and an independent member.  The council will have one responsibility; to act as an early warning system, identifying and responding to emerging risks throughout the financial system.

The Council will be charged with creating disincentives for financialrninstitutions becoming "too big to fail" by imposing rules forrncapital, leverage, and liquidity risk management and will be able to approve,rnwith a 2/3 vote, a Federal Reserve decision to require a large and complexrncompany to divest some of its holdings if it is deemed to pose a threat to thernfinancial stability of the company.  Thernbill specifies that this would be only as "a last resort."  The Council would also be able to require,rnwith a 2/3 vote, that nonbank financial companies such as AIG be regulated by thernFederal Reserve if they pose a risk to financial stability.

The so-called Volker Rule will require that regulators implementrnregulations for banks, bank holding companies, and their affiliates to prohibitrnproprietary trading, investment in or sponsorship of hedge funds and privaternequity funds and to limit relationships with those funds.  Nonbank institutions under Federal Reservernsupervision will be subject to similar controls.

Large complex companies will have to periodically submit "funeralrnplans" for their rapid and orderly shutdown if the company should go underrnand penalties such as higher capital requirements will be imposed for failurernto do so.  Also, if the Federal Reserve,rnFDIC, and Treasury agree to put a company into liquidation, a three judgernfederal bankruptcy panel must convene and agree within 24 hours that a companyrnis insolvent.  Most large financialrncompanies will be resolved through the normal bankruptcy process.

The largest financial firms will be charged $50 billion for an upfrontrnfund that will grow over time and will be used for any liquidation.  The FDIC will be allowed to borrow from thernTreasury only for working capital for a liquidation and the government will bernfirst in line for repayment from the assets of the liquidated company.

The Federal Reserve's lender of last resort authority will be updatedrnto allow system-wide support to protect taxpayers from loss during a major destabilizingrnevent but will not be allowed to prop up individual institutions.

The Council will create an Office of Financial Research within thernTreasury Department which will support the council's work by collectingrnfinancial data and conducting economic analysis.  This office and related agencies will providernperiodic public reports and give testimony to Congress every year on emergingrnrisks to the economy.

In what is called the Hotel California Provisions, large bank holdingrncompanies that have received TARP funds will not be able to avoid supervisionrnby the Federal Reserve by divesting themselves of their banks.

rn
• rnThe proposed law sets up clear lines of responsibilities for financialrninstitutions: the FDIC will regulate state banks and thrifts of all sizes andrnbank holding companies of state banks with assets under $50 billion. OCC will regulate nationalrnbanks and federal thrifts of all sizes and holding companies of national banksrnand thrifts with assets below $50 billion. rnThe Office of Thrift Savings is eliminated and no new charters will bernissued for federal thrifts. The Federal Reserve willrnregulate banks and thrift holding companies with assets over $50 billion. The Dual Banking System willrnbe preserved, leaving in place the state banking system that regulates mostrncommunity banks.

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• rnCompanies that sell products like mortgage-backed securities will bernrequired to retain at least 5 percent of the credit risk to ensure theyrn"won't sell garbage to investors."rnThis requirement, however, would be waived if the underlying loans metrnstandards that reduce riskiness.

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• The bill seeks to improve the competence of the SEC by creating a programrnto reward whistleblowers with up to 30 percent of the funds recovered when securitiesrnviolations are reported; mandating an annual assessment of the SEC's internalrnsupervisory controls, and it creates a committee of investors to advise the SECrnon its regulatory priorities and practices and an Investor Advocate to identifyrnareas where investors have significant problems with the SEC. It also requires that the SEC be self-fundedrnand no longer subject to annual appropriations.

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• rnStrengthens the Federal Reserve through increased supervision and rulesrnto eliminate conflicts of interest.

rn

The bill will give the Government Accountability Office the authorityrnto audit any emergency lending facility set up by the Federal Reserve and willrncreate a Vice Chairman for Supervision who will develop policy recommendationsrnregarding supervision and regulation for the Board and will report to Congressrnsemi-annually on supervision and regulation efforts.

Any company, subsidiary, or affiliate of a company that is supervisedrnby the Federal Reserve will be prohibited from voting for directors of thernFederal Reserve Banks and bans past or present officers, directors, andrnemployees from serving as directors.  Itrnalso mandates that the president of the New York Federal Reserve Bank bernappointed by the President and confirmed by the Senate rather than chosen byrnthe Bank's directors, six of whom are elected by member banks in the New Yorkrndistrict.

rn
• rnEstablishing an Office of Credit Rating Agencies within the SEC tornstrengthen regulation of credit rating agencies. The office will have the ability to levy finesrnon credit rating agencies and will be able to prohibit compliance officers fromrnworking on ratings, methodologies, or sales, require them to disclose theirrnmethodologies, their use of third parties for due diligence, and their ratingsrntrack records. It will also require ratingsrnanalysts to pass qualifying exams and undergo continuing education.

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• rnHedge funds that manage over $100 million will be required to registerrnwith the SEC as investment advisors and to disclose financial data needed tornmonitor systemic risk and protect investors.

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• rnThe bill seeks to bring transparency and accountability to thernDerivatives Market by provided the SEC and CFTC with authority to regulate over-the-counterrnderivatives and uses a joint rulemaking process with the Financial StabilityrnOversight Council stepping in if the two agencies can't agree.

rn

It also requires Central Clearing and Exchange Trading for derivatives that canrnbe cleared, provides a role for regulators and clearing houses to determine whichrncontracts should be cleared and requires the SEC and CFTC to pre-approverncontracts before they can be cleared.

New rules would require margin for un-cleared trades in order to offsetrnthe greater risk they pose to the financial system, subject swap dealers andrnmajor participants to capital requirements, require data collection andrnpublication through clearing houses or swap repositories to improve marketrntransparency, and provide regulators with tools for monitoring and respondingrnto risks

rn
• rnShareholders will be given a say on executive compensation andrncorporate governance.

rn

Shareholders of public companies will be given a non-binding vote onrnexecutive pay and will be granted proxy access to nominate directors.  Standards for listing a company's stock on anrnexchange will require that its compensation committee include only independentrndirectors and have authority to hire compensation consultants.  Companies will be required to set policies torntake back executive compensation if it was based on inaccurate financialrnstatements.

rn
• rnFinally, the bill creates an Office of National Insurance within thernTreasury Department to monitor the insurance industry, coordinate internationalrninsurance issues, and require a study on ways to modernize insurancernregulations.

rn

Senator Dodd said thisrnmorning on MSNBC that, while the bill does not take on any changes to FreddiernMac and Fannie Mae at this time, the issue clearly must be addressed.

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Housing Starts, Building Permits, FOMC Statement

The dollar is weaker and equities look to open higher as investors await the afternoon policy statement from the Federal Reserve Board.

Two hours before the opening bell, Dow futures are up 16 points to 10,592 and S&P 500 futures are 2.00 points higher at 1,147.75.

Commodities are also on the rise, with WTI crude oil up 18 cents to $79.98 per barrel and Spot Gold up $6.35 to $1,114.80.

Key Events Today:

8:30 â€

Home Builder Confidence Falls. Foul Weather and Distressed Sales Cited as Reason

The National Association of Home Builders released their monthly Housing Market Index today.

Derived from a monthly survey that NAHB has been conducting for more rnthan 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder rnperceptions of current single-family home sales and sales expectations rnfor the next six months as “good,” “fair” or “poor.” The survey also rnasks builders to rate traffic of prospective buyers as “high to very rnhigh,” “average” or “low to very low.” Scores for each component are rnthen used to calculate a seasonally adjusted index where any number overrn 50 indicates that more builders view conditions as good than poor.

In March, Builder confidence lost the small amount of progress seen in February, falling  two points to 15 where the index sat in January.

Here is a breakdown of the components:

rn
• Current sales conditions declined two points to 15

rn

• Sales expectations in the next six months declined rnthree points to 24

rn

• Traffic of prospective rnbuyers declined two points to 10.

rn

Regionally, the HMI results were mixed in March. While the Northeast rnposted a five-point gain to 23 and the West posted a one-point gain to rn15, the Midwest HMI slid three points to 10 and the South HMI edged downrn one point to 18.

The NAHB cites poor weather conditions and distressed property sales as rnreasons for the lack of buyer and builder confidence.

NAHB Chairman Bob Jones says:

“Unusually poor weather conditions certainly had a negative effect onrn builders’ business in February…..At the same time, the continual flow of distressed properties pricedrn below the cost of production is having an adverse effect on new-home rnappraisals and also making it tough for builders’ customers to sell rntheir existing homes.”

NAHB Chief Economist David Crowe says:

“The lack of available credit for new projects, the large number of rndistressed properties for sale and the continuing hesitancy of potentialrn buyers due to the weak job market are definitely weighing on builder rnconfidence at this time….That said, the inventory of new homes on the market is at an rnextremely low level, and we do expect a 25 percent improvement in rnnew-home construction in 2010 over 2009 to rebuild inventory and meet rnexpected pent-up demand.”

READ MORE ON SHADOW INVENTORY

 
rnrn

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Loan Mod Conversion Rate Improves in February. True Success Depends on Job Creation

The Making Home Affordable Program (HAMP), a joint effort byrnthe Departments of the Treasury and Housing and Urban Development to preventrnforeclosures, is reporting that 168,708  homeowners have now graduated from thernHAMP trial modification program and have active permanent modifications by the end of February. This works out to a 12.4 percent conversion rate, a modest improvement from January when the permanent modification conversion rate was 9.2 percent.

The program, which began last spring, has now enrolledrn1,094,064 borrowers in modifications which lower mortgage payments to a rnmaximumrnof 31 percent of monthly income. rn1,354,350 invitations to participate in the program have been extendedrnto distressed homeowners.  This is 34 torn45 percent of the goal of 3 to 4 million set for the end of 2012.  At rnpresent 835,194 loans are in some phase ofrnthe trial period, a number which includes the pending permanent rnmodifications. To date 88,663 trial modifications and 1,499 permanentrnmodifications have been cancelled.   The report does not give any rnreasons for therncancellations. In addition, 91,843rnborrowers had successfully completed the three month trial period and rnpermanentrnmodifications were awaiting borrower acceptance.

Servicers handling administration of the program can modifyrnloans through a reduction of the interest rate, extension of the term of thernloan, and/or forbearance of principal. rn100 percent of permanent modifications had a reduction in rate, 41rnpercent an extension of term, and 27.8 percent received forbearance.  The median decrease in monthly payment forrnthose in the program is $518.88, resulting in a median payment of $837.86. These homeowners' lower monthly payment represents a cumulative $2.7 billion in savings.   Borrowers who successfully complete the trialrnprogram and convert to permanent status are guaranteed the modified payment forrnat least five years.  In addition, thosernborrowers who make on-time payments for one year under the permanentrnmodification are eligible for a credit of $1,000 on their outstanding mortgagernbalance.

HAMP estimates that, at present, approximatelyrn1.8 million loans are eligible for a HAMP modification. This is somewhat scary as there are an estimated 6.0 million residential mortgagesrnthat are 60+ days delinquent, implying perhaps the worst has yet to come. Approximately 1.6 million of these are either government guaranteed (VA,rnFHA) loans or serviced by non-participating HAMP servicers. Servicers rnare encouraged by HAMP to solicitrninformation from delinquent borrowers regardless of their apparent rneligibility forrnthe program and solicitations have been sent to 3.84 million borrowers rnto date.

Servicers vary widely in the percentage of borrowers theyrnhave enrolled in the program.  GMAC andrnCitiMortgage continue to have the best participation rate, with both reportingrnslightly more than half of their eligible borrowers are in either trial orrnpermanent modifications.  Most majorrnservicers now have a participation rate over 25 percent with the exception of Bank of America.   Broken down by investor types, more than 50 percent of HAMPrnmodifications are to GSE loans, 34 percent are held by private investors, and 9rnpercent are portfolio loans. 

Program participants continue to report that loss of incomernis the leading cause of their mortgage difficulties, with 57.4 percentrnreporting that problem.  This categoryrnincludes both unemployment and a reduction in hours or wages.  10.8 rnpercent of borrowers said their programsrnwere caused by excessive obligations and 2.7 percent cited illness.

Again, MND calls attention to the fact that 57.4 percent of permanent loan modifications were made to borrowers who are out of a job or underemployed. The true success of this program is dependent on whether or not these homeowners are able to get a job and continue paying their below market mortgage payment. If not, the loans will re-default.

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FOMC Meeting, Housing Data, Inflation, Industrial Production

Equity markets are mostly lower across the globe Monday, leading US stocks to open sharply lower ahead of a moderately busy schedule.

Two hours before the bell sounds, Dow futures are off 30 points to 10,543 and S&P 500 futures are down 4.50 points to 1,142.00.

Commodity prices are mixed as WTI crude oil is trading down 58 cents to $80.66 per barrel but Spot Gold prices are up $2.37 to $1,104.27.

Key Events This Week:

Monday:

8:30 â€

Fitch Ratings: Expiring Housing Incentives Likely to Increase Loan Losses this Year

FitchrnRatings is warning that the expiring homebuyer tax credits, the end of the Fed's MBS Purchase Program, and the growingrnmaturity of various government loan modifications programs are likely tornincrease loss severities on distressed mortgage loans later this year. 

Thernreport says that these factors as well as low interest rates and the FederalrnReserve's $1.25 trillion mortgage-backed securities purchase program have ledrnto an improvement in both home prices and loss severities since the secondrnquarter of 2009, but this is unlikely to continue. 

The $8,000 tax credit for first-timernhomebuyers and $6,500 credit for move-up buyers will be effectively expiringrnwith the deadline for signed sales contracts on April 30.  Buyers must complete the sale by June 30 sornany drop off in sales figures will not be apparent until the third quarter butrnFitch forecasts that the expiration of the program as well as the end of thernFederal Reserve's purchases to increase negative pressure on both home prices andrnloss severities.

FitchrnSenior Director Grant Bailey expects that loans that are found to be ineligiblernfor government sponsored loan modification programs or failed modifications willrnalso add to the supply of depressed residential inventory that will depress thernmarket.  "Servicers are furtherrnalong in identifying borrowers ineligible for modifications and will likely be morernaggressive in liquidating these loans this year compared to last."

Baileyrnsaid that short-sales result in loss severities that are approximately 10rnpercent lower than losses on loans that are foreclosed or the deed taken inrnlieu of foreclosure so these more rapid and less costly alternatives may helprnstem rising loss severities.  The impactrnof the seasonal increase in real estate activity in the spring may also delayrnthe immediate impact of the end of government support programs.

The Fitch report said that loss severityrntrends continue to be strongly dependent on home price trends.  In the two years prior to the recentrnimprovement, national home prices dropped approximately 30 percent while thernseverity of loss on loans which incurred losses doubled to record highs of 43rnpercent for private-label prime loans, 58 percent of Alt-A loans, and 72rnpercent for subprime loans.

The release is available at FitchRatings.com. (Logins required, but free)

READ MORE ABOUT SHADOW INVENTORY

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