Fed plans new rules to protect future homebuyers (part I)

WASHINGTON - The Federal Reserve, trying to stabilize a shaky U.S. financial system, may give squeezed Wall Street firms more time to tap the central bank's emergency loan program, chairman Ben Bernanke said Tuesday.

And, in an effort to prevent a repeat of the current mortgage mess, Bernanke said the Fed next week will issue new rules aimed at protecting future homebuyers from dubious lending practices.

The rules will crack down on a range of shady lending practices that has burned many of the nation's riskiest "subprime" borrowers — those with spotty credit or low incomes — who were hardest hit by the housing and credit debacles. The plan would apply to new loans made by thousands of lenders of all types, including banks and brokers.
It would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.

In an extraordinary action, the Fed in March agreed to let investment houses go to the Fed — on a temporary basis — for a quick, overnight source of cash. Those loan privileges, which are supposed to last through mid-September, are similar to those permanently afforded to commercial banks for years.

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.

The Fed's decision to act — temporarily at least — as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed's lending powers since the 1930s.

Few Mortgage Tips

1.With the sub-prime issues continuing to impact the real estate industry, it is refreshing to know that veterans can get 100% financing on a single family residence. The lending limit for a veteran to purchase in Utah is $417,000. This applies to duplexes, triplexes and fourplexes as well

2.Did you know that missing just ONE payment on that little credit card balance can cause your FICO score to drop 100 points in one month and could disqualify you for a loan, even if the minimum payment is only $5.00. Watch those little ones. . .paying only the minimum on time is more important than paying the whole balance off.

Current Trend Dorection: Sideways

MMG Update - Wednesday, September 5, 2007 9:49am ET
Current Trend Direction: Sideways
Risks favor: Cautiously Floating
Current Price of FNMA 6.0% Bond: $99.84, +6bp
The ADP Employment Report came in showing private sector job growth of only 38,000 jobs during August, the smallest monthly total in four years. After factoring in government Job growth, the ADP data suggests this Friday’s official Jobs Report from the Labor Department will show Non-Farm payroll growth around 65,000 – far below the current consensus estimate of 123,000 new jobs.
Even though the ADP report has been a less than stellar indicator for the official Jobs number of late, Traders are listening to the report this morning and are pushing Bonds modestly higher.
Speaking of jobs, employment consulting firm Challenger, Gray & Christmas, announced today there was an 85% jump in corporate layoffs during August from July levels. Of no surprise to us in the mortgage business, the financial sector led the way with 35,752 layoffs from a total of 79,459. Mortgage and sub-prime lending companies took the brunt of the layoffs from the financial sector.
We will lay out our Jobs Report strategy in tomorrow's update, but we have been saying for some time we think the Jobs Report will come in lower than expectations. The recent spike in Initial Claims, the weak ADP and jump in corporate layoffs gives us more confidence that Friday's Jobs Report will indeed miss expectations.
At 2pm ET, the Federal Reserve’s “Beige Book” summarizing the current state of the economy will be released. This could be a potential market mover as Traders will sift through the document looking for any hints or clues from the Fed as to their next move.
Mortgage Bonds continue to trade sideways with a pending breakout on its way. If you take a peek at yesterday's update and chart you can see how the prices are being squeezed between a Falling Resistance Line and Rising Support Line. With prices now trading exactly between resistance at the 200-day Moving Average and support at the 100-day MA, we are going to cautiously float for today and devise our strategy heading into the Jobs Report tomorrow.