Marc's Mortgage Matter's

"What does the mummy do when he goes to the bookstore? He gets all wrapped up in a good book!" But in three headlines from last night, a paradigm shift is evident. The cost of placing ads on Facebook is rising rapidly: the "cost per click" of an ad placed on Facebook has increased by 74% over last year. Reader's Digest Association, the 90-year-old publishing and marketing company that emerged from bankruptcy last year, is looking to sell itself for at least $1 billion (the company publishes more than 90 magazines and runs a successful direct marketing operation). And U.S. book retailer Borders is fast moving toward liquidation of the company's assets as it will begin to sell its remaining 399 stores on Friday after Borders failed to reach an agreement with a potential buyer. (Borders Group President Mike Edwards said they tried to avert liquidation, but could not prevent it because of the changes in the book industry, the rise of the electronic reader and the weak American economy.)

An IBM share, US Treasury note, Toyota Prius, Picasso etching, or Maiden Lane II RMBS bond is worth only what willing, able, informed buyers bid competitively for it, regardless if the seller is distressed or non-distressed.   If two assets are identical, they will produce the same cashflow or owner satisfaction, whether the seller is distressed or non-distressed.  

The concept of a distressed-seller discount is a contrivance for non-distressed owners to believe that their homes have not depreciated as much as those of their neighbors.  For comparison, we puzzle at how the Europeans argue that their sovereign bonds face less loss risk, if held in banking rather than trading book, because the former are less likely to be sold. 

From someone at Bank of America: “We’re taking a lot of heat because of our foreclosure issues, but what needs to be covered by the media is that a huge number of people who’ve been foreclosed on are crooks. I can’t tell you how many of them lied about their income or their employment status or about their intention to occupy the property. They’re much more at fault than the bank, and it sickens me to think how they now see themselves as victims.” Not totally off, but odd coming from BOA, buyer of Countrywide, the co-inventor of sorts and a big player in the once huge market of pilfering no doc and stated income loans. Whatever! 


Speaking of losses, in an effort to stop its red ink at the US Post Office (with letters and other forms of standard mail going extinct) it is looking to downsize its real-estate portfolio. "The agency has tapped real-estate firm CB Richard Ellis Group Inc. to advise the agency on the 300 million square feet of property that it owns or leases. 'We're looking at the whole portfolio across the country and how much we need and where,' said Tom Samra, vice president for facilities at the postal service. 'We'll be putting buildings on the market and terminating leases, where possible.' Over the next six months, Mr. Samra said, the agency and CBRE are looking to craft a plan on how to curtail the portfolio in line with the lower mail volumes seen by the agency. The postal service owns about 8,600 properties and has about 24,500 leases. Already, the agency has said it is starting to close hundreds of post offices. With the rise of email, the postal service has been taking its lumps in recent years. The Post Office reported a loss of $8.5 billion for fiscal 2010."

The weather may be scorching over a large swath of the country, but mortgage and real estate markets remain tepid, at best. The summer doldrums do seem to be upon us, lending perhaps a bit more inertia to a market which is rather in stasis at the moment.

The Spring homebuying season has come and gone; there wasn't much of one to talk about, anyway. Home prices are still likely on the decline, the foreclosure mess is showing scant signs of improvement, if any, and the mortgage market has a new master in the form of the Consumer Finance Protection Bureau, which officially got underway on Thursday, July 21, even if it doesn't yet have an official head. At the same time, the market is beginning to prepare for a reduction the size of loans that Fannie, Freddie and the FHA may purchase or back, the first of what will be many changes in the market in the months to come.

Mortgage rates remain fine, although finding folks with an interest in using these great rates for purchasing a home remains a challenge. Refinancing activity comes to a virtual standstill every time there is even a slight increase in interest rates.

As mentioned above, certain regional markets are likely to be affected by the forthcoming change to the loan limits that Fannie and Freddie are allowed to purchase. The coming reduction in the "maximum maximum" loan limit in high-cost markets of $729,750 will be reduced to $625,500 for loans delivered to the GSEs no later than September 30. Since it takes perhaps 60 days to get a purchase transaction done these days, borrowers should expect to see lenders invoking these new lower limits in the next few weeks.

The change in limits means potential borrowers with loans which would fall between the old limit and the new limit (which varies by area, depending upon home prices) will be exposed for the first time in over three years to the vagaries of the private mortgage market, where the availability and price of mortgage money can vary widely from place to place and lender to lender. While there are of course concerns about borrowers not being able to qualify and questions as to how robust the private market may be, we don't expect these borrowers to be met with a catastrophic loss of mortgage availability or sky-high interest rates. Interest rates on private-market jumbos have recently been at all-time lows, and remain near there at the moment, so the price jump from an "agency jumbo" to a private one is about 1/2 of a percentage point at the moment.

Contraction isn't a word which can be applied to initial unemployment claims. At best, layoffs have been stable at poor levels, holding above the 400,000 mark for a fifteenth consecutive week. The 418,000 new applications for benefits filed during the week ending July 16 is another in a sticky range which has been tough to break, and once which continues to suggest little improvement in the labor market. Last month, just 18,000 new people were added to payrolls and there are so far few indications that July's employment report will be substantially better. The next look at that comes August 5.

A busier calendar of economic data is due out next week. We'll get a look at the Fed's latest survey of regional economic conditions, sales of new homes, the Chicago Fed's wide-ranging indicator of activity, and our first look at second quarter 2011 Gross Domestic Product. We anticipate no real surprises that would impact mortgage rates to any great degree, and rates will drift by a few basis points, most likely upward.

All you Need to Know about Government Bureaucracy & Complexity:

Pythagorean Theorem: 24 words.
Lord's Prayer: 66 words.
Archimedes' Principle: 67 words.
10 Commandments: 179 words.
Gettysburg address: 286 words.
Declaration of Independence: 1,300 words.
US Constitution with all 27 Amendments: 7,818 words.
US Government regulations on sale of cabbage: 26,911 words.