Marc's Mortgage Matter's

Here's a trick question, can you rearrange the seven letters in "new door" to form one word? Well, everyone can, they have the same letters: "new door" and "one word"!

Sometimes things are simpler than they seem, other times not. For example, China's consumer spending grew at an 8% rate for the last 10 years. But interestingly, consumer spending in China only accounts for 35% of its GDP compared to 70% here in the United States. China's public debt as a percent of their GDP is only 18%, in this country it is 53% - a telling statistic. The average Chinese puts aside 25% of their disposable income in savings, which as a country adds up to about $2.5 trillion a year. Many of us live beyond our means; most of them live beneath them. There are differences, however, that account for the reduced consumer spending: prices are expensive there, health care rare, unemployment benefits scant, and pensions are poorly administered. There are virtually no student loans. But overall, consumption is king here in the US whereas production is more important in China. At this point, much of the world is relying on the Chinese consumer to start spending more - but don't count on it.

How do politics work? The recently enacted federal health-care overhaul prohibits private lenders from making federal student loans after June 30. Don't ask me how a health care bill impacts student loans, but going forward the overhaul ends the current program that subsidizes banks and other financial institutions for issuing loans, instead "allowing" students to borrow directly from the federal government. Starting July 1, all new federal student loans will be delivered and collected by private companies under performance-based contracts with the Department of Education. It is no surprise that Wells Fargo, and probably others, announced that it is starting a student loan for parents or other sponsors, allowing college students access to more funds to cover educational expenses without increasing their own debt.

What Is the Case-Shiller Index? The Case-Shiller Index, which showed mixed results this morning, was developed in the 1980s by three economists: Allan Weiss, Karl Case and Robert Shiller, and distributed by Standard & Poor's. (I guess Weiss was out of the room when they were deciding on a name.) The index includes foreclosures and is actually not one index, but 23! The national home price index, which covers nine major census divisions, is calculated quarterly and published on the last Tuesday of February, May, August and November. The 10-city composite index covers Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, DC. The 20-city composite index includes all of the above cities plus Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland (Oregon), Seattle and Tampa. Twenty individual metro area indexes for each of the cities listed above. The indices, aside from the national index, are published on the last Tuesday of each month at 9AM EST. There is a two-month lag time in the data that is reported, so the report issued in May only covers home sales through March. Each index measures changes in the prices of single-family, detached residences using the repeat-sales method, which compares the arm-length sale prices of the same properties over time (so there is no new construction).

Does the name "Todd Davis" ring a bell? He is the CEO of a company called LifeLock, and he made the news a while back by broadcasting his Social Security Number in ads to show confidence that his identity couldn't be stolen. An article in the Phoenix New Times revealed that, based on police reports, Davis appeared to be the victim of identity theft at least 13 times, which was 12 more times than previously known. LifeLock's current ad slogan is "Real Protection. Real Peace of Mind." But folks apparently rose to the challenge of using his identity! The article is a little sensationalized, but the moral of the story seems to be what I tell my kids: Don't give out your social security number on the radio.

This is the best explanation of the European debt crisis that I have heard, and with English humor - the English version of Bob and Ray. So if you can spare 2-3 minutes and have sound to hear how broke countries are supposed to pay other broke countries back for loans, check out DebtHumor U.S. Treasury Secretary Timothy Geithner said that financial markets want to see euro zone countries put into action their $1 trillion standby package designed to stabilize the euro - talk is fine, but let's see some action.

According to a study released by the MBA (or the MBAA, depending on if you use "Mortgage Bankers Association of America"), multiple factors including poor data, incomplete performance metrics, and, short-term focus and unrealistic optimism among senior business managers contributed to the collapse in the US housing and mortgage markets. "As home prices increased, lenders were pressured to offer innovative products that could help borrowers afford a home. The resulting increase and expansion of risk layering and change in borrower behavior, left risk managers unable to offer reliable risk estimates." There was a decline in senior business management's loss aversion due to the lengthy period of strong home prices and low defaults, which led to relaxed underwriting and high levels of risk layering. When market conditions changed, mortgage performance models proved unstable and default rate increased. Is this late breaking news? Of course, it didn't help that investors were being pushed by the government to move down the credit curve, or that the rating agencies' models and credit ratings proved to be inaccurate.

Key findings from the study, which many involved in the business would argue are fairly obvious, include the evidence that subprime loan underwriting criteria along several risk attributes expanded between 1999 and 2006. In particular, combined LTVs increased over time as the percentage of loans with silent 2nd liens attached to the property also increased. Full doc loans declined, large lenders saw a relative lack of geographic and product diversification, etc.

Mortgage rates have recently been driven down to these new lows by a flight-to-quality buy of less-risky assets, or at least those denominated in a more durable currency. Adding to the concern about Greece's finances came a downgrade of debt offered by Spain, sending the market into yet another tailspin this week. Despite this new challenge, underlying interest rates actually moved off their recent lows during the week. Without their considerable downward pull it would seem unlikely that mortgage interest rates will continue their decline as we come off of the Memorial Day holiday.

Next week is a short week, but the first week of the month brings reports from the ISM, auto sales, and the all-important employment report. Turbulent markets seem likely to continue, but unless investors develop a sudden appetite for mortgage-related investments rates appear to have bottomed and may tick a few points higher.

During your Memorial Day holiday weekend, please take a few minutes to remember those who have lost their lives in the service and defense of the United States, as well as those who defend us today.

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I grabbed my bottle of Tide with bleach alternative, to my surprise and satisfaction, all of the stains came out!
In fact, the stains came out so well the detectives who came by yesterday told me that the DNA tests on my blouse were negative and then my attorney called and said that I was no longer considered a suspect in the disappearance of my husband.
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Well, gotta go, have to write to the Hefty bag people.