Marc's Mortgage Matter's

"President Obama has just confirmed that the DC earthquake occurred on a rare and obscure fault-line, apparently known as 'Bush's Fault.' Obama also noted that the Secret Service and Maxine Waters continue an investigation of the quake's suspicious ties to the Tea Party. A portion of the politicians told residents of Washington, D.C., 'Don't be alarmed with the earthquake - that's just the country shifting to the right.'" Fortunately it didn't raise our debt...

Fannie, Freddie, and the US Government aren't the only entities struggling with debt. The U.S. Post Office is expected to hit its $15 billion borrowing limit next month, and banks are scrambling to determine their potential lease exposure to the agency on their retail loans. Watch for post office closings, announced several weeks ago, and then end of Saturday delivery.

Everyone knows that our nation’s credit rating has been downgraded, and that we are now just barely above Slovenia. This sounds pretty grim, and even though Slovenia sounds like a funny country, you’re probably thinking of Lower Slobbovia from the L’il Abner cartoon, a parody of starving, freezing people in this “workers paradise.” Slovenia is actually a thriving nation that came about when Yugoslavia splintered apart twenty years ago.

Despite the downgrade, we’re still the world’s most powerful economy, with GDP of $48,000 per person. It’s only $7,600 in China. Even after our downgrade last week, we still have a better credit rating than China. That’s worth remembering. Also, let’s not forget that unplanned things happen that boost economies dramatically, often when you least expect it. If you go back to the late 1990’s, the internet boom came out of nowhere and huge fortunes were being made. These huge fortunes generated huge tax revenues, and there were lots of jobs created and these new jobs created new tax revenues. Then toward the end of that decade, Y2K hit, and there have been estimates that $3 trillion was spent to upgrade systems, a massive spending boost for the economy.

These two things, the internet exploding as well as Y2K, poured huge amounts into our economy, and they played a key role in our wiping out our deficit and showing three straight budgetary surpluses. We’re not going to make predictions of where all this will lead, but I think we sell ourselves short if we think this is the end of America. We’re in a real mess with our deficit spending, but we should all have confidence that we’ll get through it. After all, we’re Americans, and that’s what we do.

I don't know exactly where Bank of America falls into the numbers just mentioned, but let's hope all those poor Countrywide folks who put their 401(k) money into Countrywide stock, only to watch it almost disappear, didn't join Bank of America and start all over again. BofA shares are near another 52-week low, "fueled by investors' nervousness over the bank's balance sheet and its continued exposure to mortgage-related losses." Yesterday BAC fell 7.9%, while Chase (JPM) and Citigroup fell about 3% each. "But Bank of America, the nation's largest bank, continues to outpace its peers in its downward spiral, with shares down 49% over the past year. Compare that with JPMorgan, which is off nearly 10%, and Citi, which shed 30%, over that same time frame."

But then Thursday Warren Buffett's Berkshire Hathaway, who owns about 10% of Wells Fargo, announced that it is investing $5 billion in Bank of America. $100,000 per share for 50,000 shares...as one would expect, BofA's stock was up over 20%. Buffett stated that BofA is a "strong and well-led company." That is a big chunk of change, and already at a profit given this morning's stock move. He now owns big chunks of the two largest mortgage lenders.

Does it seem more crowded around here than ten years ago? Maybe not in Detroit, or here in Kansas, but around the world, the population is expected to hit seven billion this year according to the UN. That is more than twice the number of people that lived on the earth just 50 years ago! The population is expected to exceed nine billion by 2050 and 10 billion by 2100 (few of us will be around). For the next forty years, an estimated 2.3 billion more people will be added with 97% of the growth will be in developing regions. In Africa alone, the population is expected to grow 1.1 billion, or 49% of the global projected growth, by 2050. But in some developed countries like Japan and Germany, the growth rate is expected to stay flat or even decline. In the coming decades, these countries could face a crisis as society fails to produce enough adults to care for the elderly.

True, last weeks report on new homes sales for July was weaker than expected at a seasonally adjusted annualized rate of 298K, and yes, it was one of the ten lowest readings on record. Would you believe, though, that today's release of new home sales actually showed a y/y increase of more than 6%? As shown in the chart below, new home sales bounced 6.8% in July, marking the third lower low since the beginning of 2010.

And regarding RE/MAX's survey of 53 cities, "showing that July home sales dropped 12.7% from the previous month. RE/MAX blamed tightened lending standards, concern about the overall economy and bad appraisals that reportedly killed many transactions" I received this note: "Rob, I would like to comment that just because an appraisal does not meet the contract price it is not necessarily a bad appraisal. If more appraisers had considered the market and just not the contract amount in the past we may not have had as steep of a fall in values. A 'good' appraisal is one that accurately portrays the market value, which may not always be the contract price. 'Low appraisals led to 13% of contracts being renegotiated below the agreed upon price' is more accurate and leads to a buyer paying the market price and not an inflated price. Appraisers have a challenging job these days and too often are used as the scapegoat for the loan not closing. Thank you to Vicky Thompson at CMI Valuation Management Group.

Jonathan Miller writes from the city;

Over the past decade I’ve had to evacuate my office in Manhattan due to:

• 2001: 9/11
• 2002: A fire and building collapse across the street
• 2003: An electrical fire in our building (previous office)
• 2004: The NYC blackout – no power in the city for 24+ hours
• 2009: Smoking/oil smell in our building
• 2011: 5.8 earthquake

Plus assorted fire drills and false alarms.

Today’s 5.8 earthquake that was about 87 miles south of DC shook our office building in Manhattan.

Sometime around 1:50pm EST, I had finished my lunch and started to feel lightheaded as I was writing on my laptop. Was thinking that my orange spicy chicken takeout was disagreeing with me.

I went to stand up and was wobbling so I sat down. Seemed like a good 30 seconds where it felt like the entire building was swaying quite a bit. Felt like we were on top of blades of tall grass. I stood up again and saw others in my office get up from their desk asking, “did you feel that?” followed by “It’s an earthquake!”

We started to leave the office and heard my sister admonishing our staff to stop appraising and walk down the 16 flights of stairs to the street (hard working loyal appraisers to the end). Could feel other shocks in our decent down the stairwell.

No cell service.

We began asking if it was just our building or if the others on the sidewalk were from other buildings. They were from other buildings. Got word that this had happened all around us and felt better.

Texted my wife and parents to see if they felt it and to let them know we were fine. No tremors at our home in Connecticut, but got notes from friends in the area including Long Island and as far away as Massachusetts and Michigan who had felt the tremors.

One of our appraisers came rushing back from his inspection when he got this message from his wife who also works for us, although she didn’t send it. Hopefully that person is ok.

Waited a little longer and then went back to work. Well, actually, to write this post. Cute.

It was another unsettled week in the mortgage market, but this one was a little different than the last few. This time, investors found something completely new to be concerned about, rather than the same old crashing market story we've come to know all too well. Rumblings coming out of Washington about some form of potential refinance program for distressed borrowers set the market on a different kinds of edge. It's one thing to be afraid that the market will wipe out your investments, but quite another to worry that the government might.

Refinancing is truly a two-edged sword, beneficial to homeowners but problematic for investors. The process of trading in an old, high interest rate mortgage for a shiny new one with a lower interest rate can be a boon to the consumer but a bane of the investor, since the increase in cash flow for one means a decrease in cash flow for the other. In the present environment, many homeowners are current on their old high-rate loans but cannot refinance due to a loss of income, or equity, or a credit rating which now falls below market norms. So far, programs to address some of the borrowers -- Making Home Affordable's HARP and FHA's Short-Refi program -- have fallen woefully short of goals of helping millions of borrowers, and the administration is studying ways to get more people into the program.

That potential intervention has spooked investors in mortgages, especially those holding high-yielding older mortgage securities, which are the most likely to be refinanced. This stepping away from the market is starting to push up interest rates up little bit, or at least serving to keep them from declining further.

There is no doubt that a spate of refinancing would loose billions of new spendable dollars into the economy over time, serving to propel the economy forward without any new government spending. That does have a certain political appeal, but will of course come at the expense of investors (including folks like you) who have their money in fixed-income bond funds; new mass refinancings would lower returns for investors and pensioners alike. Many investment firms, insurance companies, state pension plans and others have interests in preserving these higher returns for the benefits of their members, and so the decision to introduce a government refinance plan does have its detractors. Also, if the government's stated goal is to get out of the mortgage business in favor of the private market, this new injection of more direct government influence into existing private markets is surely a disincentive to participate. As yet, the administration has announced no grand refinance plan but is said to be studying the issue.

Despite a rough economy and many challenges, Mr. Bernanke again expressed hope that the second half of 2011 would generate stronger economic growth than did the first half. Evidence of that has so far been mixed and inconclusive at best, with many July and August economic reports little improved from previous ones, if at all. Still, there are a few brighter spots to look to amid the gloom, and they also may have helped to firm rates a little bit this week on their own.

It does suggest that the shock of the Japan tsunami disaster and horrible spring storms here is fading, at least economically. It remains to be seen how much effect the debt limit showdown and the east coast hurricane Irene will have but it would be best to expect at least some, so the economy may have been slowed anew by these influences.

Improving job prospects would cure a number of ills, but might have the most pronounced effect on battered consumer psyches. The weekly Bloomberg Consumer Comfort Index managed a scant improvement to minus 47 during the week of August 21 but remains closer to recession lows than to recovery highs. Much the same can be said about the final August reading of Consumer Sentiment from the University of Michigan; the 55.7 mark for the month was down eight points from July, is well off the 2011 highs and in a declining pattern now for three consecutive months. Perhaps faster falling gasoline prices might lend some cheer as they arrive at stations in the next couple of weeks.

While we'll need to wait a few weeks for the next Fed meeting, we only have to wait until Tuesday for the minutes of the last one. That, plus a slew of end of the month/first of the month data is due out. With no fresh crises to run or panic from, stock markets managed to put in a solid week, the first time in August that's happened. Hurricane Irene might dampen moods as we turn into next week, depending upon how much of a catastrophe she causes, but a happier equity market may coax some investor money from safe havens, and that might just press mortgage rates up a couple of basis points or so by the time the week's out.

Here are some more "Universal Laws" to cogitate upon (part 2):
Law of the Result - When you try to prove to someone that a machine won't work, it will.
The Coffee Law - As soon as you sit down to a cup of hot coffee, your boss will ask you to do something which will last until the coffee is cold.
Murphy's Law of Lockers - If there are only two people in a locker room, they will have adjacent lockers.
Law of Physical Surfaces - The chances of an open-faced jelly sandwich landing face down on a floor are directly correlated to the newness and cost of the carpet or rug.
Law of Logical Argument - Anything is possible if you don't know what you are talking about.
Brown's Law of Physical Appearance - If the clothes fit, they're ugly.
Wilson's Law of Commercial Marketing Strategy - As soon as you find a product that you really like, they will stop making it.
Doctors' Law - If you don't feel well, make an appointment to go to the doctor, by the time you get there you'll feel better. But don't make an appointment, and you'll stay sick.