Marc's Mortgage Matter's

An elderly lady was having her 100th birthday party when the emcee stood to speak. He said he had been at the local Hallmark store and looked for the most special birthday card available to celebrate this momentous occasion. As he looked up and down the columns of shelves he noticed the birthday cards for age 70, age 80, and then 90 and then...He finally found what he was looking for. He proceeded to give the elderly grandma two cards for age 50 each!

Numbers can play tricks. Just ask Goldman Sachs.

The SEC claims that Goldman Sachs had marketed a packages of mortgages put together by a hedge fund that would profit if the mortgages fell in value. The mortgages did indeed fall in value with the bulk defaulting, and the SEC claims that Goldman neglected to fully disclose the role of the hedge fund in putting together the package of mortgages. So on last Friday, for example, in spite of companies like Bank of America (and today Citi) having great earnings, financial stocks, and the stock market in general, fell, and rates dropped due to the flight to quality. Goldman Sachs misstated and omitted key facts about a financial product tied to subprime mortgages as the U.S. housing market was starting to falter, per the SEC. Was it one of the last deals done by a struggling industry? Let's hope so.

The issue is Goldman's lack of disclosure, and once again where the rating agencies were in all of this. Analysts during the dot-com bubble recommended stocks of banking clients they actually believed were highly overvalued, and the same thing happened. Financial companies should not be allowed to mislead investors or take on leverage that can jeopardize everyone else. From 2004 through 2007 Goldman Sachs created 23 financial transactions called "Abacus", with critics saying that the bank used the deals to off-load the risk of mostly subprime home loans and commercial mortgages to investors. There were $7.8 billion of Abacus notes but the risk passed to investors was multiples higher since the Abacus transactions were synthetic collateralized debt obligations and credit- default swaps. These swaps are used to transfer the risk of losses on debt, and securitization, used to slice the risk in a pool of assets into various new securities, and Goldman's deals were filled with default swaps that offered payouts to Goldman Sachs if certain mortgage bonds didn't pay as promised, in return for regular premiums from the bank.

The Wall Street Journal reported that federal authorities are picking up the pace in a criminal investigation of Countrywide Financial Corp. and its role in the meltdown in 2007 and 2008 of the U.S. housing and finance industries. The paper didn't offer details on what charges could emerge, but said a grand jury began hearing testimony about Countrywide last year. No criminal charges have been filed against corporate leaders in the larger federal probe.

As a reminder, the first time homebuyer credit of $8,000 and existing homebuyer's credit of $6,500 are nearing the mandatory program expiration date: the homebuyer must enter into a binding contract to purchase a home no later than April 30 and they must close the loan no later than June 30. Many investors, such as US Bank, are letting correspondents and brokers know that they are not going to guarantee closing any loan prior to June 30. Period. So borrowers are better off being informed of the deadlines.


Everyone has an opinion about home sales. But most agree that new home sales are at record lows and will be slow to recover until inventory of existing homes and the foreclosure overhang are worked off in many locations around the US. Some indicators for existing home sales, however, including pending home sales and purchase applications, are showing small signs of a pickup, at least on a regional basis. The ending of the Fed's MBS purchase program did not lead to a skyrocketing of mortgage rates, and it does appear that economic conditions are improving. The MBAA's economist believes that the recession ended in June 2009. Heck, nobody told me!

Fridays home sales however actually showed very strong #'s for March so perhaps we are moving along.

Times are tough in the mortgage business, and the last time I saw a $100 bill was a few years back. The U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System and the United States Secret Service unveiled the new design for the $100 note which will be issued on February 10, 2011. The old bills, like the ones my neighbor's 3rd cousin from his stepfathers side keeps in his shoeboxes in his closet, are still fine. The new bills will have a "3-D Security Ribbon" and the "Bell in the Inkwell". ("The blue 3-D Security Ribbon on the front of the new $100 note contains images of bells and 100s that move and change from one to the other as you tilt the note. The Bell in the Inkwell on the front of the note is another new security feature. The bell changes color from copper to green when the note is tilted, an effect that makes it seem to appear and disappear within the copper inkwell.")

Compared to this past week, a slew of new data comes this week. Aside from wondering about the tax credit, there is a Federal Reserve Open Market Committee meeting on Wednesday to occupy the market's attention. We will see other measures of consumer moods, a couple of looks at manufacturing health, the quarterly Employment Cost Index and the first look at economic growth in the first quarter of 2010 (as measured by GDP). Mortgage rates don't seem to want to go anywhere too quickly at the moment, but the Fed will probably judge things to be getting better, and there will probably start to be some speculation by the markets as to when the Fed will make a policy move (we're guesstimating July at this point). All told, we think mortgage rates will firm up abit; read a drop higher in rates for mortgages.


A police officer pulls over a speeding car.
The officer says, "I clocked you at 80 miles per hour, sir."
The driver says, "Geez, officer, I had it on cruise control at 60, perhaps your radar gun needs calibrating."
Not looking up from her knitting the wife says, "Now don't be silly dear, you know that this car doesn't have cruise control."
As the officer writes out the ticket, the driver looks over at his wife and growls, "Can't you please keep your mouth shut for once?"
The wife smiles demurely and says, "You should be thankful your radar detector went off when it did."
As the officer makes out the second ticket for the illegal radar detector unit, the man glowers at his wife and says through clenched teeth,"Damn it, woman, can't you keep your mouth shut?"
The officer frowns and says, "And I notice that you're not wearing your seat belt, sir. That's an automatic $75 fine."
The driver says, "Yeah, well, you see officer, I had it on, but took it off when you pulled me over so that I could get my license out of my back pocket."
The wife says, "Now, dear, you know very well that you didn't have your seat belt on. You never wear your seat belt when you're driving."
And as the police officer is writing out the third ticket the driver turns to his wife and barks, "WHY DON'T you shut the ^&%# up??"
The officer looks over at the woman and asks, "Does your husband always talk to you this way, Ma'am?"
"Only when he's been drinking."