Marc's Mortgage Matter's

As a way to conserve fresh drinking water, a number of conservation groups are now calling for an end to toilets that flush. To which gas station owners say, "We are so ahead of you. We've been doing that for years."

Last Friday, while the heart rate of every small banker ratcheted higher, the FDIC regulators were busy as they shuttered six more banks. Georgia, Florida, Minnesota, California, and Washington all have fewer banks, but the FDIC was able to find buyers for them. (Remember in the old days, buyers would often have names like Chase, Bank of America, and Wells Fargo? No more...) First Regional Bank of Los Angeles, CA, Community Bank and Trust & First National Bank both of GA, Florida Community Bank, Marshall Bank of MN, and American Marine Bank (WA) will set the FDIC's Deposit Insurance Fund back $1.86 billion. They went to First-Citizens Bank & Trust (NC), SCBT (SC), Community & Southern Bank (GA), Premier American Bank (FL), United Valley Bank (ND), and Columbia State Bank (WA), respectively.

Deutsche Bank (Germany's biggest bank, and having a presence here in the US) posted a fourth straight quarterly profit versus a loss in 2008. The company earned $1.8 billion in the fourth quarter. Hmmm!

Behavioral economics is very interesting. Merrill Lynch just released an analysis of a credit-related study (from Equifax) discussing the contrast between auto and home loan delinquencies. Their report shows that 73% of prime borrowers have never been delinquent on their mortgage or auto loan, compared with 23% of subprime borrowers, although some types of borrowers are more likely to have been delinquent on their mortgage than on their auto loan. Many distressed borrowers who go delinquent on both types of debt do so around the same time, but the bulk of the population (almost two-to-one for prime borrowers) has gone delinquent on their mortgage before their auto loan. And the cure rate out of delinquency for auto loans tends to rise after the borrower mortgage delinquency, indicating that going delinquent on the mortgage acts as a form of relief for some borrowers, enabling them to cure on other delinquent debts. 

So why has the stock markets been down for three straight weeks? Despite some decent earnings reports, including those from large mortgage investors (i.e., banks), stocks appear to have run ahead of themselves toward the end of 2009. "Overdone on the upside." In addition, we are still seeing strength from cost cutting and not from real growth, although it seems that the public "wants" to be bullish on stocks.

How about the $1 Trillion in reserves banks are supposedly sitting on? If you ask someone off the street, "Who would YOU lend it to?" you might receive a shrug and a blank stare. Any mortgage banker might reply, "How about self employed or jumbo borrowers?" There is almost nothing available for those two - many borrowers are self-employed and need no income verified loans or the many whom need true jumbo financing.

Does volatility in bonds or stocks help or hurt the markets? Although volatility has little lasting impact on markets, in the long run volatility makes ordinary investors less inclined to trust markets. And aversion to risk makes capital more expensive, as we are seeing now, and in turn the economy can become less dynamic. On the flip side, traders love volatility, although they tend to overestimate their knowledge of finance and the accuracy of their predictions. And overconfidence can encourage excess trading, and in a down market this can lead to "chasing losses" - if you've lost some, it is tempting to make big bets in an attempt to get your money back.

New York Attorney General Andrew Cuomo, who encouraged the agencies to reach down the credit curve several years ago to help precipitate the credit crisis, charged Bank of America Corp, former Chief Executive Kenneth Lewis and former Chief Financial Officer Joe Price with fraud for allegedly misleading shareholders about the acquisition of Merrill Lynch. On the other hand, BofA just settled with the SEC by agreeing to pay a $150 million civil fine and bolster disclosure and governance practices. Cuomo is using a New York law used to combat securities fraud to accuse Bank of America, Lewis and Price of intentionally failing to disclose massive losses at Merrill prior to a December 5, 2008 shareholder vote on the merger. Wait until they start investigating their purchase of Countrywide! :/

This week, the overall average for 30-year fixed-rate mortgages tracked was unchanged from last week at 5.42%. Mortgage rates appear to be holding at what seems to be their new bottoms. Even difficult stock markets at times this week failed to produce lower rates, and with a sort of "floor" in place, there seems to be little room for improvement. That being the case, rates have more likelihood of rising slightly than falling next week.


The wife and I were sitting around the breakfast table yesterday morning.
I said to her, "If I were to die suddenly, I want you to sell all my stuff immediately."
"Now why would you want me to do something like that?" she asked.
"I figure that you would eventually remarry, and I don't want some jerk using my stuff."
She looked at me and said, "What makes you think I'd marry another jerk?"