Marc's Mortgage Matter's

Fannie & Freddie are not the only Federal agencies/departments in the hot seat. The U.S. Postal Service posted a net loss of $3.1 billion in its third quarter, and a loss of $5.7billion in the nine month period, and warned again it would default on payments to the federal government if Congress did not step in. Total mail volume for the quarter that ended June 30 fell to 39.8 billion pieces, a 2.6 percent drop from the same period a year earlier, as consumers turn to email and pay bills online. The postal service does not receive taxpayer funds, and next month is facing a $5.5 billion mandated retiree health benefit prepayment - and with Congress in recess until September...

Here’s how much home values have declined since their peak. These are six of the hardest hit. Ugly, ugly, ugly.

-56.2% Nevada	-50.1% Florida
-51.9% Arizona	-50.1% Idaho
-50.7% Michigan	-42.3% California

How does an appraiser find comps for a 100 square foot house? Something tells me that there would be no comps: LicensePlate? Something to give the person who has everything...

When nations get too deeply into debt, what do they do, and what does the IMF make them do? They privatize state owned assets! Since we’re now one of those nations with too much debt, why can’t we do the same?

First, let’s start off by privatizing the post office. FedEx or UPS would seem like obvious buyers, and (2) then let’s privatize the TSA. Brink’s or Wackenhut are two potential buyers. (3) How many buildings does the federal government own? I read that there are 411,000 buildings owned by the federal government making up 2.8 billion square feet. Let’s sell all of them. And (4) what about the national highways and bridges? Chicago sold off the Chicago Skyway a few years back to an Australian investment fund, and it’s worked out fine. Selling off assets isn’t the only solution, and it’s probably not a huge one. But there’s no reason not to do so

I spent some time at Bank of Transylvania a few years back, and all you Vampire and Trueblood lovers know just who was born in Transylvania. Anyway, if you’re interested in what an annual report looks like for a Romanian Bank, here’s their 2010 report: http://www.bancatransilvania.ro/index/329.html And don’t worry. It’s in English. When I was there, they had brought in a Dutch banker as CEO, and I see he’s still there

Okay, so you might not like the architecture of Frank Gehry, but what about Zaha Hadid? This is a museum she designed in Glasgow, Scotland. Gehry is more whimsical, but Hadid’s designs are bolder and more jarring. (When we run out of things to write about banking, we like to throw in something about architecture.)

Where were you 42 years ago when Neil Armstrong walked on the moon (July 20, 1969)? Corky was at Lake Tahoe, Mike was seven and watched it on TV with his grandparents in West Germany, and I watched it in a pub on Earls Court Road in London. What a waste of money. Other than faux orange juice Tang, did anything seriously useful come out of sending a man to the moon? 

An email from a West Coast banking wholesale lender; "Regrettably, I wish to inform you that Direct Mortgage. Corp. has made a decision to cease doing business in the wholesale lending business channel, and will discontinue accepting new rate locks for files that are not in the pipeline...There is just too much uncertainty in the industry. After all of the changes recently made there is still so much more change to come, and so much more uncertainty!"

All the turmoil last week has come as a result of the considerable mess in European sovereign debt, with Italy and Spain said to be in crisis, and rising concerns about France emerging. The European Central Bank (ECB) has begun purchasing both Spanish and Italian bonds to help provide stabilize them and ward off additional increases in interest rates which might undermine their weak economies. At the same time, the US credit rating was taken down a notch by Standard & Poors to AA+, adding to the rattling of markets. Despite the downgrade, the US is still seen as being positioned to best manage its troubles; while the downgrade will eventually have the effect of increasing the cost of borrowing, the desire for investors to park cash in the safest place available has overwhelmed any concerns the downgrade has created.

The US stock and bond markets could not make up their minds about how they felt about all of this. Swings of 600+ down, 500+ up, 400+ down and 400+ up points in the Dow Jones Industrial Average were hard to watch, and interest rates fared little better, with wide swings each day from start to finish and sometimes eve wider ones intra-day. Oil prices have collapsed to the mid-$80/bbl range, and the backdrop of a potential new recession forming became a central idea at times during the week.

These swings persisted despite -- or perhaps because of -- the Federal Reserve. While not exactly riding to the market's rescue, they did take pains in the statement which accompanies the close of their meeting to quantify the "extended period" for exceptionally low interest rates, putting their sunset at mid-2013 while also downgrading their assessment of the state of the economy. Such an explicit statement removes some uncertainty about when the Fed might raise rates, and might serve to engender some economic activity as it is somewhat easier for businesses and consumers to plan for the cost of money in the near future.

Of course, it is important to remember that "exceptionally low levels" for the short-term interest rates the Fed controls doesn't mean that they will always be at or near zero; virtually anything south of one percent in the Fed Funds rate easily qualifies as exceptionally low relative to virtually all other times in history. Of course, low interest rates alone may not be enough, the Fed acknowledged, as they also revealed that they discussed other policy tools available to stimulate growth, and announced that they are prepared to employ them as appropriate. This could mean additional bond buying, lowering the rate they are paying on bank reserves or other method of manipulating rates or liquidity to help support growth. For the moment, we expect that they will sit and wait for a while to see if the economy will improve on its own, or if this latest crisis has created more intractable economic trouble which needs addressing.

Some powerful new stimulus may be forming, too. Oil prices last week falling to about $91/bbl has many wondering when the corresponding fall in gasoline prices would come. Prices have started to decline slightly over the last week, but oil has now slumped by an additional $5 or so per barrel, and so we might see a substantial decline in the cost of gasoline this fall, releasing billions of dollars of spendable income back into the economy and spurring growth. Here's hoping that significant declines come sooner rather than later and remain in place for a while. In additional to the direct benefits, falling fuel costs would translate into lower costs for many goods, since both input and freight costs would ease.

Last week we expected rates to largely be flat, but admittedly were blindsided by the effects of the late Friday announcement of the US credit downgrade. The Fed did act mostly as we expected, but their more downbeat assessment of the state of the economy certainly helped mortgage rates to decline. The Fed's reduced expectation for economic growth, lower inflation and a declaration of a long, long period of low short-term interest rates yet to come fostered the decline.

Will the decline continue? That's a very good question. Could the economy turn toward recession, which would lower rates? Possibly. Can inflation move from mild to outright deflation? Possibly, but the Fed is betting not, at least for the moment. There has been some "spread expansion" this week which may diminish over time, allowing rates to back down somewhat. However, now that we are past the fear of the debt ceiling debacle, and now that the actual downgrade has replaced fear of the downgrade, we again should be turning to clues about the economy and inflation to evaluate where interest rates will go. Next week brings some housing-related news (both from builders and buyers), measures of inflation, looks at the state of lending, and the forward-looking Index of Leading Economic Indicators.

To the extent that July's economic numbers are warmer than June's -- feats which are not all that difficult to accomplish -- mortgage rates will tend to respond by firming slightly. Any report that is less terrible than expected, and especially anything that quells fear or otherwise removes the immediate need for the safe-haven parking of money will serve to firm up mortgage and other interest rates. For next week, we should start the week on a lower note, but may not end there, even if we aren't likely to go very far.

BBQ RULES
We are in the midst of BBQ season. Therefore it is important to refresh your memory on the etiquette of this sublime outdoor cooking activity. When a man volunteers to do the BBQ the following chain of events are put into motion:

(1) The woman buys the food.
(2) The woman makes the salad, prepares the vegetables and makes dessert.
(3) The woman prepares the meat for cooking, places it on a tray along with the necessary cooking utensils and sauces, and takes it to the man who is lounging beside the grill - drink in hand.
(4) The woman remains outside the compulsory three meter exclusion zone where the exuberance of testosterone and other manly bonding activities can take place without the interference of the woman.
Here comes the important part: (5) THE MAN PLACES THE MEAT ON THE GRILL.
(6) The woman goes inside to organize the plates and cutlery.
(7) The woman comes out to tell the man that the meat is looking great. He thanks her and asks if she will bring another drink while he flips the meat.
Important again:
(8) THE MAN TAKES THE MEAT OFF THE GRILL AND HANDS IT TO THE WOMAN.
(9) The woman prepares the plates, salad, bread, utensils, napkins, sauce and brings them to the table.
(10) After eating, the woman clears the table and does the dishes.
And most important of all:
(11) Everyone PRAISES the MAN and THANKS HIM for his cooking efforts.
(12) The man asks the woman how she enjoyed her 'night off,' and, upon seeing her annoyed reaction, concludes that there's just no pleasing some women