Marc's Mortgage Matter's

Friday is the traditional start of the holiday shopping season, although it seems some stores like Costco have had a holiday motif ever since Labor Day. No economy can recover without consumers, which still make up about 70% of the U.S. economy, but we are still grappling with increasing unemployment, part time work, pay cuts, and empty commercial buildings

Do you have a 401(k) plan? It is the most popular retirement savings vehicle in the US, with about 65 million, or an estimated 40%, of private sector employees having one. It is named after the section of the IRS code, and came about in 1978 after Congress provided for taxpayers to receive a break on deferred income. In 1981 the IRS allowed employees to defer part of the pretax salary into their retirement plan. Most are offered at a lower cost than a traditional pension plan, and of course billions of dollars have moved from mattresses into the financial markets. But do they make investors smarter? Of course not – for better or worse, many companies encourage employees to use their 401(k) plans to invest in the company’s stock by offering discounts and other plans. Employees of companies like Enron, Countrywide, WorldCom, Lehman Brothers, Fannie Mae, Freddie Mac, etc. were encouraged to, in effect, double down instead of diversifying, not only relying on the company for employment but also hoping to rely on the stock during their retirement. So as we come up on the end of the year, and employees are realizing that they can put more money into their 401(k) plans, they should be careful where it goes.

But speaking of retirement plans, Many Lenders requires evidence of liquidation when a borrower’s funds to close are coming from a “401(k), IRA or other acceptable retirement account, regardless of documentation required by Total Scorecard. Loans will not be cleared-to-close until acceptable evidence of liquidation is provided. Document liquidation with the following: a copy of the distribution check and evidence of deposit to the borrower’s bank account or a copy of the retirement account showing withdrawal and evidence of deposit to the borrower’s bank account.

The bond market has low rates, the stock market has improved dramatically this month, yet the unemployment rate is hitting new highs. Many experts believe that the “odd man out here” is the stock market. The Fed and the Treasury have placed a huge bet on a recovery driven by asset prices. Stock prices have improved because corporate earnings are up due to cost cutting measures. The biggest single cost they’re cutting is their payrolls. Apparently some companies are cutting payrolls even below where they were 3-6 years ago, either outsourcing the work to other countries, contracting it out, or using automation. So obviously productivity looks great because companies are generating almost as much output with fewer workers and fewer hours. And if a large company can borrow money cheaply, it’s easy to substitute capital for labor, and to buy foreign assets with cheap American money.

Botton Line: A holiday-shortened week was nonetheless packed with economic data. While there is a nascent recovery forming, it seems likely to be a slow, grinding affair. Full recovery, one which involves wider swaths of the economy -- may not occur until next year some time. In the interim, prominent government support for the nation's housing markets does seem to be having some beneficial effects, $8,000 "first time" housing tax break, and low mortgage rates are chief among those supports. 

Low mortgage rates will be with us at least until the Fed's MBS purchasing program comes to a close in March, when they will probably firm somewhat. How much rates firm squarely depends upon the private market's appetite for these kinds of investments, which still have considerable risk attached with them. Aside from mortgage rates, low market interest rates should remain with us for a while. Mortgage rates will wander aimlessly next week and are just as likely to rise a few basis points as to fall by a like amount.

Happy Thanksgiving! Even though there are many troubles here and across the world, it's a good time to pause and give thanks. Despite trying times, we do live in a great country of generous and generally prosperous people.

If you have a job and still have equity in your home, you may be able to take advantage of some of the most attractive refinancing conditions ever. If you want to buy a home, affordability is at levels you may not have experienced in your (adult) lifetime. Consider taking advantage of these opportunities as they won't last forever.

Four Catholic men and a Catholic woman were having coffee.

The first Catholic man tells his friends, "My son is a priest. When he walks into a room, everyone calls him 'Father'."
The second Catholic man chirps, "My son is a Bishop. When he walks into a room people call him 'Your Grace'."
The third Catholic gent says, "My son is a Cardinal. When he enters a room everyone says 'Your Eminence'."
The fourth Catholic man then says, "My son is the Pope. When he walks into a room people call him 'Your Holiness'."
Since the lone Catholic woman was sipping her coffee in silence, the four men give her a subtle, "Well....?"
She proudly replies, "I have a daughter, slim, tall, 38D, 24" stomach and 34" hips. When she walks into a room, people say, ‘Oh, My God’.”