Marc's Mortgage Matter's

Friday I went into the men's room in an office building. There was a sign that said, "TOILET OUT OF ORDER. PLEASE USE FLOOR BELOW." Go figure...

In the current environment, the government giveth, and the government taketh away. Barney Frank once again made headlines last week with the statement that the House Financial Services Committee will recommend doing away with Fannie Mae and Freddie Mac and “rebuilding the U.S. housing-finance system from scratch”. “A whole new system of housing finance," although most analysts feel that there will be continued government involvement. Given that they set the standards for the mortgage industry, own or guarantee half of the $11 trillion in outstanding home mortgages, and attract huge amounts of capital, it is hard to imagine replacing them with several private investors whose cost of capital would be much higher. No one expects much to happen for a very long time on this issue.

"Two small banks in Florida and Missouri folded shop this past Friday night, making them the fifth and sixth banks to close in 2010." These "small banks" will cost the FDIC approximately $93 million. Gone are the four branches of Premier American Bank in Miami and the single branch of Bank of Leeton in Leeton, Mo., taken over by "Premier American Bank, National Association" and Sunflower Bank, respectively. I wonder if small banker's heart rate has been scientifically proven to go up on Friday's... Then three more were taken over in New Mexico, Oregon and Washington, bringing the total cost to $532 million. Charter Bank (NM) went to Beal Financial Corp., but will re-open today with the same name. Evergreen Bank (WA) went to Umpqua Bank, and Columbia River Bank (OR) went to Columbia State Bank. Who comes up with these cool names?

As expected, the FOMC left overnight rates unchanged on Wednsday. Some of the language contained in the release, however, caused rates to move up slightly, and the stock market to improve. "Economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. While bank lending continues to contract, financial market conditions remain supportive of economic growth." They believe that inflation is likely to be subdued for some time, and therefore expect to leave Fed Funds near 0% for "an extended period".

More importantly to mortgage folks, once analysts picked apart every word of the announcement, is that the FOMC announced that its $1.25 trillion agency mortgage-backed security purchase program will be slowing down as the end of March nears, and ending March 30th. So it is now official. Personally, I believe that the sun will come up again this morning, my car will start, and life will be close to normal. But anticipation is running high for a steepening of the yield curve as long term rates move higher and the short end remains low. In a related story on mortgage production, an annual report on the ARM market published by Freddie Mac shows adjustable-rate mortgages accounted for just 3 percent of all conventional home purchase loans in 2009. That's the smallest percentage for ARMs since at least 1982.

President Obama gave his first State of the Union address this week. One item which stood out in our mind was his promise that "This year, we'll step up refinancings so that homeowners can move into more affordable mortgages." Given that a sizable number of folks already refinanced this year into mortgage rates at near-50-year lows, and that mortgage rates are both expected and likely to rise as support programs wane and the economy strengthens, we wonder just how this is to be accomplished. Perhaps we were slightly off the mark when we suggested that the debt and loss limits removed from Fannie Mae and Freddie Mac were to promote more loan modifications. Is there some form of new GSE-led refinance program in the works? We'll have to see what develops.

Rates stayed about the same this past week overall. A pile of data out next week will reveal lending conditions, employment prospects, auto sales, productivity reports and lots more. We expect another slight increase in rates for next week, with the collective tenor of the reports a positive one.

The awesome power of a wife's love…

A very old man lay dying in his bed. In death's doorway, he suddenly smelled the aroma of his favorite chocolate chip cookie wafting up the stairs.
He gathered his remaining strength and lifted himself from the bed. Leaning against the wall, he slowly made his way out of the bedroom, and with even greater effort forced himself down the stairs, gripping the railing with both hands.
With labored breath, he leaned against the door frame, gazing into the kitchen. Were it not for death's agony, he would have thought himself already in heaven. There, spread out on newspapers on the kitchen table were literally hundreds of his favorite chocolate chip cookies.
Was this heaven, or was it one final act of heroic love from his devoted wife, seeing to it that he left this world a happy man?
Mustering one great final effort, he threw himself toward the table. The aged and withered hand, shaking, made its way to a cookie at the edge of the table, when he was suddenly smacked with a spatula by his wife.

"Stay out of those," she said. "They're for the funeral."