Marc's Mortgage Matter's

If there’s one thing we hate to hear, it’s when we ask someone why their company isn’t making any money, and they tell us it’s because they just need more volume. That is pretty ridiculous. Your volume is what it is, so make money with it! If you can’t, cut expenses to the point you do make money. And aside from leakage, losses from repurchases or trying to outsmart interest rates, please don’t tell us it’s not that simple. It is precisely that simple.

If a company isn’t making money, the first question is why? If management doesn’t know the answer, they need to find out. Once they find out, they either fix the problem or they need to be replaced. If they can’t figure it out, our Profitability Reviews usually figure out the cause within the first day or so.

Any company servicing loans in Las Vegas should note that, "Banks that own vacant, dilapidated properties in Las Vegas could face fines or jail time under a city ordinance approved Wednesday. The City Council voted unanimously for an ordinance that requires banks to list empty, foreclosed properties on a registry and contains misdemeanor penalties for allowing a property to fall into disrepair:" VivaLasVegas. Is John Stumpf or Jamie Dimon going to do time in the Big House? Probably not, although there is a maximum $1,000, six months in jail penalty.

The "why do borrowers walk away from house loans and not car loans?" conversation continued into the weekend. Ray W. observed, "You can sleep in your car but you can't drive your home." Karin B. writes, "It is more expensive to rent a car than to buy one.  Then, most people tend to lease a car, and never own one.  Or a car loan is 3-5 years, often with no interest or 1% interest.  The house they are walking away from is at 6% for 30 years - it is a simple business decision to cut losses on an under-performing investment. Those that walked in 2007 and kept their credit intact, except for the mortgage, can now get back into the market and buy the same house they left for 50% less (in some markets) at 2% lower interest rate than they had. They money they did not pay on high interest mortgage was saved, and now they have nice down payment."

Joe M. writes, "If I spent $500K on a stock based on say a 10 year outlook, and in year two that stock was now worth $100K, am I expected to cry to the government and/or my neighbors to "help" me out since I can't get my original $500K back? Or, since I invested for the long term, should I wait to see if all or some of it will come back by year 10. I think what most folks forget about is that, at its core, buying a home is an investment.  Investments can go both up and down.  Not only that, but these investments were all paid for basically on "margin" with a bank's money used as the investment capital - in most cases these were 30 year loans.  Because your investment is down in year 2 or 3, you should bail without the penalty of the margin call?  Just because they got caught up with competing with their family/neighbors on buying the biggest house on the block we should not have to bail them out when it turns out that they can't afford it? They take the loss on their investment and move on: it's called renting."

Steve T. wrote, among other things, "Why would borrowers continue to make car loan payments when they know that as soon as they drive it off the lot it is worth less than the loan and not make payments on home loans? Because they are constantly barraged with useful idiots blaming 'greedy bankers' and evil mortgage brokers for making profits and 'causing the housing bubble.' They are not willing to look in the mirror and say, 'I screwed up when I signed for that pay option ARM,' or, 'maybe I should not have done that 100% Stated loan on my rental.' And regarding the comment on the predominance of short sales, I'm calling 'B.S.' here.  This line of reasoning is equivalent to a teenager saying 'everyone else is doing it.'   Just because 'everyone else' is defaulting on their obligation, does not mean we need to condone or encourage it?"

Does Newt Gingrich have it wrapped up? Four years ago Rudi Giuliani was leading the polls with Fred Thompson a close second. It ain’t over till the fat lady sings. In late 1991 Jerry Brown briefly led Bill Clinton in the polls. By the way, Brown’s campaign then focused on a flat tax and term limits for members of Congress.

Belgium just formed a government after 541 days without one. Presumably, the nation got along just fine, with the bureaucracies following existing laws and regulations. Something we mention here about once a year is our view that we have too damn many laws and regulations in our country already. Our proposal is that every time Congress wants to pass a new law, they’d have to repeal two old ones.

Split a deck of cards into two roughly equal halves. Then shuffle the cards with your thumbs off the bottom of the piles in alternating fashion, interweaving the cards. Did you know that you have to do this seven times to create total randomness? Also, the degree of randomness does not increase smoothly. The first few shuffles do little to change the original order, and even after six shuffles, there are still distinct, non-random patches. It’s only after the seventh shuffle that the order becomes totally random. In publishing circles, items like this are known as fillers.

Can't you hear the folks in Florida chanting, "We're #1, we're #1..."? Unfortunately it is in regard to the latest news about the incidence of mortgage fraud: http://www.palmbeachpost.com/money/real-estate/florida-leads-country-in-mortgage-fraud-cases-2030747.html. But wait - HousingWire reports that California is #1: "Mortgage fraud activity slowed overall in the third quarter, but California ranks first in home loan fraud, with the state seeing as much as $204.2 million in losses on deceptive mortgage activity" (according to a new report from MortgageDaily). Per that report, California was followed by New York, then by Florida, South Carolina and Minnesota in terms of fraudulent activity.

Muted economic growth with perhaps a slightly warmer feel has been evident for the past couple of months now. There appears to be just enough strength as to be able to tread water or even move forward slightly despite the current. Each month that we don't lose ground allows us to propel just a little bit father along, and we may be able to generate some momentum if the situation across the Atlantic can find some stability.

The Federal Reserve held its final Open Market Committee meeting of 2011; no policy changes were expected, and none came. The statement which accompanied the close of the affair noted that "the economy has been expanding moderately", while inflation "has moderated since earlier in the year." Noted headwinds to growth included "apparent slowing in global growth" and a housing sector which "remains depressed."

It would appear that there was a slight bit of deceleration in our forward momentum in November. Retail Sales nudged forward with a 0.2% increase for the month, about one-third of forecast levels. Excluding auto and gasoline sales, the 0.2% remained. Both were the weakest figures since June and May of this year, respectively. Over the past several months, consumers apparently did eat into their savings to some degree to support spending so perhaps this is just pause as new cash is accumulated.

At least part of the reason that interest rates have eased back as the end of the year has approached is that inflation pressures seem to be subsiding. Largely driven by commodity prices, a strong period of price gains earlier this year has begun to peter out, leveling inflation. Of course, measures of inflation only display the rate of change of prices, not the prices themselves, so earlier price increases for an item may remain even as prices overall aren't increasing.

Being able to cover those higher prices with higher wages would be useful. To start that process, one must have or obtain a job; at the very least, an existing job must be retained. More folks retained their employment during the week ending December 10 than at any other time this year, as only 366,000 new applications for unemployment assistance were filed at state offices. The further below the 400,000 level we move, the stronger the labor market becomes and the stronger the economy should become. That said, the decline may be exaggerated due to seasonal adjustment factors which play a role this time of year, but even if some of the decline is revised away it is still a signal that the job market is ever-so-slowly healing.

But will this ever improve moods among consumers? Measures of Consumer Sentiment have moved higher of late, as have Consumer Confidence but have yet to over take highs for the year, which weren't exactly lofty highs to begin with. The weekly Bloomberg Consumer Comfort Index has been virtually flat over the past four weeks, if slightly decline in a slow drip, tenth of a point loss over that period. The latest week recovered all of that, with a 0.4 point rise to minus 49.9 for the week ending December 11. There's nothing inherently wrong with a flat, stable pattern, but this one remains just a few points above recession lows and well below 2011 highs.

Next week, the holidays kick in with a vengeance, with their usual whirlwind of things to do and places to go. Just as there has been little reason for rates to move much over the past couple of weeks, there will be little reason for them to do so next week. A fairly light calendar of economic data is due, and we'll get a look at a couple of housing-related indicators, a broad national look at the present economic climate, a revision to third-quarter 2011 GDP and a couple of other items, none of which should move the market very much. Rates will again wobble, possibly downward if we don't get a "Santa Claus" rally in the equity market.

From Gary; Growing up Jewish, you tend not to have big Christmas dinners, Christmas trees and, sadly, opening gifts. The old cliché is that Jewish people go out for Chinese food on Christmas, and it’s true! Growing up, we’d often catch a matinee in downtown Berkeley, and after the movie, the only restaurants open would be in San Francisco’s Chinatown. Here’s a funny video (http://www.youtube.com/watch?v=w1uZ_W7atDE) about this phenomenon, and a hilarious sign seen in Chinatown last Christmas season.

Happy Chanukah to my Jewish brethren.