Marc's Mortgage Matter's

To burn off a "mere" two beers a night, you'd need to run for two hours a week. Or, said another way, in order for your body to replace the calories lost by running two hours a week you'd need to drink two beers a night. There are different ways to look at numbers. A slow economy will keep rates low, but few borrowers may qualify given current underwriting guidelines - be careful what you wish for.

When I read about the post office's plan to raise first class postage again, it makes me realize that I learned very little about economics and budgeting in Cal's MBA program. I had always thought that if an organization is losing money, it is time to change the business model and/or hunker down. But as I understand it, the primary reason for the increase is that the United States Postal Service is expected to lose $6.5 billion this year, and another $7 billion in 2011. Yet I still receive mail 6 days a week, and pass by 3-4 post offices around town - nothing has changed. I must be missing something. Maybe the government will cover the loss with all the interest earned on the $1+ trillion of mortgages it recently bought, along with the TARP fund pay-backs. Alright, I will step down from my soap box, but right after...

Charles Schwab is suing Bank of America, Chase, and UBS over the sale of mortgage-backed securities to the company's bank, alleging the firms made false statements or omitted facts about the credit quality of loans that backed the investments.  

Oregon and several other state investment funds have signed on to a class-action lawsuit against Countrywide Financial Services, claiming the Oregon Public Employee Retirement Fund lost $29 million on Countrywide mortgage-backed securities due to CW's "making statements to investors that were materially false and misleading. Company officials allegedly misrepresented and/or failed to disclose information crucial to investors' ability to accurately assess the risks of their investments."

On this day in 1941, prior to the US's entry into World War II, Joe DiMaggio set the American League's (and professional baseball's) record for hitting in consecutive games: 56. The National League's record was set in 1897 (45) by Wee Willie Keeler. Those are big numbers - so is the $550 million that Goldman Sachs has agreed to pay in order to settle federal claims that it misled investors in a subprime mortgage product as the housing market began to collapse. A judge is expected to approve the deal, but many say it is "peanuts" compared to Goldman's $13.39 billion in profit last year. Heck, it is even less than the supposed amount Tiger Woods will pay Elin Nordegren: $750 million.

As has been mentioned for quite some time, given economic issues around the world, at this time most economists don't believe that our economy can handle higher rates until 2011. In fact, the bond market has priced in slower growth and lower inflation over the next 12-18 months, and some believe that the Fed's first overnight rate hike won't be until the 2nd half of 2011. And if you like the yield on the 10-yr near 3%, you should be in luck since smarter minds than mine think it will sit here in the autumn, and mortgage rates right along with it. But in spite of low rates, the housing market is pretty stagnant.

There is some expected, but not good, news for mortgage originators wondering why volume isn't better. (This may actually be somewhat good news for investors in existing mortgage-backed securities.) Figures provided by FICO Inc. show that as of April, 25% of consumers (about 43 million people) now have a credit score of 599 or below, marking them as poor risks for lenders. This number is up from the historical norm of 15%. At the other end, interestingly, the number of consumers who have a top score of 800 or above has increased in recent years - mostly attributed to them cutting spending and paying down debt. Consumers on the lowest end of the scale are less likely to try to borrow, i.e., buy a house or refinance.

Most economists agree that the US economy is not "going gang busters". They would like to see the housing market turn around, and the housing market may not see much growth until employment approves. And at this point, it seems most companies will not do much hiring until...the economy turns around! Retail Sales, which came out FFriday morning, was less than expected, and although the portion of retail sales that is counted in GDP represents just about 30% of total consumer spending it is still meaningful. (Other components of spending such as expenditures on services are expected to grow.)

With all of the above in mind, we have stepped fully into the Summer doldrums. While never a period of precise autopilot, activity levels slow and sizable erratic moves become less common (excepting a market completely breaking here or there). With June's economic data sporting largely soft numbers, low mortgage rates should continue to provide refinancing opportunities and vital support for housing markets. With demand soft and the factors which serve to create housing demand still absent, the market can use all the help it can get. While too soon to know, we tend to think that if home sales fail to improve by Summer's end to any real degree, we just might see another homebuyer tax credit get some play.

Over the next week or so, we'll see a slew of housing-related numbers, including Housing Starts, Building Permits, Builder Sentiment, and of course new and existing home sales. In the quiet aftermath of the spring expiry of the last homebuyer tax credit, none of these reports hold much promise.

With the May-June global panic behind us, and apparently some new (if mild) appetite for equities or other riskier investments, underlying interest rates have stopped falling or even firmed a bit, and so should mortgage rates in the week ahead.  

Recently, I was diagnosed with A.A.A.D.D.; Age Activated Attention Deficit Disorder. This is how it manifests: I decide to water my garden. As I turn on the hose in the driveway, I look over at my car and decide it needs washing.
As I start toward the garage, I notice mail on the porch table that I brought up from the mail box earlier. I decide to go through the mail before I wash the car.
I lay my car keys on the table, put the junk mail in the waste basket under the table, and notice that the basket is full. So, I decide to put the bills back on the table and take out the trash first.
But then I think, since I'm going to be near the mailbox when I take out the trash anyway, I may as well pay the bills first. I take my check book off the table, and see that there is only one check left.
My extra checks are in my desk in the study, so I go inside the house to my desk where I find the can of Coke I'd been drinking. I'm going to look for my checks, but first I need to push the Coke aside so that I don't accidentally knock it over.
The Coke is getting warm and I decide to put it in the fridge to keep it cold. As I head toward the kitchen with the Coke, a vase of flowers on the counter catches my eye--they need water.
I put the Coke on the counter and discover my reading glasses that I've been searching for all morning. I decide I better put them back on my desk, but first I'm going to water the flowers.

I set the glasses back down on the counter, fill a container with water and suddenly spot the TV remote someone left it on the kitchen table.
I realize that tonight when we go to watch TV, I'll be looking for the remote, but I won't remember that it's on the kitchen table, so I decide to put it back in the den where it belongs, but first I'll water the flowers. I pour some water in the flowers, but quite a bit of it spills on the floor.

So, I set the remote back on the table, get some towels and wipe up the spill. Then, I head down the hall trying to remember what I was planning to do.

At the end of the day: The car isn't washed. The bills aren't paid. There is a warm can of Coke sitting on the counter. The flowers don't have enough water. There is still only 1 check in my check book. I can't find the remote. I can't find my glasses. And I don't remember what I did with the car keys.

Then, when I try to figure out why nothing got done today, I'm really baffled because I know I was busy all darn day. And I'm really tired. I realize this is a serious problem, and I'll try to get some help for it, but first I'll check my e-mails....