Banks ricochet as Fed details planned mortgage purchases – MarketWatch

The Federal Reserve late Tuesday released details on its plan to buy mortgage-backed securities guaranteed by the federal agencies that support the secondary market for home loans. It will start buying mortgage-backed securities in late January, it said. Previously the Fed said it would buy up to $500 billion in mortgage-backed securities.

Banks ricochet as Fed details planned mortgage purchases – MarketWatch.

Okay, I don’t really get what the big deal is here.   Let me explain how I see it:

1. The Fed said, “We’re going to buy Mortgage Backed Securities.”   The market (and many writers) wrote lots and lots about it (if you want to read some of my thoughts, let me know and I’ll send you the information.
2. Now the Fed comes out with some details and essentially says, “Yes, we really are going to do what we said!”   And the market is all in a “tizzy” (that’s a technical term.)

So what’s the big deal.   They said they are going to do it, now they say, here’s how we’re going to do it.   To me, it doesn’t seem like it’s a big deal (or even close to a big deal) until we get to the Jerry MacGuire point and can say, “Show me the money!”

I’ll have more as I’ve got time, but I’m off enjoying the California weather and time with the family.   A full blogging schedule will resume next week.

Have a Happy New Year!

Tom Vanderwell

Day 5 of Vacation

I thought I’d take a few minutes away from vacation and check in with you all.   A couple of quick thoughts:

1. It’s currently about 30 degrees warmer in San Diego than it is in Grand Rapids Michigan.

2. This afternoon, driving through LA, it was 76 and sunny.

3. The family and I are having a great time and from the little reading I’ve done, it sounds like the markets haven’t totally blown up.

I’ll write more again when I have time.   Enjoy the week, enjoy the New Years holiday!

Tom

Jumbo Mortgage Shoppers Get Little Relief From Rates

The average 30-year fixed rate for (jumbo) home loans….remains almost 2 percentage points above conforming rates and the spread between them may set a record this month, according to financial data firm BanxQuote.

Banks remain reluctant to lend after recording $678 billion in mortgage-related losses and writedowns in the past year and as house prices plunge. The collapse of the private mortgage securities market means lenders find there’s little demand for jumbo loans they want to sell.

Bloomberg.com: Worldwide.

Tom here – a couple of thoughts:

1. I think it’s safe to say that this is one piece of evidence of what Hank and Ben have done right.   If they had not taken over Fannie and Freddie, the conventional market would be as dead as the jumbo market is and the housing market would be in even worse straights.

2. There is currently no secondary market for jumbo loans.   That’s why we are seeing rates that are 2% higher than they are on loans that can be sold to Fannie or Freddie or FHA.

I expect that difference to continue for quite some length of time.

Tom Vanderwell

Low Mortgage Rates, Few Qualify

Recent drops in interest rates have homeowners rushing to call local banks and mortgage lenders about refinancing. Loan applications are pouring in.

Yet, South Florida homeowners are mostly getting a big fat ”No!” from the bank when they ask to refinance. The chief reason: Falling home values mean they owe more than their homes are worth.

…

In South Florida, four in 10 homeowners who bought or refinanced over the past five years owe more on their home than it is worth, according to sales and mortgage data analyzed by Zillow.com … Many of them chose adjustable-rate loans and other expensive mortgages because that was the only way they could afford the payments.

Calculated Risk: Low Mortgage Rates, Few Qualify.

Tom here – quick thoughts…..

I think that you could change the state and repeat the story in many areas of the country.

A Quote to think about……

In light of everything that’s going on in the mortgage, financial and economic circles, I thought I’d run this quote for you to consider:

“Just a minute – just a minute. Now, hold on, Mr. Potter. You’re right when you say my father was no businessman. I know that. Why he ever started this cheap, penny-ante Building and Loan, I’ll never know. But neither you nor anyone else can say anything against his character, because his whole life was – why, in the twenty-five years since he and Uncle Billy started this thing, he never once thought of himself. Isn’t that right, Uncle Billy? He didn’t save enough money to send Harry to school, let alone me. But he did help a few people get out of your slums, Mr. Potter, and what’s wrong with that? Why – here, you’re all businessmen here. Doesn’t it make them better citizens? Doesn’t it make them better customers? You – you said – what’d you say a minute ago? They had to wait and save their money before they even ought to think of a decent home. Wait? Wait for what? Until their children grow up and leave them? Until they’re so old and broken down that they… Do you know how long it takes a working man to save five thousand dollars? Just remember this, Mr. Potter, that this rabble you’re talking about… they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath? Anyway, my father didn’t think so. People were human beings to him. But to you, a warped, frustrated old man, they’re cattle. Well, in my book he died a much richer man than you’ll ever be.”

George Bailey – from “It’s a Wonderful Life”

I’m working on some ideas that I’ll expand on after the first of the year that will help people be “richer” in the way that George was talking about.

Tom Vanderwell

Merry Christmas!

1-5About that time Caesar Augustus ordered a census to be taken throughout the Empire. This was the first census when Quirinius was governor of Syria. Everyone had to travel to his own ancestral hometown to be accounted for. So Joseph went from the Galilean town of Nazareth up to Bethlehem in Judah, David’s town, for the census. As a descendant of David, he had to go there. He went with Mary, his fiancée, who was pregnant.

6-7While they were there, the time came for her to give birth. She gave birth to a son, her firstborn. She wrapped him in a blanket and laid him in a manger, because there was no room in the hostel.

An Event for Everyone

8-12There were sheepherders camping in the neighborhood. They had set night watches over their sheep. Suddenly, God’s angel stood among them and God’s glory blazed around them. They were terrified. The angel said, “Don’t be afraid. I’m here to announce a great and joyful event that is meant for everybody, worldwide: A Savior has just been born in David’s town, a Savior who is Messiah and Master. This is what you’re to look for: a baby wrapped in a blanket and lying in a manger.”

13-14At once the angel was joined by a huge angelic choir singing God’s praises:

Glory to God in the heavenly heights,
Peace to all men and women on earth who please him.

15-18As the angel choir withdrew into heaven, the sheepherders talked it over. “Let’s get over to Bethlehem as fast as we can and see for ourselves what God has revealed to us.” They left, running, and found Mary and Joseph, and the baby lying in the manger. Seeing was believing. They told everyone they met what the angels had said about this child. All who heard the sheepherders were impressed.

19-20Mary kept all these things to herself, holding them dear, deep within herself. The sheepherders returned and let loose, glorifying and praising God for everything they had heard and seen. It turned out exactly the way they’d been told!

Luke 2:1-20 from the Message

I’m going to be out and away from my computer a LOT the next couple of weeks.   I’ll be visiting family and friends out in California.   Postings will be lighter than normal (though the news will be lighter as well).

Facebook me if you need to sooner.

Tom Vanderwell

Sudden Upsurge in Demand for Mortgages May Not Be Met With Supply

Mortgage applications are up sharply as homeowners try to take advantage of low 30 year fixed rates. But tighter lending standards means that a fair number will be disappointed.

Moreover, the surge in mortgage applications is for refinances rather than new home purchases. And while refis will indirectly help the economy by increasing consumer discretionary income, the newly low mortgage rates do not yet appear to be stabilizing the housing market.

naked capitalism: Sudden Upsurge in Demand for Mortgages May Not Be Met With Supply.

Tom here – a couple of thoughts:

1. Just to show you the scope of “things,” I’ve taken as many loan applications in the last 3 weeks as I did in 3 months earlier this year.

2. Underwriting guidelines and appraised values are continuing to be an issue.

3.  Many people who bought 2 years ago with 20% down have seen the value of their house fall and now are in PMI situations.

4. This isn’t the first time that I’ve heard stories that have implied that some mortgage companies might not have the funds available to meet all of the refi demand they have.

Stay tuned, it’s going to an interesting ride…..

Tom Vanderwell

naked capitalism: Guest Post: “If You Can’t Tell Who The Sucker Is….”

I was quite taken with this post of our occasional guest blogger Cassandra (who holds forth at Cassandra Does Tokyo). I hope you enjoy it as well.

From Cassandra:

Thumbing through the sell-side research from their multitudes of Strategists, I notice some recurring phrases, small and innocuous as they may be, that trouble me. Time and again, they repeat, in various contexts, the mantras: “when things return to normal”, “when markets return to normal”, and “when x, y or z normalizes” with “normal” implied to be that which has been common over the past decade-or-so in respect of liquidity, leverage, asset prices, equity risk premiums, speculative activity, growth.

Mulling this over, I wonder to myself: “is this not just the perfect “recency bias” example, defined by wikipedia as “a cognitive bias that results from disproportionate salience of recent stimuli or observations”?

For as I consider what precisely is meant by “normal”, it seems to me that there is a reasonable good chance insofar as this IS “The Big One” (as Bridgewater Associates precsiently termed it nearly a year ago) that all these things – debt, leverage, consumption vs. income, relative asset prices – are ALREADY returning to normal, and the strategists, demonstrating the old poker joke about “if you look around the table and you don’t know who the sucker is, its you….”, simply haven’t yet fathomed the appropriate interval frame of the normality to which things are returning towards……

naked capitalism: Guest Post: “If You Can’t Tell Who The Sucker Is….”.

Tom here – what’s the point with all of what Cassandra has to say?  I’ll say it very simply:

Normal has changed.   Normal most likely won’t be the same again.  Get used to it.   Stop looking at the last 5 to 10 years as the way things should be…..

Hmmm, food for thought, don’t you think?

Or does “It’s different this time ring a bit hollow?”

Tom Vanderwell

Redefault Rate on Mortgage Mods 55% Within Six Months

Proponents of mortgage modifications contend that the cost of even a deep principal reduction still puts the lender ahead of foreclosure, and experience in past real estate downturns would bear that contention out.

So why is this time different? Data from the Office of the Comptroller of the Currency show that 55% of mortgage mods redefault within six months. Even more discouraging, the three month re-default rate was higher for loans modified in the second quarter of 2008 than the first.

It is hard to know for certain without digging further into the data. With housing prices down nearly 30% nationwide, and foreclosure costs averaging $50,000, banks could afford significant principal reductions and still come out ahead. However, borrower advocates contend that many mods in fact reduce interest, but unless the principal is cut, the reduction in payments is insufficient to make enough difference with many borrowers. Without mining the data further, it is hard to know where the truth lies.

naked capitalism: Redefault Rate on Mortgage Mods 55% Within Six Months.

In the history of loan payments, 6 months is not very long.   However, the data does suggest that putting too much faith in loan modifications is not going to pan out unless:

1. The modifications are done on a case by case basis and truly reflect the needs of that particular case.
2. They are steep and significant enough to make a difference.

I had a potential customer contact me once who wanted me to refinance her house.   She had an “option arm” that had ballooned to an 11% rate (we were currently at 6%.   She wanted to keep her house, get a better rate and get a fixed rate.

I couldn’t do anything because she owes more than the house is worth.   However, she was going to go back to the existing bank and attempt to persuade them to do a loan modification to drop her rate, not down to current market rates, but even just down to 8%.   We figured it out and that would be more than enough for her to live comfortably and make her payments.

Why did I tell you her story?  Because if a loan modification is steep enough and custom tailored enough to the individual means, it could work.   If it’s a one size fits all, it won’t.

Tom Vanderwell

GM rescue leaves GMAC hanging – Dec. 19, 2008

GMAC faces a Friday afternoon deadline that could determine whether it will be able to qualify for bank holding status. If it doesn’t, the company has suggested GMAC could face a bankruptcy filing of its own.

Though GM no longer owns GMAC – it holds 49% of the finance company following a 2006 sale of the rest to Cerberus – a setback at GMAC would deepen the Detroit auto giant’s financial troubles.

GMAC is the biggest lender to GM’s 6,500 dealers nationwide. An analyst at Barclays Capital suggested in a report this week that GMAC’s failure could force GM to come up with $9 billion to $13 billion in additional funding to back its dealers – money GM clearly doesn’t have right now.

GM rescue leaves GMAC hanging – Dec. 19, 2008.

Tom here – do you remember how I wrote earlier this week that I was surprised that the market didn’t react more to the announced “Band Aid?”   Well, this is another sign, in my book, that the troubles in the auto industry aren’t done yet….

Stay tuned.

Tom Vanderwell

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