The Mortgage Man

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Archive for July, 2008

Mortgage Rates Going Up With Stocks

Yesterday’s stock recovery could prove troublesome for mortgage bonds.

Stock traders had reason to smile yesterday as the Dow Jones made a huge bounceback.  Most analysts believe that it is not a long term recovery, but rather a temporary testing of the floor.  That being said, what is good for stocks is bad for bonds, and the stock recovery had an equal and opposite effect on bonds.

This morning, mortgage bonds are down sharply as the Dow Jones continues its bullish run upwards.  Because of this, it is highly suggested that you lock any outstanding mortgage rates if you have an active loan in process.

Housing starts came in for June at over 100,000 more than expected.  This is not necessarily a long term recovery, but more likely associated with recent building code changes in New York City that created a recent building boom for multifamily dwellings.

The real news is that after tremendous pressure in the financial sector on the stock market, JP Morgan Chase (the nations 3rd largest bank) reported their earnings higher than expected, even after a more than $1 billion write down for bad debt.  This is significant when most headlines are focused on the downfall of IndyMac rather than any underlying good news for the market.

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Are We Looking At Nationwide Financial Collapse?

There are currently 90 banks listed on the FDIC problem list.

There is a lot of information being thrown at you in the media and in the blog-o-sphere about the pending doom in the financial markets and the banking sector.  I thought I would write a quick post for you to help lift the clouds of confusion.

The shut down of IndyMac Bank is a big deal because of the shear size of the company.  But, it is not a flag for the collapse of the entire banking system.  Right now there are approximately 90 banks that are listed with the FDIC as a concern for trouble.  This does not mean that they will fail, it just means that they are being watched because of their weakness for various reasons.  These banks are spread over many different states, and vary in size.  For obvious reasons, this list is a higher guarded secret, and should be.

Facts, Myths and B.S.

Fact – If you have less than $100,000 cash in your bank, you are protected by the FDIC for 100% of your deposit.  If you have more than that, might behoove you to diversify your accounts over a couple of different banks (diversification is a good idea in any market).

Myth – Monies deposited in stocks, bonds, mutual funds, insurance policies and municipal securities are insured by the FDIC as long as they are purchased through an FDIC insured bank.  This is not true!!  The insurance provided by the FDIC covers checking, savings, money market and CD accounts up to $100,000 per depositor, per financial institution.

Complete BS – If a bank fails, the FDIC can take up to 99 years to pay you the insured portion of your account balance.  This is not true.  It has been widely spread as rumor and urban myth, but it is 100% unfounded, and in 2007 it was debunked in writing by the FDIC.  In fact, federal dictates that in the event of bank failure, the FDIC is bound to repay money to the consumer “as soon as possible”.  In the past, it has happened as quickly as the next day.

Inflationary Concerns Holding Back Mortgage Bonds

We had a lot of news out today, all of which was bad.  The Retail Sales report came out today at a 0.1% rise over last month.  This is considerably lower than the projected 0.4% increase, and the lowest increase since the February Retail Sales Report.

The Producer Price Index (which measures wholesale inflation) came in at 1.8% on a seasonally adjusted basis in June.  This is not good news for inflation, and as the biggest gain since November 2007, it will continue to chip away at investor confidence in the mortgage bond sector.

FED Chairman Ben Bernanke will be delivering his semi-annual monetary outlook to the Senate Banking Committee today.  The expectations for his prepared speach are already creating concerns with investors and causing a sell off in stocks based on the assumption that continued problems with growth and unemployment will not ease in the near future.

All of this leads to a less than stellar environment in mortgage bonds.  Normally, a stock sell off is good news for the bond market and mortgage rates in general.  But with continued uncertainty about inflation, it is having little or no affect on bonds.  My suggestion would be to lock your rate at current levels to protect against future loss on any active mortgage loan you have working.

IndyMac Bank Collapses Under Its Own Weight

IndyMac Bank closes.

IndyMac Bank Collapses Under Its Own Weight

IndyMac bank has long been recognized in the mortgage industry as a pioneer in technology and its applications to wholesale mortgage businesses.  They have specialized in unique loans for Jumbo customers and outside the box underwriting with regard to income and asset verification.

I can say from my own experiences with the company on a wholesale level that the news is not a complete shock.  It is significant in that it is the second largest bank in history to close down like this.  But, their internal customer service and general underwriting skills have been nothing to write home about (again, this is based on my personal experience with Florida based wholesale operations).

I have had 2 different friends and associates that have gone to work for the company based on blue skies and empty promises, only to run back to their previous employers begging for forgiveness in less than 90 days.  Those in California who use the bank as their retail checking and savings holders have less to worry about than may be reported in the news.  Any accounts with less than $100,000 are automatically covered by insurance provided by the FDIC.  For accounts with more than that, you still may be safe, but stay tuned to the latest news to see how you will be affected by this in the long run.

While the headlines may be a little scary, it is not the time to go put all of your cash in a coffee can and bury it in the back yard.  Don’t panic, just keep yourself informed.

Monday July 14, 2008

Fannie and Freddie push the market higher?

Friday’s news about the uncertainty of the future of Fannie Mae and Freddie Mac led to a huge sell off in stock for the 2 mortgage giants.  Was it warranted, or just a fearful market overreacting?  That question will probably not be answered today.  But, the Treasury department stepping up to help out lends a little more stability to an uncertain market.

Treasury Secretary Henry Paulson and FED Chairman Ben Bernanke have given the green light to Fannie Mae and Freddie Mac to borrow money directly from the Central Bank at the federal discount rate of 2.25%.  This is significant because it has never happened in the past.  The federal funds discount window has been historically limited to banks and credit unions, but this option being made available to Fannie and Freddie is giving a little boost to the mortgage bond market and mortgage rates this morning.

It is not likely that this is a long term rebound in bond prices, but it is worth mentioning.  In addition, the Producer Price Index (PPI) and the Retail Sales Report are due out tomorrow and will dictate the direction of the market when they come out.

If you have a mortgage currently working, you might want to go ahead and lock your rate.  But, if your mortgage is a little farther out, wait and see what happens tomorrow to make a decision to lock or not.

Friday July 11, 2008

Volatility in stocks leads to a mild bond rally.

Bonds are flat at the time of this post, but they weren’t that way earlier.  We have been up and down and back to the middle today on a variety of financially related news.

Oil prices hit a new high this morning after an early spike of almost $5/barrel to push it over $147 for the first time.  This spike in oil caused a sell off in stocks, and a sell off in stocks went into the bond market creating a little upward movement this morning.

If you haven’t seen the news yet, Fannie Mae and Freddie Mac (the nations 2 largest secondary mortgage market guarantors, and holders of over 50% of the total $6 trillion in existing home mortgages) are hurting.  Secretary of Treasury Henry Paulson had some possitive things to say about them yesterday and how the government can help to fortify their position.  Then, the New York Times reported that the government is considering a contingency plan to take over Fannie Mae and Freddie Mac.  This, of course, is not good news for anybody, and traders were lining up to sell stock in both companies today leading to a 40% decline in value.

Now, the bond market feeds on bad news, so there was a rally based on all of the above mentioned negativity.  Then, the report about US exports came out with a lower than expected trade deficit, and much better than expected foreign consumption of US goods.  Apparently, the weak dollar makes exports to foreign countries more palatable, and our friends across the pond are buying more of our goods as a result.

All in all, I will stick with my recommendation from yesterday to lock your mortgage rate if you have a short term mortgage in processing.  We are still facing a significant upside resistance level at the 200 day moving average, and it is not likely that any gains that may be obtained would be worth sitting with baited breathe and calling your mortgage banker 4 times a day.  Go ahead and lock, then enjoy your weekend.

Thursday July 10, 2008

Weekly jobless claims fall, market reacts.

The Weekly Initial Jobless Claims report came out today much better than forecast.  With 58,000 fewer claims, the report sank to 346,000, the lowest level since April.  This news, which is good for the economy, would normally be seen as bad news for mortgage bonds.  But, mortgage bonds appear to be remaining relatively flat on the news.

Treasury Secretary Henry Paulson and FED chairman Ben Bernanke testified before the House Financial Services Committee today to suggest ways that Congress could “fix” the financial regulatory system to prevent future crises.  I managed to make it through about 30 minutes of the meeting before the barage of stupid questions followed by equally predictable answers gave me a head ache.  At least they do agree on one thing…we need more government intervention.  AWESOME!!  Nothing says efficiency and dependability like putting it in the hands of the government.

Back to the matter at hand; if you are currently working on a mortgage loan, I would suggest locking your rate now.  Bond prices are currently testing the topside support level of the 200 day moving average.  Given the difficulty of crossing that major threashold, combined with the fact that no other significant economic data is due out this week, mortgage bonds are probably about as good as they are going to get in the near term.