Tuesday, July 28, 2009

Mortgage Meltdown: More Blame Game and Depressing Politician Behavior

In case you still want to watch the debate over 'who caused this Great Recession', check this clip out. You can't stick a bullseye on Barney Frank's back, let alone get a straight (or honest) answer out of him. But can you blame the guy? He's a vote-getter first and foremost! Ok, I'm in a particularly cynical mood today, politicians depress me rather than inspire me 9 times out of 10. Now you know.

Last we heard, it was the Clinton administration pushing Fannie Mae and Freddie Mac to lower lending standards to accommodate more low-income buyers. Who even cares at this point? I wish they'd stop the finger pointing and learn how to regulate before the crisis hits, not squeeze the life out of the market with righteous after-the-fact belt-tightening that is more about showboating to their constituencies (self-service) than about creating a healthy economic environment with stable legal guidance (public service).

For some more bad light on politicians, see this story about Senators Chris Dodd and Kent Conrad and their 'sweetheart' deals from Countrywide on their own personal mortgages, via a program called "Friends of Angelo" (Mizillo). How feasible is it that the Chairman of the Senate Banking Committee (Dodd) and the Chairman of the Senate Budget Committee remain unclouded in their judgment when receiving preferential treatment from a bank? In other words, "the last two people that should have dirty loans were at the front of the line".

Well apparently they now admit that they were aware of the preferential treatment, though they denied it a year ago when the story first broke. I can't find a credible link though that supports this supposed acknowledgement.

Monday, July 13, 2009

Weekly Mortgage Rate Survey on Mortgage-x

I participate in a weekly survey on mortgage-x. For the upcoming week, I said:

Vote: (V) (V) Over the next 30 days rates will decline slightly; over the next 90 days rates will decline slightly.

"Comment by John C. Glynn: Discord among analysts - and thus volatility - continues. There's enough reason to expect rates to remain low, but the sensitivity seems to be to the upside for rates, so bad timing can potentially hurt."

Find out what others are saying by clicking here. (hint, all over the map - still - which reinforces my belief about uncertainty above...).

Monday, July 06, 2009

090706 Less Worse Syndrome and other Brain Dumps

Are we in the midst of recovery? Has the Great Recession hit bottom? The market chatter has definitely shifted. Key changes include:

  • "green shoots" instead of "next shoe to drop"
  • "inflation" instead of "deflation"
  • "recovery" instead of "bottoming"
So.....?

During the last Fed meeting, there were actually conversations that included speculation that the Fed would either raise rates, or begin looking in that direction. They said nothing of the sort. And even though the oddsmakers had the chances of rates changing at that meeting at less than 4%, there was still anticipation along these lines. Since that meeting, SF Fed President (evidently in the running to be the next Fed Chairperson) reiterated her belief that the Federal Funds rate would be at or near the current level of 0.000-0.250% into 2010 or longer. huh.

Paul McCulley
says, discussing the eventual hiking of Fed Funds rate:

"And when is all this going to happen? Last week, the markets started to romance the notion of before the end of 2009. To me, this is simply silly. In the matter of cutting off, and then kikking, the fat tail risk of deflationary Armageddon, boldness in execution is no vice, while patience in declaring victory is indeed a virtue. The Fed has been bold and is committed to patience. Bravo! And the first Fed rate hike? Call it no sooner than 2011." -6/15/09

It's going to be tough to pull out of this with rising unemployment. At 70% of GDP, Consumer Spending is a critical factor in new environment. Consider this from Bridgewater, which I recevied from John Mauldin:

"... as long as credit remains frozen, spending will require income, and income comes from jobs. And debt service payments are made out of income. Therefore, in a deleveraging environment job growth becomes an important leading, causal indicator of demand and other economic conditions."

Less Worse syndrome is dominating the markets right now. For example, in May, the total number of jobs lost came in around 345k, but since April had losses of ~509k, the markets saw this as a positive sign. Job losses are not positive. The month to month changes may indicate a change in the trend, but not just on one report. The June losses were at 465k. So that's 509, then 345, then 465. During the mnth of June, before the June data was released, the markets were optimistic based on an appearance of "less worse". They appear to be reconsidering...

...

The California new home purchase tax credit - 10,000 to anybody buying new construction residential real estate in CA has expired. The program hit it's limit at 100,000 applicants.

There is a 1 page bill in congress to put the hated HVCC (Home Valuation Code of Conduct) policy on hiatus for 18 months. If you are engaged in a financing transaction, you've either encountered this acronym, or are about to. It is causing all kinds of problems, and creating quite a stir. Should be interesting to see where this goes. I'm not too encouraged by the 1-pager, but there's been overwhelming support from the industry...

Thursday, July 02, 2009

Did She Just Say "Pundint"?

eh? I know Suze Orman is already a target for laughs, portrayed on Saturday Night Live by Kristin Wiig. So I'll try not to get petty here.

There are a few well known "pundits", or even actual financial services practicioners, who have taken opposition to some of Suze's advice. Particularly her hardcore blanketed advice to pay down all debt as a top priority. Critics say, sometimes it's just not that black and white.

In this video, Suze makes a key shift in favor of liquidity for safety purposes as a priority over eliminating credit card debt. It's interesting to note however, that this advice comes too late in the game for many to react. I think it really highlights the key issue some have with her advice - we need to be financially prepared for the unknowns in life before they hit us. It doesn't really help to start preparing for disaster after it strikes.

Her former advice to pay down credit card debt is basically a math lesson gift wrapped as financial planning advice. Too many of the variables in her equation are held constant, when true financial planning takes a subjective, individualized look at all variables in a particular scenario. Same goes for the new advice - that may be the right idea for some, but don't mistake what is going on here. Her extreme point of view, and universal conviction are what make her interesting enough to put on TV. That's not what makes individual advice pertinent or valuable.

For kicks, here's the SNL version.