Yesterday we had a great rally in the stock market – the DOW was up 331. How did mortgage stocks do? Countrywide ($8.72 per share) and Indymac were both down, along with others. Can’t we get a break? This morning 30-yr A-paper prices are a touch better with the 10-yr at 3.96% after we had two pieces of economic data. Weekly Jobless Claims were +32k to 352k, much more of a jump than expected, although this was partially blamed on a holiday week and the writer’s strike. Nonetheless, any increase in unemployment will result in lower consumer spending this holiday season. We also had our first look at the 3^rd quarter GDP, which came out as expected at +4.9% increase from the initial estimate of +3.9%. Later this morning we’ll see October’s New Home sales data, expected -2.6%.

How are some loan agents dealing with their borrowers and all of the bad news that is out there? One top RPM agent told me, “I'd rather deal with reality and understand what is really going on…I use it to build trust with my clients to let them know I'm on top of the situation. I tell them, ‘Here's what you'll never hear on the evening news...yes, its tough out there, but lets keep in touch to make sure we take advantage of the situation when it looks like an opportunity is presenting itself.’ Who's going to say no to that?

“Right now I'm setting up my buyers to start looking in December (due to a likely foreclosure/REO spike because of high October subprime resets and typical market seasonality). I mean, what better way to generate a reputation for being on top of things than to get a client into a great deal by taking advantage of current market conditions. I would rather have my clients talk to their friends saying, ‘Oh no, now's the time to buy, here's the deal he found for me.’ as opposed to ‘I'm waiting, my agent says things are really messed up.’ That last person will wait until he hears a newscast saying good times are back before acting - totally missing the opportunity.

“It's "our" fault if we let the news channels grab our clients ears and sets them squarely in the middle of a two-lane road like a deer fixated on approaching headlights. Funny thing about headlights on a dark road, they always illuminate an escape path, you just have to look a little to the right or left. During times like these we don't need political censorship, we need deeper knowledge, and we need strategies to take advantage of (or counteract) current market conditions.”

Many analysts are skeptical after viewing the rise in the purchase component of the MBA Mortgage Application index from last week. There are two reasons for this: remember that the index only includes retail lenders, such as NL Inc., whose share has increased as many wholesale brokers have gone out of business, and the index includes all applications, including those that are rejected.

The current mortgage environment has drawn many comparisons with the 1930’s, when the government stepped in. It is generally agreed that without those fundamental changes, the Great Depression could have been much worse than it was. In the early part of the last century, most home loans were a 5-yr ARM with a balloon payment. A brief summary: In 1932, the National Association of Real Estate Boards proposed (and Congress created) the Federal Home Loan Bank System, modeled after the Federal Reserve System. Twelve regional banks were created, and a Federal Home Loan Bank Board, like the Federal Reserve board, was set up to oversee them. The Appraisal Institute was also founded in 1932 by the appraisal industry. Bankruptcy and eviction laws were modified, and in 1933 Congress created the Home Owners Loan Corporation to help borrowers move from 5-yr balloon loans to 15-year amortizing mortgages. In 1934, Congress created the Federal Housing Administration (FHA) to insure mortgages, and the Federal Deposit Insurance Corporation (FDIC) intended to prevent runs on banks from depleting resources for home mortgages. Lastly, in 1938, Congress created the Federal National Mortgage Association (FNMA). Some argue that it is very early in this business cycle, but it is easy to see the amount of government intervention compared to today’s market, especially at the Federal level.

Speaking of balloon payments, there was a recent cartoon showing Santa and old man Scrooge. They are standing in front of Santa's house in the North Pole with snow everywhere. There is a "For Sale - Foreclosure" sign in the front yard. Scrooge turns to Santa and says, "Here's the deal Santa. With no apparent income you'll never make your balloon payment, and with global warming, you're now in a flood plain."