Statistics can be misleading. An acquaintance was stopped for drunk driving last week and appeared before the judge on Tuesday. The judge admonished him that 40% of all auto fatalities are related to drunk driving. My friend told the judge that that means (since 60% of auto fatalities involve sober driving) he has a better chance of getting home alive if he’s drunk!

Speaking of statistics, the FBI has reported that “mortgage fraud is up 400% over the past four years.”  Nearly 47,000 suspicious activity reports of mortgage fraud have been reported this year, which translates to roughly $813 million in losses, they say, and the top 10 states for mortgage fraud are California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Other problematic areas are Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia. The FBI has set up 34 task forces nationwide and will attempt to devise a strategy to combat the increasing reports of questionable mortgage practices.

The House has passed a mortgage tax relief bill that encourages loan modifications and extends a deduction for mortgage insurance premiums, clearing the way for the legislation to be sent to the president for his signature. The Senate passed the same bill (H.R. 3648) last week. It ensures that homeowners are not penalized, tax-wise, when a lender reduces the principal amount of their mortgage in a restructuring or foreclosure. It applies to a discharge of debt on a principal residence before Jan. 1, 2010. Meanwhile, the bill extends the deduction on MI premiums for three years. The U.S. Senate has approved S.B.1394, the Mortgage Cancellation Relief Act, which will provide a temporary, three-year change to the tax code to eliminate any taxes homeowners might face when banks renegotiate the terms of a home loan and forgive a portion of the outstanding mortgage debt. S.B.1394 also includes a provision that extends the deductibility of mortgage insurance for three more years.

Sen. Charles Schumer, D-N.Y., believes that mortgage brokers should operate under tighter regulations. In a speech about the subprime-mortgage crisis at the Brookings Institution, Schumer also said mortgage-buyers Fannie Mae and Freddie Mac should be allowed to buy more mortgages to pump liquidity into the sagging market, and that mortgage documents should have a one-page, simple disclosure document. Schumer also predicted the White House would have to announce additional steps to help hard-hit subprime borrowers.

Mortgage applications, fell 21.3% last week but were up 1.7% from the level recorded a year earlier. Refinance applications, which represented 53% of the total, were down 58% from the previous week! The U.S. economy grew at its fastest rate in four years during the third quarter, the government confirmed on Thursday, but a surge in new claims for jobless benefits showed the labor market is softening. This morning we’re seeing a further improvement in rates, with the 10-yr yield down to 4.03% and mortgages a shade better. The Commerce Department said 3^rd quarter gross domestic product, which measures total goods and services output within U.S. borders, expanded at a 4.9% annual rate, unchanged from the prior number. But this is “old news” and growth is already slowing.  Jobless Claims rose by 12,000 last week to 346,000 while the four-week moving average of claims (a more reliable barometer of labor market conditions) hit its highest level in more than two years. We still have Leading Economic Indicators and the Philadelphia Fed survey ahead of us today.

Bear Stearns Cos., the second-biggest underwriter of U.S. mortgage bonds, reported its first loss as a public company ($854 million) due to write downs for subprime-related investments and a drop in fixed-income trading revenue.  Bear Stearns, with their stock down 44% this year, said it would take a $1.9 billion write down on subprime mortgages, more than the $1.2 billion the firm forecast last month.

What is an “ABX”? The ABX tracks the value of securities backed by subprime home loans. The index was launched two years ago by a London company called Markit Group and is viewed as a proxy for the values of baskets of subprime-mortgage securities. The ABX tracks 20 subprime-mortgage-backed securities that have a total original value of roughly $28 billion, which is a very small piece of the $1 trillion subprime market. Companies involved in writing down billions of dollars of home loans look to the ABX as a guidepost in determining values for their holdings, and some portions of the ABX are down as much as 79% this year although some analysts think actual losses may not be as severe as the index implies. Because the securities themselves hardly trade, the index gets direction from instruments called credit-default swaps, which trade more actively. Swaps' values rise and fall based on investor perceptions of default risk among the underlying securities. When default risks rise, the index falls, and vice versa. The new importance of ABX's point to one of the biggest challenges of the mortgage crisis: investors, bankers, and auditors don't have many tools to take value the mortgage-debt market.

In the stock market, investors easily assess the market by looking at the performance of the Dow, the Standard & Poor's 500-stock index, or prices of individual stocks. Market prices of individual mortgage securities, however, are hard to observe, as they trade privately and infrequently. Roughly $3 billion to $4 billion of trades take place in the ABX each day. That compares with $179 billion in average daily trading volume in S&P 500 index futures and options contracts on the Chicago Mercantile Exchange.

A tough old cowboy once counseled his grandson that if he wanted to live a long life, the secret was to sprinkle a pinch of gunpowder on his oatmeal every morning.

The grandson did this religiously and lived to the age of 110. He left 4 children, 20 grand-children, 30 great-grandchildren, 10  great-great-grand-children and a fifty-foot hole where the crematorium used to be.