The
other day we were playing Monopoly. Of course someone inevitably landed
on Park
Place, which happened to have three houses on it, and he promptly
declared
bankruptcy, but then wanted to keep playing. It reminded me that
"declaring bankruptcy" doesn't seem to have quite the finality that
it once did. This year many well-known companies have done it, but
still seem
to be around. Individuals were sent (in the US until the 1830's;
England until
1869) to debtor's prison, or at least threatened with being sent to a
damp,
dark, place with rats in it. In the United States, laws have always
favored
debtors versus creditors. But in 2005 the Bankruptcy Abuse
Prevention and
Consumer Protection Act made it harder to declare bankruptcy, and prior
to it
taking affect there was a spike in filings that hit over 2 million! In
2008
there were about 1 million filings, which mean that in the US one in
three hundred
people declared bankruptcy.
But
a bankruptcy is still, for the most part, considered a last-ditch
option for
dealing with overwhelming debt. Most of your assets go away, and your
credit
rating takes a fall (a bankruptcy for ten years, whereas a
foreclosure
remains on it for seven). Most homeowners will avoid a Chapter 7
bankruptcy
and instead file for Chapter 13 if they want to avoid a foreclosure. A
Chapter
7 filing can wipe out unsecured debts, but secured debts are tied to a
specific
asset, such as a mortgage secured by a home and which reverts to the
creditor. A
Chapter 13 bankruptcy doesn't actually wipe out the debt but can shield
debtors
from their creditors for several months during the forbearance period
until a
court-ordered repayment schedule can be worked out. During this time
most
homeowners try to work out a loan modification program.
First
there was First Magnus. After it exited the business, the
remnants
re-emerged as StoneWater Mortgage. Now StoneWater Mortgage has
sold
substantially all of their assets to Caliber Funding, with the
deal
closing on the 25th. “The purchase will include StoneWater’s
H20nline platform as well as StoneWater’s operational policies and
procedures. StoneWater’s employees will transition to Caliber.” Get
those
locks in by tomorrow!
Besides
Flagstar, it is heavily rumored that Amtrust will be
offering
Fannie’s DU Refi Plus program to 125% LTV. Stay tuned for dates,
pricing, etc.
What does the FDIC do with all those bad loans when they take over a
bank? Yesterday
they announced a deal to sell $1.3 billion of them (in this case, from
Houston’s
Franklin Bank, 30% of them are non-performing) to a joint venture
created with
Residential Credit Solutions, also based in Texas. RCS ponies up
$64
million of its own money in order to hold and manage the portfolio, and
the
FDIC (who owns 50% of the venture) provides the loans and the
financing. The
New York Times reports that “Instead of taking cash for the loans, the
F.D.I.C.
will accept a government-guaranteed note for $727.8 million with an
interest
rate of 4.25 percent. Agency officials said the deal meant that
investors
would be paying about 70 cents on the dollar for the loan portfolio,
which
is a higher price than hedge funds and other private investors have
been
willing to pay for troubled mortgages. Had the government not provided
Residential Credit with the ability to borrow most of the money it
needed at
low interest rates, agency officials said, the investors would have
probably
paid about 20 cents on the dollar less than they did.” But analysts
wonder if
it will push banks to sell nonperforming mortgages, which they’ve
hesitated to
do because of the discount to their original value and the losses
they’d have
to book.
Gee,
what more could we want from the market? Stocks are improving on signs
of
economic stabilization and growth, while interest rates are steady or
perhaps
even improving. In addition, relative to Treasury rates, mortgage rates
have
actually come down slightly, even with the nervousness out there about
the
continuation of the Fed’s mortgage purchase program. The Fed wants
a stable
housing and mortgage market, and at this time it is still a fact that
private
investors have not stepped up enough for the Fed to back away: the huge
majority of loans being funded are those either directly or indirectly
supported by the government.
Speaking
of the Fed buying mortgage securities, most of their purchases have
been in the
5-5.5% coupons, meaning that they are helping the 5.25-6.125% 30-yr
mortgage
prices. This is why the pricing which some investors are offering on
lower
rates (in the 4’s) is not quite so aggressive – or logical. At this
point, Wall
Street firms say that origination is outpacing demand for these lower
rates, in
spite of the prepayment risk on the higher coupons.
Just
when you’ve figured out all the economic releases, along comes one
you’ve never
heard of. Yesterday it was reported that the “Wells Fargo NAHB Housing
Market
Index” rose to 19 in September versus 18 in August. I didn’t even know
it
existed, but this is the highest reading for this index since March
2008.
Readings below 50 are still poor.
The
Federal Open Market Committee (FOMC) meets next week and yesterday
there was a rumor
that the Fed will soon preparing the markets for higher rates due to
the
continued signs of economic growth (or at least leveling off).
Yesterday’s
Industrial Production and Capacity Utilization numbers reinforced this,
and the
bond market saw rates slide up. This morning we have Housing Starts and
Building Permits, along with the Philly Fed survey and the usual
Jobless Claims.
Housing Starts and Building Permits rose in August to their highest
level since
November, lifted by a rebound in multifamily homes. Starts were +1.5%
with an
upward revision in July, and Permits were +2.7% (although they are -32%
from a
year ago). Multifamily Housing Starts were up over 25%. And Jobless
Claims
dropped by 12,000 to 545,000, the lowest reading since July. After the
news the
10-yr is unchanged at 3.47% and mortgage prices are also roughly
unchanged
from Wednesday afternoon.
(Reader
warning: I try to stay away from political humor, but I found this
funny enough, true or not, to post here. No complaints
please.)
A noted psychiatrist was a guest speaker at an academic function where
Nancy
Pelosi happened to appear. Ms Pelosi took the opportunity to schmooze
the good
doctor a bit and asked him a question with which he was most at ease.
"Would you mind telling me, doctor," she asked, "how you detect
a mental deficiency in somebody who appears completely normal?”
"Nothing is easier," he replied. "You ask a simple question
which anyone should answer with no trouble. If the person hesitates,
that puts
you on the track."
"What sort of question?" asked Pelosi.
"Well, you might ask, 'Captain Cook made three trips around the world
and
died during one of them. Which one?'"
Pelosi thought a moment, and then said with a nervous laugh, "You
wouldn't
happen to have another example would you? I must confess I don't know
much
about history."
Rob
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