THE BASIS POINT

Mortgage brokers buying banks, 19m of U.S. homes vacant, Reason for higher rates.

Drastic Home Vacancies In U.S.
The Census bureau just released its 3Q2010 home ownership survey. There are about 131m housing units in the U.S., 112m are occupied and 19m are vacant, 75m are owner occupied, and 37m are renter occupied. Census defines a housing unit as a house, apartment, group of rooms, or a single room occupied or intended for occupancy as separate living quarters.

Mortgage Brokers Buying Banks
The FDIC was busy Friday brokering deals on three failed banks. Copper Star Bank (AZ) had its deposits taken over by Stearns Bank National Association (MN). Tifton Banking Company and Darby Bank & Trust Co., both of Georgia, and the FDIC entered into a purchase and assumption agreement with Ameris Bank, Moultrie, Georgia. But hey, if you’re a decent-sized mortgage operation (with $6-10 million to invest), why not buy a bank? In the last year or two, brokers have become bankers, bankers have become larger by gobbling up branches, and others have either purchased a bank, or been acquired by a bank. Being part of a bank offers a sustainable source of funds – with the cost being about what you’re probably earning on your checking account right now. There is some minor benefit of offering some type of portfolio product, although anything differing too much from current vanilla product is often frowned upon by regulators. Any mortgage bank who wants to lend in all 50 states has a good head start – but that certainly doesn’t mean it can ignore state-specific guidelines and regulations. Cross selling is still relevant if a bank wants to service loans – it seems like not a week goes by without some piece of mail from whoever is servicing your mortgage. Historically banks have more value than mortgage banks, and it certainly helps in trying to attract new agents as the licensing requirements are different.

Reason For Higher Rates
Friday was not a good day for both the equity and the fixed-income markets. MBS prices ended the day down (worse), between .625 and .75 in price, on about $3.6 billion in sales – about twice what has been average. Interestingly, prices for existing non-agency securities did pretty well. Weak Treasury auction results and concern about demand from foreign investors weighed bond prices down. It didn’t help that some trading desks may have been thinly staffed with traders making it a four day weekend.

The Fed’s QEII pushed rates lower in the weeks leading up to the Fed meeting. But investor concerns stopped them from going any further. Investors, like everyone else, are looking at an improvement in economic data pointing toward some growth, rising inflation concerns with the “double dip” concerns long gone, and the severe criticism of QEII from inside and outside the US. But the recent sell-off, many believe, is over-done, and the market is ahead of itself. After all, isn’t unemployment supposed to stay well above 9% for all of 2011?

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