THE BASIS POINT

Six More Bank Failures, Auto vs. Home Loan Performance, Economic Preview For Week

 

Six More Bank Failures & Other FDIC Actions
A high school fencing teacher had an affair with one of his female students. The whole situation was very sworded. I don’t know if anyone likes to think of their mortgage company engaging in sordid affairs, but I pity anyone who finds their company on this FDIC list—hopefully they are on the path toward improvement. Unfortunately I recognize many companies on the list as having decent mortgage origination arms. It would appear that many are on their way, after a “rough patch” to correcting their business practices.

While we’re talking about the FDIC, last Friday, while the heart rate of every small banker ratcheted higher, the FDIC regulators were busy as they shuttered six more banks. Georgia, Florida, Minnesota, California, and Washington all have fewer banks, but the FDIC was able to find buyers for them. (Remember in the old days, buyers would often have names like Chase, Bank of America, and Wells Fargo? No more…) First Regional Bank of Los Angeles, CA, Community Bank and Trust & First National Bank both of GA, Florida Community Bank, Marshall Bank of MN, and American Marine Bank (WA) will set the FDIC’s Deposit Insurance Fund back $1.86 billion. They went to First-Citizens Bank & Trust (NC), SCBT (SC), Community & Southern Bank (GA), Premier American Bank (FL), United Valley Bank (ND), and Columbia State Bank (WA), respectively.

And lastly, for FDIC fans, or if you want to check up on your bank, their FDIC Call Report is a good place to start.

Auto vs. Home Loan Performance
Behavioral economics is very interesting. Merrill Lynch just released an analysis of a credit-related study (from Equifax) discussing the contrast between auto and home loan delinquencies. Their report shows that 73% of prime borrowers have never been delinquent on their mortgage or auto loan, compared with 23% of subprime borrowers, although some types of borrowers are more likely to have been delinquent on their mortgage than on their auto loan. Many distressed borrowers who go delinquent on both types of debt do so around the same time, but the bulk of the population (almost two-to-one for prime borrowers) has gone delinquent on their mortgage before their auto loan. And the cure rate out of delinquency for auto loans tends to rise after the borrower mortgage delinquency, indicating that going delinquent on the mortgage acts as a form of relief for some borrowers, enabling them to cure on other delinquent debts.

Mortgage Company Growth, M&A
Well, lots of mortgage-related companies had “rebound years” last year, although some just plain ol’ grew. This list included Lenders One, a cooperative, which saw $77 billion in volume pass through its members in 2009. It reported that the volume is more than twice its total production in 2008.

North State Bank, out of North Carolina, will be acquiring Affiliated Mortgage LLC, a mortgage company also based in NC, with the new name “North State Bank Mortgage”.

Lowest Cash-Out Refi Stats In 9 Years
Yes, there are still a few cash-out refinances, but only to the tune of $11 billion of equity in the fourth quarter. This is the lowest volume in nine years, according to Freddie Mac.

Now If Only There Were Jobs
Friday the markets saw another light origination day, pretty much soaked up by the Fed. Money managers are selling the higher coupon production – perhaps taking some profits and/or transferring positions to lower coupons in case of rising rates. And we had quite a bit of news even after the GDP showed that the economy is picking up steam in the fourth quarter. We found out that labor costs last year rose 1.5 percent, the smallest annual gain since record-keeping began in 1982, and that the Chicago Purchasing Managers Index hit its highest level since November 2005. Lastly, the University of Michigan Consumer Sentiment Index rose. Although it is arguably a “jobless recovery”, does anyone doubt that the economy is recovering some of the ground we’ve lost the last few years?

Stock Market Down 3 Weeks
So why has the stock markets been down for three straight weeks? Despite some decent earnings reports, including those from large mortgage investors (i.e., banks), stocks appear to have run ahead of themselves toward the end of 2009. “Overdone on the upside.” In addition, we are still seeing strength from cost cutting and not from real growth, although it seems that the public “wants” to be bullish on stocks.

Economic Stats For The Week
The hits just keep on comin’ this week, with arguably the most important news being employment statistics on Friday. (It usually comes out on the first Friday of the month.) We already have Personal Income & Consumption: U.S. consumer spending rose slightly less than expected in December, +.2% (although November was revised higher) and Personal income increased 0.4 percent last month after increasing 0.5 percent in November. With income going up, and spending going up less, the savings rate increased. Later this morning are the ISM Manufacturing Index and Construction Spending. Pending Home Sales, a leading indicator for the housing market, will come out tomorrow, followed by ISM Services, the ADP employment report, and the details of next week’s auction on Hump Day. Thursday is the usual Jobless Claims, but also Factory Orders and Productivity. Phew! With all of that ahead of us, the 10-yr is at 3.62% and the 5-yr and mortgages are worse by around .125 in price.

Daily Humor
The wife and I were sitting around the breakfast table yesterday morning.
I said to her, “If I were to die suddenly, I want you to sell all my stuff immediately.”

“Now why would you want me to do something like that?” she asked.
“I figure that you would eventually remarry, and I don’t want some jerk using my stuff.”

She looked at me and said, “What makes you think I’d marry another jerk?”

 

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