The last MI company ends insurance on non-owners, Banks awaiting injection of capital

October 14th, 2008 · No Comments


Inflation is out of control! Look at the price of the Space Food Sticks, which my Mom included in every bag lunch I ever had in school.

Ever wonder how, when you buy or sell a bond or mortgage-backed security, how the monies are cleared? Recently they have been in the news, since they have raised margins, but here is the DTC clearing house site.

Back in late September, RMIC announced that loans on investment properties would be eligible for RMIC insurance until November 1. As it turns out, RMIC was the only mortgage insurance company accepting these loans between October 13 and October 31, so RMIC is moving up the retirement of the investor loan eligibility: “Loans secured by investment properties will be ineligible for coverage effective October 15, 2008.  All mortgage insurance applications submitted on or after that date must comply with the new guideline.”

In a study released by Equifax, borrowers are more likely to choose to let their mortgages slide than credit cards or car loans. The study looked at thousands of borrowers who had taken out mortgages in 2002 and 2005 and watched them in the years since. For the most part, the borrowers had decent credit scores. Many borrowers who kept up their credit card and auto payments had loans on investment properties which they let fall behind: speculative homeowners who walked away from the mortgage after the value dropped below the mortgage. But according to a spokesperson at Equifax, even those whose only mortgage is the family home will often push the housing payment aside. “They know they have to make payments on their credit card because they need that, and they need their car to get to work.”

Turning to the economy, once again the stock market is getting all of the attention. Yesterday we had an 11% jump in S&P 500, leading to yields (e.g., rates) shooting higher this morning. The 10-yr Treasury yield is back above 4% after a decision by the government to inject $125 billion into 9 of the largest banks through a preferred equity stake. Yesterday’s stock market move was the largest one-day gain ever. This equity plan will give us taxpayers a stake in the financial markets, just like AIG, etc. There is some good news for ARM loan borrowers: the LIBOR rate is down slightly.

“Nationalizing” banks? With the equity purchases in (supposedly) Citigroup, Goldman Sachs, Wells Fargo, JPMorgan Chase, Bank of America, Merrill Lynch, Morgan Stanley, State Street , and Bank of New York Mellon, Paulson is using about 35% of the $700 billion in government support. He is certainly hoping that these companies use the money to help the credit crisis, rather than hoard it.

When asked about the stock market, one investor responded:

“This is worse than a divorce, I’ve lost half of my net worth and I still have a wife …”

Merrill Lynch has adjusted its investment portfolio: 50% cash and 50% canned goods.

How many investment bankers can you fit in the back of a pickup truck? Only 2 - you have to leave room for the lawn mowers!

Rob Chrisman

Tags: Commentary · Mortgage Market

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