USA: Failed mortgage modification programme

Kudlow talks to Christian Weller, Center for American Progress and Dan Mitchell, Cato Institute on the topic of debt relief and mortgages in the USA, the argument for straight out write-downs on mortgages is compelling, and yet so too is the argument for allowing the market to work. Sometimes believing in the free market is seen as a ‘dirty thing’, but the side effect of trying to manage an economy from every aspect is also a bad thing (look no further than the former Eastern Bloc). Somewhere in the middle is a fair and sustainable path, but ideology bias is usually in the way before the conversation passes go, for that reason you will favour one speaker over the other quite often from the outset. However, ideology doesn’t actually get results, it is merely the platform from which a concept is launched and the better path would be to have an operational model to prove the point – although that isn’t always practical.

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Mortgage questions: broker fees

Q: I am a first time buyer and am hoping to purchase a property this year with my partner who is also a first time buyer. I was just enquiring what are your fees for your service and what does the process involve?

A: Generally we don’t charge fees. We are paid commission by the Mortgage Lender and Insurance Company you choose to proceed with. We will advise you what each Lender and Insurer has to offer and try to secure the deal that suits your needs.

When you have chosen a suitable property we will take you through the process from putting down your booking deposit through to getting the keys to your new home.

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Where are interest rates headed?

While we often see opinions about interest rates given by various commentators, I think the most telling indication is often that of the market, the point at which rates are settling at in prices is available at any time by looking at the Euribor Yield Curve, below is the chart for today.

The idea that rates will probably stay c. 1% until well into 2010 is only partially priced in, you can see the yield curve crossing the 1% mark at 6 months (which would be May 2010) – this however, is the Euribor and does have margin factored in, currently the margin over ECB is c. 25 basis points so the 1% base would cross when the graph above is at c. 1.25%. and that is the part that brings us to the latter half of 2010. The yield curve is live and dynamic so it could change at any time, either flattening or inverting. The reasoning behind where interest rates are going is a science in itself, and one that …

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Who gets the best deals on insurance? (depends who you ask!)

The Financial Regulator regularly does ‘cost surveys’ to help the Irish public determine what the best deals are on the market, it would seem that in some cases they are actually driving people directly to certain insurers because they don’t survey the whole market! Indeed, as this weeks Sunday Times article by Niall Brady shows, Brokers were able to beat the ‘best price’ quoted by the regulator in almost every example, and it wasn’t only by a few cent either! In one case it was about €500 per annum, and in many others it was €100 p.a. – now on the other hand, if a broker went and made a person pay that much more than they had to then they’d be lynched, but when the regulator does it’s just an ‘oversight’… Quis costodiet ipsos custodes? Click on the picture below if you want to see a larger more readable version of it.

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‘What If’ … Economists were a few hundred years ahead of the game?

The Trinity Science Gallery is just across the street from our offices, proximity, linked with my interest in science (confession: I dropped out of Science in NUIM many years ago before studying business – but as a kid I actually wanted to be a scientist) means that I go there a lot, and they have these great exhibitions on regularly, the latest is called ‘What If’ and it poses questions that are part morality part science, part pie in the sky, but the fundamental aim of getting you thinking is totally successful.

Which brings me to something interesting that I noticed when I was there last week, one of the exhibitions was ‘What if we tried to make a toaster from scratch‘ (video here).

The actual description of this is as follows: ‘Thwaites (man behind the project) went on a quest to build an electric toaster from scratch, …

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Retarded banking policies

Banks allowed their commercial teams to make a really big mess which the nation now has to clean up, the mess wasn’t on the residential loan book (although it may be in the future), it was primarily on the commercial/development book and those are the loans that NAMA will be taking.

So one might think… ‘at last, the bad stuff is out of the way’ and it is for the most part, at least from a ‘toxic asset’ point of view, what isn’t out of the way is the continued lack of foresight that major banks in this country seem to have.

I ask: ‘Did you know property prices have fallen significantly?’. ‘No I didn’t’ said the martian who just rode in on a moonbeam and landed in my office, but other than him, everybody knows the craic, house prices are down everywhere to varying degrees, and that means prices are lower than they used to be.

So why are some banks refusing to look at mortgages where the actual value of the property is …

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Banks are not competitive?

Roger Bootle notes that markets do quite well at the end of a recession and at the start of a recovery by drawing the benefits of the future down into the present. Roger has a lot to say on the topic of banks, in particular that of banker bonuses – he states (and we agree) that when banks become ‘too big to fail’ they essentially are oligopolies and hence they are able to pay so well. From an Irish perspective the domination of AIB and BOI put some stock in this theory.

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