Yesterday, I described the ideal employee candidate as humble, honest, hungry, and smart. I represented this as a sort of formula: “H3S.” But how do you determine if someone you are interviewing has these qualities?

Photo courtesy of ©iStockphoto.com/MichaelDeLeon
I have a list of questions that I use during my first interview with a candidate. It has evolved over time, as I have gained more experience. I don’t ask every question in every interview; rather I keep it on my lap as a reference.
Humble
1. How do feel about this opportunity?
2. What work experiences have you had that prepare you to be successful in this position?
3. What do you see as your three greatest strengths?
4. What do you think is your biggest weakness?
5. How do you learn best? How would you describe your learning style?
6. You’ve obviously accomplished a great deal. To what do you attribute that success?
7. We all make mistakes. When you discover that you have made one, how do you handle it
Honest
8. Do you think that telling a “white lie” is ever justified “for the greater good”?
9. If things go wrong with a project, what obligation if any do you feel compelled to share with your boss?
10. If someone else has wronged you in some way, how do you deal with the situation?
11. Can you tell me about a recent situation where you had to share bad news with someone? How did you handle it?
12. Have you ever been in a situation where you had to make good on a commitment that you wished you hadn’t made?
Hungry
13. Are you satisfied with what you have accomplished in your life so far?
14. Where do you see yourself in three years?
15. What are your biggest personal goals? career goals?
16. Would you consider yourself a reader? What kinds of things do you like to read?
17. What was the last book you have read? What are you reading now?
18. How do you make sure that you follow-up on your assignments? Do you have a system?
19. How do you typically prepare for meetings?
Smart
20. How well did you do in school? If you had to do it over again, how would you have done it differently?
21. What do you wish they had taught you in school that they didn’t?
22. Do you consider yourself a smart person? If so, why?
23. What’s your general approach to problem-solving?
24. How would you describe your learning style?
25. What are some of your interests outside of work?
Question: What questions would you add to these list? You can leave a comment by clicking here.

My goal for the interview was two-fold. First, it is to help calibrate our own views on the outlook for the economy with an individual who is not just hyper-intelligent but who has spent a lifetime immersed in the money game at the very highest levels. Casey Research sees ongoing crisis, getting far worse before it gets better. But what about a Lord of Finance?

Secondly, I wanted to gain some insights into the rarified world inhabited by the Lords of Finance. Is their dismal reputation warranted, or are they just people whose education and professional instincts have taken them to the top of highly rewarding and highly influential careers?

Let’s find out.

DAVID: People have a lot of perceptions about the “Lords of Finance,” if you will – the big banks, the operations in New York, the political connections and so forth. As you worked in the executive suite of one of the largest and most influential of these institutions for a long time, I want to get your take on those perceptions and also see how well our views on the current economic situation sync up, or not.

LOF: This is totally anonymous, right?

DAVID: Yes, completely anonymous.

LOF: Okay, great.

DAVID: So as a background, the first question, how long have you worked in the financial industry, what did you work in, and what sort of capacities?

LOF: Right. Well, I guess it started in the mid-’60s, so I’ve been in the business now for 45 years. It is hard to believe, and the first 25 or so, really the first 30, I guess, were with a major investment bank that will go unnamed, rising to the position of chief financial officer.

Since retiring, I was involved with a firm managing billions of dollars. So, in answer to your question, most of my career has been with a big bank, but I have also run my own money management business. I am also a CPA, having started with a big CPA firm back in the early ’60s.

DAVID: Right. So 40-plus years in the business.

LOF: Correct.

DAVID: In all that time, have you ever experienced anything in the markets and the economy similar to what’s going on today?

LOF: No. In my experience, this is unique. And I remain concerned about the potential for another serious crisis. And for the first time, I’m concerned as to whether or not the American economy really has the kind of robust characteristics that we have enjoyed for most of my life and most of our careers, which is something quite new to me.

DAVID: So you aren’t buying the story that we’re out of the worst of this and that it’s happy days from here?

LOF: No, I certainly don’t buy that story.

DAVID: How would you describe the current state of the big financial houses? Does the fact that they’re still laying off thousands of people suggest these firms are hunkering down for a protracted period of slow growth?

LOF: Yes, I’m sure that’s what they’re doing. I think they’re also in an environment that is extremely uncertain, looked at from their point of view. You have a public that is still angry at them, for good reason, for their culpability in what happened in 2008 and 2009 and continues to happen.

Then you’ve got a regulatory bill, this Dodd-Frank bill, which has really yet to evolve because so many regulations have yet to be written by the various agencies. So the banks really don’t know what the landscape is going to look like going forward, and that makes it very difficult to plan, especially when it’s clear that the appetite is for more stringent regulations and not less.

Another aspect is that the environment in which they were able to make so much money by using tremendous leverage has certainly changed. It is highly questionable whether they can do that sort of business again, given that the balance sheets of these big banks are so opaque and so difficult to manage. So much so that I question whether any outside regulator can decipher and understand the risks that these banks have been taking. Actually, I question whether the banks themselves understand the risks that they’re taking. I think there are so many interactions that I have to wonder whether anybody really understands the kinds of risks that are out there. All of which adds up to a very challenging environment for these banks to operate in.

DAVID: Speaking of uncertainty, Dodd-Frank contains something like 400 new rules the banks are going to have to comply with, most of which have yet to be implemented. That would support your contention that it’s going to be very hard to plan in that kind of environment. Especially because some of the new legislation strikes right at the heart of key lines of their businesses – lines that have gone away and are unlikely to return anytime soon. So that’s got to really add some pressure.

But actions speak louder than words. Knowing everything you know about the big financial houses, would you invest in one today?

LOF: I would not. The way I look at the world as an investor today is very different than the way I looked at it in 2007. With hindsight, I now know that I was taking much too much risk in 2007, and part of that risk was in financial companies. I have significantly reduced that risk to a very, very small fraction of my own investment portfolio.

I think that it’s a fool’s game to invest in those banks, because there is so much uncertainty out there, in terms of the new rules and regulations, and also there is far too much risk embedded in these companies.

DAVID: Are you referring to derivatives?

LOF: Derivatives are certainly part of it, but it comes down to the exposure these companies have to other financial institutions. The interrelationships are immense, and the credit of each of these institutions is uncertain and hard to evaluate.

Let’s put it this way, they’re not doing business with the Procter & Gambles of the world, businesses you can do a fairly straightforward evaluation on. I no longer understand the complex interrelationships of the institutions. If I ever did, I no longer do. And I don’t like to invest in things I don’t understand, certainly not in size, so I’m uncomfortable with these institutions as an investor. For that matter, I would be uncomfortable as a regulator, and I would be uncomfortable as a customer.

DAVID: To many people, the “fat cat” bankers on Wall Street are viewed as the very epitome of unchecked greed, avarice, even evil. As you were part of that world for a long time, how would you respond – is the poor image warranted? Do you think the culture in the big institutions has changed over the years since you retired?

LOF: Most of the people I worked with on Wall Street were good people – well meaning, ambitious, but with a very strong moral compass. I suspect that is still true today.

I do think that the culture has changed… in one important respect. For many, many years – including when I worked there – Wall Street was dominated by large partnerships. The partners had every nickel they had – both in the firm and outside the firm – at risk, even their homes and cars. I was stopped frequently by partners who worried incessantly about too much risk threatening their financial well-being.

We weren’t permitted to take much of our capital out of the firm, and withdrawals were tightly monitored. Why? To reinforce the feeling that all we had was at stake and to encourage modest risk taking as opposed to “betting the ranch.”

That all changed once firms went public and partners were able to have large stakes outside the firm and achieve “limited liability.” It became “other people’s money.” A huge difference, I think, and one that contributed to a much greater willingness to do things that wouldn’t have been done in an earlier era.

A second factor was the elimination of Glass-Steagall, which had previously kept activities within bounds. Once that was eliminated, banks and brokerages were able to greatly expand their risk taking –without the capital necessary for such risk taking. And, in many cases, beyond the managerial expertise of any firm as well as the expertise of the regulators, because their activities became too complicated for mere mortals to understand.

DAVID: The news broke recently that the government is preparing to launch a new wave of lawsuits against the big banks over their mortgage lending practices. Do you get a sense that the honeymoon is over between the government and the big banks?

The average guy on the street looks at the big banks and the rotating door between the banks and government and thinks, “Well, these guys are all in the same bed.” Is that an accurate assessment of the way things have been, and if so, do you think that cozy relationship is now changing?

LOF: Well, it’s been pretty stunning how, on a number of fronts, the banks have gotten away with as much as they’ve gotten away with. That does suggest that there is this unholy alliance between the people that write the rules and the people that benefit or suffer from those rules, aside from the average person on the street, that is.

You’re right, that’s the perception, and I think it’s accurate given that nobody has gone to jail. Considering what’s happened, it’s amazing that that’s the case and suggests that corruption in the political process played a role in what happened. But that may be changing.

The elections of 2010 and perhaps the election of 2012 are putting a lot of people in office that are not beholden to the big financial institutions in the same way as was the case in 2008. That said, that’s not necessarily good. I mean it’s good in a sense, but at the same time, when you have the attitude out there that it’s the government against the banks, that’s not healthy for the economy either. It’s too early to say how all that will play out, you know, on a bottom-line basis.

DAVID: Based on your observations, do you think the banks were deceitful in how they marketed overrated mortgage-backed securities, or were they just blindly opportunistic in going along with the flow?

LOF: Have they been deceitful? I don’t really have an opinion on that, but I will say that the big problem in 2008 and 2009 was in the excessive overleveraging of these institutions and the amount of risk that they took on. The fact that they weren’t as candid as you would like them to be in terms of what they said about what they created and what they sold – I think that’s pretty much always been out there, but most of the people on the other side of these trades were pretty sophisticated people.

So I guess you can say that it was a caveat emptor kind of situation. In my view, it was the scale of what they were doing, the immense leverage that was embedded in the system, that was more of a problem than whether they were deceitful or not.

DAVID: Has the leverage been markedly reduced at this point?

LOF: You know, I haven’t studied it, so I can’t tell you that I know. I believe it has been reduced, but by how much, I really couldn’t say. Whether it’s been reduced enough and whether there’s enough capital in the system to cover the risk, who can say?

One of the things that’s sort of interesting to me is that Warren Buffett invested five billion dollars in Goldman Sachs back in 2008, and that gave a lot of confidence to others that somebody like Buffett would put five billion dollars in even though the capital was pretty expensive. And then, within a couple of years, they pay it back, which makes me question why they would have taken Buffett’s money in the first place.

I mean, it’s nice capital, and yes, it costs a little bit more, and maybe the reputational aspect of having Buffett as one of your investors was important at the time, and so you take the capital and then pay it back, but that doesn’t make a lot of sense to me. Then, recently, Buffett goes to Bank of America and offers them five billion dollars and they take it, but at the same time they’re saying they don’t need the capital, so it’s confusing.

Do they or don’t they need the capital? I’m not sure they know. I’m not sure anybody knows what kind of capital needs they have. Again, it gets back to my point as to how much they really understand their own businesses anymore, and the risks that are there and the amount of capital that they need.

If the companies themselves don’t understand it, how do you expect those people that are overseeing them to understand it? Bottom line, I question whether there’s enough capital in the system for the risk that is being taken, even today.

DAVID: Which begs the question that if another big bank runs into serious trouble, and Bank of America seems like a good candidate, do you think there’s an appetite in Washington to arrange another bailout? Of course, the consequences of not bailing them out are pretty significant.

LOF: I don’t think there is an appetite for more bailouts. You can see that by looking at what’s happening in Europe.

The question of what to do with banks and what to do with the problems they could create for the economy if you let them go is being grappled with worldwide. I think the only hope the policy makers have is that these problems will be solved through growth, as that is the only rational solution.

Which means the real question is whether or not that growth will occur in a reasonable time period. Frankly, it is hard to see where that growth is going to come from. It is certainly hard to see that in Europe, and it is hard to see that here in the US as well.

DAVID: On the topic of growth and trying to get money in the system, you’re a financial guy, so maybe you can explain the tremendous amount of money sitting on deposit at the Fed earning almost no interest, but enough, apparently, to keep the banks from lending that money back into the economy.

Do you have any thoughts about why the Fed is paying interest rates on the deposits and why the banks are leaving that money on deposit? It’s unprecedented as far as I’m aware. Any thoughts on that?

LOF: You’re right, there is a tremendous amount of money that is not being employed in the economy, and it’s all part of the same problem. And that problem is that the banks don’t have any confidence, companies don’t have any confidence, outside investors don’t have any confidence. Everybody is frightened, and everybody is trying to protect themselves. That is not an environment that produces growth.

DAVID: So they are leaving the money on deposit at the Fed because they’re not sure about their capital needs? What if the Fed were to go back to paying them nothing on their excess reserves, or actually start charging them to keep the money parked at the Fed? Wouldn’t that help push that money back out into the economy?

LOF: All these potential decisions by the Fed have consequences that neither they nor anybody else can anticipate. What you’re suggesting might work out, but I don’t think anybody knows. I don’t pretend in any way to have opinions as to what the Fed should or should not do. It’s not something I study. It’s not something I understand, particularly.

Instead, I try to approach these sort of things as a businessman or as an investor. And as a businessman and as an investor, I look around and see a lot of uncertainty, I see real potential for crisis. And when I see that, I just want to hunker down in some way, and that attitude influences every decision I make.

As I’ve mentioned before, since 2007 I’ve changed the way I think about things. As a result, for the last four years I’ve been working to position myself and my family in a way that I believe is more sensible. Becoming far more cautious could be the right thing to do or it could be wrong, but however you look at it, when you extrapolate that shift in attitude across millions of investors and business owners and even bankers who have been acting much the same way, it is not a positive for the economy. I guess that wasn’t a specific answer to your question, but…

DAVID: No, it makes sense that this widespread reaction to uncertainty is a fundamental force in today’s economy and investment markets. Any thoughts on interest rates? It seems odd that the US government could have record levels of debt and continue to run record deficits and yet interest rates bump along at record lows. Does that make sense to you?

LOF: Actually, it has made sense to me. I have felt for some time that the people, including Bill Gross, who I think is great, who have been saying that interest rates and inflation are heading higher, although probably right in the long term, were not going to be right in the short term, and that the short term has a ways to go. Specifically, I have felt for some time that interest rates were headed lower, and I continue to believe that we could easily see 1.5% on the 10-year Treasury and somewhere in the 2s for the 30-year.

My rationale is that there are such tremendous headwinds preventing the economy from growing in any significant way, and it will probably be contracting, and those conditions are not going to produce rising interest rates. Quite the opposite. The headwinds are all the things that we’ve talked about, plus you’ve got this dramatic entitlement problem in our country and in Europe that is only going to grow more problematic.

If you go back in history and look at the ability of a democratically elected government to take things away from people who vote, the record is pretty clear. Predictably, if you’ve given people something significant, and then you try to take it away and they vote, the politicians will be voted out. So whether it’s right or it’s wrong, the populace in general will not stand for it, so therefore the politicians will avoid taking the hard measures that could actually help solve the problem.

Historically the only way to resolve the sort of problems we’re facing is through growth, and if you don’t get growth, then the policy makers will continue to debase the currency.

Ultimately that will happen, but in the period of time that I can foresee, which is the next three or four years, I don’t see much of a chance that interest rates will go up. I think there is a very, very strong downward pressure on interest rates that will continue for a while.

DAVID: Obviously, the uncertainty will keep people looking for those safe harbors, and Treasuries are still considered safe harbors. The other thing that sort of strikes me as a factor now is the dismal shape of the Eurozone. I have to imagine that there is an awful lot of money currently in the Eurozone that would like to get out of there and is starting to move out. Of course, US Treasuries are one of the few instruments that can actually handle any kind of real volume, so that will probably help keep rates down as well.

LOF: Absolutely. I think that’s absolutely true.

DAVID: You seem to be expecting short-term deflation, longer-term inflation, would that be a good way to describe it?

LOF: It’s pretty hard to create a scenario where you don’t have inflation in the long run, but what the long run is, is another question, and the long run could be quite a ways out.

Let me add that I am more positive about the future than I may otherwise sound. I think that the American economy, in particular, has resilience that is pretty impressive, and that ultimately we are going to get through this. But I think it’s going to be a very, very long period of time before that happens; it could easily be five to ten years.

When we do come through it, I think the economy will have a vibrancy that people won’t expect, but it’s going to be a while, and at that point, I think we’re going to have to deal with some serious inflationary pressures.

DAVID: Given the obligations and the entitlements and the current level of debt and no end in sight to the trillion-dollar-plus deficits, it seems to me that this is not going to end without some sort of default, either overt or covert in terms of inflation. If for no other reason than that these obligations can’t be met. Would you agree with that?

LOF: Yes, I don’t think they can be met. I think it’s impossible. I think they have to be restructured in some way. You’ve got to restructure the whole entitlement system, and politically you can’t do that right now.

I recently had a conversation with the economist at a major bank, and I asked him what he thought. I said, “What do you think the chances are of another crisis of the magnitude or greater that we had in 2008 and 2009, and if that crisis occurs, when would it occur?”

He said he thought that there was a real chance of that happening, and if it happened, it would probably happen sometime after the election in 2012 when the markets realize that even in a new administration, these problems will not be dealt with.

In his view, once the markets understood that, we are likely to see a very, very bad crisis. Then, just maybe, at that point will the political process make the necessary adjustments. But I think that even that’s questionable.

DAVID: I just finished an article for John Mauldin’s newsletter, in which I looked back at all the times the US monetary system was in danger of failing and had to be fixed.

As it’s been 40 years since the last major do-over of the monetary system – when Nixon closed the gold window – most people think of the monetary system as being fixed in stone, and the notion of it stumbling doesn’t even come up in the average conversation. But in reality, it has been restructured numerous times since the Civil War.

In our view, the current fiat system is not going to make it to the other end of this crisis intact, but will have to be remade in some way that anchors money to commodities, with gold at the core.

How do you and your friends in high finance view gold these days? Do they still view it as a barbarous relic, as they did a few years ago? Are they starting to buy it for their portfolios? Personally?

LOF: I think that more and more of what you might call respectable opinion puts gold in a different category than they would have five years ago. You hear an increasing number of serious commentators, people like Byron Wien, for example, talking about having a 5% position in gold, and you never would have heard that five years ago.

Back then, favorable opinions on gold would have been seen as far out. Today having a significant gold holding is more and more in tune with respectable opinion than it ever was. The mainstream guys are also thinking in terms of things like TIPS and in terms of holding other currencies.

In other words, they’re investing in things that they never would have thought of doing before this crisis, but gold in particular. And not so much as a commodity but as a currency. That’s been my view for some time, but now I am hearing that same view on a much broader basis.

DAVID: So I take it you have been buying gold personally?

LOF: I have.

DAVID: Starting when, more or less?

LOF: Well, I’ve had a gold position for 20 years in gold coins, and then in the last three years I’ve been adding to that through ETFs.

DAVID: What percentage of your portfolio, more or less, would you say is now in gold?

LOF: It’s probably 3% or 4%, but it probably should be higher.

DAVID: Moving along, it’s safe to assume you’re pretty well off financially. What did you think of Buffett’s call that the government should be taxing the rich more?

LOF: I have what you may find an interesting point of view on that. I do think that inequality is a bad thing, and it is something that causes political unrest. Being a dedicated Republican, as much as I dislike this administration, I would have to believe that if there were a Republican administration in place and we had this kind of an economy, you could easily see a lot more political unrest in the street than you do right now.

Now ask yourself what Buffett and people at that level of wealth are afraid of… I can tell you they are not afraid of much – if you have whatever he has, 50 billion dollars, you’re pretty well set. The real fear people like that have is social unrest, and so maybe what he’s doing is trying to appease the masses by virtue of saying he should be taxed more, even though that’s not going to make any kind of a dent in his net worth.

So it’s an appeasement thing, and I understand why he’s doing it, but I don’t think it works. I don’t think it appeases anyone, and I don’t think it does anything to redress the inequality problem that’s out there. That’s a very, very great fear that people with money have, of social unrest on the home front.

DAVID: Do you anticipate your taxes going up, a little or a lot?

LOF: I think you have to assume that over time they will go up a lot. Whether or not that happens in a short time frame or a long time frame, I think the political pressures ensure it. If 50% of the people don’t pay any taxes and they’re voters, then that has to be the direction we are heading. As much as I don’t think that will be good for the economy, and I certainly don’t think that it will be good for me, I think it’s pretty hard to resist the reality.

DAVID: Other than gold, what else are you investing in these days? Are you heavy in cash?

LOF: Yes, I’m more heavy in cash than I ever was. I still have an allocation to municipal bonds where I keep the duration relatively low. I have an allocation to common stocks of companies providing consumer staples, the Procter & Gambles and the Kimberly Clarks and the Johnson & Johnsons of the world. Companies that are in better financial shape probably than the US government and that pay dividends of 3% or so.

I have an allocation to hedge funds run by very smart people who can do things and think things out in ways that surpass my level of confidence in doing it myself.

I have an allocation to convertible bonds, convertible bonds of companies where you keep the duration short, and you believe that they’ll still have a pulse a few years down the road, so you’re going to at least get your interest on the bond if you’re wrong and if the stocks don’t perform.

As I mentioned, I’ve got an allocation in gold and in TIPS. And I also believe in having money in private equity. I do believe if you want to take risk, put some money with a manager who is putting his money to work side by side with yours, watching for opportune situations, taking advantage of the dislocations that exist, and doesn’t have a liquidity issue where investors have the ability to pull their money out whenever they get nervous. I think that is a very sound place to have an allocation to.

DAVID: To give us some sense of how concerned you are about things at this point, what percentage of your portfolio is in cash?

LOF: About 10%.

DAVID: That’s all, so you haven’t completely run to cover?

LOF: I consider my municipal portfolio, which is pretty short term and is maybe another 15% or so, and my convertible portfolio and my portfolio of consumer staples as all being things that constitute my safety net. If you add all those together, it’s probably close to 40% to 50% of my portfolio, So, yes, it’s not all cash, but it’s, you know, at least in the categories that I feel comfortable with.

DAVID: Wrapping up, looking over, let’s say, the next five years, on a scale from 1-10 with 1 being everything is going to be okay and 10 being something closer to Doug Casey’s view that “people will be grubbing for roots and berries,” where would you put yourself?

LOF: The next five years: 1 is hunky dory and 10 is Doug?

DAVID: Yes.

LOF: I guess I’d be a 6. I mean, I think that we’re not going to be fighting in the streets and having to use our gold and silver coins to eat, but I do think the economy is going to be extremely sluggish – very, very sluggish. I think we’re going to have high unemployment and there’s going to be more unrest, but I think we’ll slog through it.

DAVID: As you contemplate the future, is there anything in particular that keeps you up at night?

LOF: I don’t stay up at night and worry about the economy. I do think that for most people that have been fortunate enough to live to an older age, the biggest concern they’ll face is about their children and grandchildren. The older folks will struggle through it because when you get into your sixties and seventies, you don’t need that much, and you can adjust, and you can compensate one way or another.

But when you’re young and you’ve got a family, it’s much harder to adjust, and I think those are the people that I worry about, and that’s what I think other people are going to be worrying about, too. They’re going to have their kids moving back in with them and not having any kind of self-esteem, and they’re going to be worried about their grandchildren. That’s really where the issues are, not people losing sleep over their own ability to survive.

DAVID: A wise observation. On that note, thank you very much for agreeing to this interview.

15 yr fixed rates at 3.75% / APR of 4.02%
5/1 ARM at 3.25% / APR of 5.89%

Insurance Markets:
We continue to see substantial savings by shopping your homeowners insurance. Many borrowers escrow and have no idea what keeps driving the insurance rates up. Call or email for a Quick Quote.

Real Estate Tax Assessment:

Note: If you are in Orleans parish you probably just received your real estate tax assessment. If you DON’T agree..u need to make an appt with your assessor to challenge the assessment BEFORE Aug 15th. If you need asst with valuations…can get u a CMA to bring to the meeting.

Loan product options…expanding..but just a little.
We not have a FHA loan option for credit scores beneath 620. Devil is in details but it s a great product for1st time homebuyers. Credit scores as low as 580 qualify

Housing Market:
The number of homes listed for sale declined sharply in a number of US cities during the second quarter, offering glimmers of hope that some housing markets are starting to recover. At the end of June, nearly 2.34 million homes were listed for sale on multiple-listing services in more than 900 metro areas, the lowest level for that time of year since at least 2007, according to Realtor.com. In some cases, inventory levels are at their lowest levels since the housing downturn began five years ago.

The Wall Street Journal’s latest quarterly survey of housing-market conditions in 28 major metropolitan markets found inventory levels were down in all but three markets and were down by double digits in 16 markets in the second quarter, compared with a year ago. Listings in Miami were down 43% from a year ago and were off 30% in Washington, D.C. Several cities, including Charlotte, N.C.; Seattle; and San Francisco, saw declines greater than 20%. In markets such as Sacramento, Calif., and Phoenix, where home values are down nearly 50% from the peak in 2006, it would take just four months to sell the supply of homes listed for sale at the current sales pace. Home values, meanwhile, fell at a slower pace during the second quarter, with 19 markets reporting quarterly gains, according to data from Zillow.com. Values were still below year-earlier levels in every market.

Shrinking inventory often is seen as a positive sign for housing because it usually means demand is rising, which often leads to higher prices. But in the current environment, the decline in inventory may instead reflect how the market remains anything but healthy. While sales are picking up in some cities, analysts say the sharp decline in inventory also reflects the slow pace at which banks are processing foreclosures. The bottleneck in bank foreclosures has contributed to that situation. In the past year, banks have been accused by federal and state officials of circumventing legal procedures when foreclosing on homeowners.

To correct those problems, banks are moving more cautiously when repossessing a home. As a result, the number of newly initiated foreclosures has dropped to a three-year low. But the number of homes in foreclosure—a backlog of 2.1 million—is near a high, according to LPS Applied Analytics. If supply remains constrained, prices could stabilize. “We’re not at the end of the housing nightmare, but we seem to be getting closer,” said Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. But if banks accelerate foreclosures, inventories will swell again. Mr. Otteau says it is too soon to celebrate because “we are all expecting that foreclosure ‘tidal wave’ to begin sometime soon.”

The GNO market continues to out perform in terms of DOM (under 4.5 months) and Foreclosures as % of Sold and Listed properties. Nationally that stat is 40% or higer. Here in NOLA..its under 14%.

400,000 unemployed

The Labor Department says there were 400,000 initial unemployment claims filed in the week ended July 30, down 1,000 from an upwardly revised 401,000 the prior week. Economists surveyed by Briefing.com were expecting jobless claims to rise to 405,000.
Initial claims have sat above 400,000, a level typically associated with payroll growth and a lower unemployment rate, for
17 consecutive weeks. Overall, the four-week moving average of initial claims — calculated to smooth out volatility — fell by 6,750 to 407,750 in the latest week. Continuing claims — which include people filing for the second week of benefits or more — increased by 10,000 to 3,730,000 in the week ended July 23, the most recent data available. That was more than economists’
forecasts for 3,700,000. The jobless claims data came ahead of Friday’s closely watched monthly jobs report, which is expected to show that the US economy created 75,000 jobs in July. The unemployment rates is expected to hold steady at 9.2%. NOTE: GNO market employment is much better than national…hovering at under 6%. Another reason our RE markets are performing better

Note: Mortgage rates low, but won’t help housing

The one positive in all the uncertainty surrounding the nation’s debt was a plunge in Treasury yields, which in turn sent mortgage rates to record lows. The 30 year fixed hit a near-low of 4.45% last week from 4.57%, and the 15 year made a new low of 3.52%, according to the Mortgage Bankers Association. Those low rates pushed refinance applications up 7.8% and purchase applications up 5.2% (both seasonally adjusted). So are we housing geeks now jumping for joy? All good? Maybe not so much.

“Refinance application volume increased, but even though 30-year mortgage rates are back below 4.5%, the refinance index is still almost 30% below last year’s level. Factors such as negative equity and a weak job market continue to constrain borrowers,”

MBA’s VP of research and economics, Michael Fratantoni.
“Purchase activity increased off of a low base, returning to levels of one month ago, but remains weak by historical standards.” So even ridiculously low rates are not exactly boosting the housing recovery; that’s because rates have been historically low for a while. “The problem is not the price of credit,” says economist Paul Dales at Capital Economics. “The key issue is that the high unemployment rate, tight credit criteria and high share of homeowners underwater on their mortgage are all keeping a lid on demand regardless of the price of credit. With the economy now weakening once again, these constraints are not going to go away soon.”

This is why Dales sees home prices weakening further, and we see that in data today from CoreLogic. Home prices were down 6.8% in June year over year, if you include distressed sales (foreclosures and short sales). That is a slightly deeper fall than May’s annual number. Without distressed sales, home prices were down 1.1% in June annually. That’s a bit better than the 2.1% annual drop in May. Of course you have to remember that distressed sales make up more than a third of the housing market right now, and far higher percentages in certain local markets.
“The improvement [in home prices month-to-month] is largely due to distressed sales accounting for a smaller share of overall sales,” notes Dales. The Realtors reported 30% of sales in June were distressed properties, but that share drop is only due to a gain in regular sales, not the actual number of distressed properties decreasing.

So back to where we started, do these lower mortgage rates provide any help to the housing recovery? Perhaps in the refinance area, as some borrowers can get lower monthly payments and lower their risk of default; the trouble with that premise though is that the borrowers who are in real trouble are likely also underwater on their mortgages and unable to qualify for a refi at these low rates. Most people who can do the easy refi already have. The bigger issue going forward is new banking rules currently under debate which could raise the cost of lending, which would then be passed on in the form of higher interest rates. These risk retention rules (known as QRM or “qualified residential mortgage” standards) just reached their final comment period this week. So this is coming down the pike.

Factory orders down, layoffs up

The Institute for Supply Management said its services index fell to 52.7 last month from 53.3 in June. The reading fell shy of economists’ forecasts for 53.6, according to a Reuters survey. A reading above 50 indicates expansion in the sector. The new orders gauge slipped to 51.7 from 53.6, while employment fell to
52.5 from 54.1. As well, new orders received by US factories fell in June, pulled down by weak demand for transportation equipment. The Commerce Department said orders for manufactured goods fell 0.8% after a revised 0.6% increase in May. Economists had forecast a 0.7% decline after a previously reported 0.8% rise. Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 100,000 jobs.
June’s private payrolls were revised down to an increase of 145,000 from the previously reported 157,000. The report is jointly developed with Macroeconomic Advisers.

Also on the labor market front, the number of planned layoffs at US firms jumped to a 16-month high in July as sectors which had been seeing fairly few layoffs unexpectedly bled jobs. Employers announced 66,414 planned job cuts last month, up 60.3% from
41,432 in June, according to a report from consultants Challenger, Gray & Christmas. Layoffs in the pharmaceutical and retail sectors overtook nonprofit and government job cuts last month.

Have a great weekend!

PS
Dates to Save:

White Linen night is this weekend

8/1 – Flag FB at St pius – Reg is Open. Reg at http://www.stpiusxnola.org/fallsports.htm

8/27 – Jay Rink fundraiser at Howlin Wolf 8:30 4 great comedians $20 contribution (100% to Jay’s battle against ALS)

9/10 – Bro. Martin honors Jay and his contribution to FB and wrestling program – Halftime at Bro Martin Vs St. Aug

Rick Crozier / Branch Manager – Greater New Orleans Area
Primary Residential Mortgage, Inc.
2201 Veterans Suite 411 B Metairie, LA 70002
Phone 504.200.2000/ Cell 504.339.loan (5626) / Fax 504.613.,4600
rcrozier@primeres.com / rick@rickcrozier.com

My Mortgage Website

Facebook Business Page (Fan up to win FREE condos, Saints Tix and much more)

GNO Market: Several polls have shown home inventory levels falling in lakeview and uptown. Lakeview buying activity has been very brisk…especially in the 250-350K price points.

Nationally:
Existing-home sales eased in June as contract cancellations spiked unexpectedly, although prices were up slightly, according to the National Association of Realtors (NAR). Sales gains in the Midwest and South were offset by declines in the Northeast and West. Single-family home sales were stable while the condo sector weakened. Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 0.8% to a seasonally adjusted annual rate of
4.77 million in June from 4.81 million in May, and remain 8.8% below the 5.23 million unit level in June 2010, which was the scheduled closing deadline for the home buyer tax credit. The national median existing-home price for all housing types was $184,300 in June, up 0.8% from June 2010. Distressed homes – foreclosures and short sales generally sold at deep discounts – accounted for 30% of sales in June, compared with 31% in May and 32% in June 2010. NOTE: GNO market distressed % is closer to 11%. of sales.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.51% in June, down from 4.64% in May; the rate was 4.74% in June 2010.

Inventory of Homes – GNO Market is running about 5 months…much better than national levels.

Total housing inventory at the end of June rose 3.3% to 3.77 million existing homes available for sale, which represents a 9.5-month supply at the current sales pace, up from a 9.1-month supply in May. All-cash transactions accounted for 29% of sales in June; they were 30% in May and 24% in June 2010; investors account for the bulk of cash purchases. First-time buyers purchased 31% of homes in June, down from 36% in May; they were 43% in June 2010 when the tax credit was in place. Investors accounted for 19% of purchase activity in June, unchanged from May; they were 13% in June 2010. The balance of sales was to repeat buyers, which were a 50% market share in June, up from 45% in May, which appears to be a normal seasonal gain.

Single-family home sales were unchanged at a seasonally adjusted annual rate of 4.24 million in June, but are 7.4% below a 4.58 million pace in June 2010. The median existing single-family home price was $184,600 in June, up 0.6% from a year ago. Existing condominium and co-op sales fell 7.0% to a seasonally adjusted annual rate of 530,000 in June from 570,000 in May, and are 18.0% below the 646,000-unit level a year ago. The median existing condo price5 was $182,300 in June, up 1.8% from June 2010.

Regionally, existing-home sales in the Northeast fell 5.2% to an annual pace of 730,000 in June and are 17.0% below June 2010. The median price in the Northeast was $261,000, up 3.1% from a year ago. Existing-home sales in the Midwest rose 1.0% in June to a pace of 1.04 million but are 14.0% below a year ago. The median price in the Midwest was $147,700, down 5.3% from June 2010. In the South, existing-home sales increased 0.5% to an annual level of 1.86 million in June but are 5.6% below June 2010. The median price in the South was $159,100, down 0.1% from a year ago.
Existing-home sales in the West declined 1.7% to an annual pace of 1.14 million in June and are 2.6% below a year ago. The median price in the West was $240,400, up 9.5% from June 2010.

Unemployment up

There were 418,000 initial unemployment claims filed in the week ended July 16, the Labor Department said today. That marks an increase of 10,000 initial claims since the previous week, and more than the 411,000 claims economists surveyed by Briefing.com had expected. Minnesota’s government shutdown has weighed on the overall number for at least two weeks. Roughly 1,750 of the new claims filed last week were due to the statewide shutdown, the Labor Department said. In the prior week, Minnesota had reported about 9,681 claims as a result of the shutdown. New York also saw a huge influx of filings, due to the end of the school year.

More than 20,000 people in the state filed fresh unemployment claims in the week ending July 9 — the most recent data available. Those employees included education contractors like bus drivers and cafeteria workers, but not necessarily teachers.
Layoffs in the auto industry were another major factor, as both Michigan and Ohio reported thousands of new claims. “Auto production hasn’t ramped up as quickly as we expected,” said John Canally, economist with LPL Financial. “Claims are still stuck in no-man’s land.”

For the nation overall, the four-week moving average of initial claims –calculated to smooth out volatility — fell. The average was 421,250 or 2,750 fewer claims than the week before.
Continuing claims — which include people filing for the second week of benefits or more — fell to 3,698,000 in the week ended July 9 — in line with economists’ forecasts. The current unemployment rate is 9.2%.

Olick – sales roil realtors

“Forecasters expected sales of existing homes to rise in June because the pending home sales index, which measures signed contracts, rose in May. If you consider it takes 1-2 months to close, then there’s your indicator. But that was not the case.
Sales fell, not by much, down 0.8% month-to-month, surprising even the Realtors, who thought May would be the weakest point.
Sales were down 8.8% from June of last year, when most closings took place from the end of the home buyer tax credit. What Realtors and prognosticators did not even consider was a strange
phenomenon: June saw a spike in the contract cancellation rate to 16%. Existing home cancellation rates usually run under ten%, and, in fact, in May were at just 4%. Cancellation rates for new home construction usually run higher than that, as buyers of newly built homes tend to be more volatile and put less (often
nothing) down when signing a contract.

‘I think it’s the broader, very slow economic activity,’ said Lawrence Yun, the National Association of Realtors’ chief economist, who earlier told a room full of reporters that he was still trying to find the source of the spike. ‘The economy is expanding at a very slow pace, job creation is very slow, the consumer confidence has certainly taken hit in the second quarter, so there could have been some buyers who had some second thoughts and just decided to pull out of the contract, but at the moment it’s still unclear as to why there was a measurable rise in cancellations.’ Tight lending and inaccurate appraisals could play into the spike, but they have really been chronic problems for much of the past year, so no reason why they would suddenly cause a monthly bump. Yun suggested that some banks are looking toward the change in conforming loan limits coming this fall (they will drop in the most expensive markets) and have already stopped making ‘conforming jumbo’ loans, but that really just started in July. ‘Buyers may have been spooked by the recent worsening in the economic outlook and the rebound in the unemployment rate to 9.2% in June,’ notes Paul Dales of Capital Economics. ‘Tighter credit criteria or the fall in conforming loan limits, scheduled for October, may have meant some deals were cancelled as financing fell through.’

He also points out that mortgage applications, which were flat on purchases this week and have been seriously lackluster, do not indicate any rebound in sales. Purchase applications are actually quite close to last year’s 14-year low. Much of the market is still investors, 10% in June, which is down a bit, but the share of international buyers rose to 3%, not huge, but more than previous months. Some are noting a drop in the distressed sales share in June to 30% from a high of over 40% of the market last year, but the actual number of distressed sales has been steady at 80-90,000 a month. It’s just that there were more organic, non-distressed sales overall in June, so the share of distressed fell.

Back to the cancellation issue, my guess goes back to my constant premise of confidence, or lack thereof. Today’s consumers are so skittish, so nervous, so unable to believe in any solid recovery, that even a few months of bad data are enough to plant them right back on the fence.”

White House shifts gears

The White House shifted gears Wednesday, signaling that President Obama could support a short-term increase in the U.S. borrowing limit as long as it is part of a broader deficit reduction deal.
Obama’s new stance on a short-term fix shows the White House has recognized that time is running out for Congress to act before the United States runs out of money on Aug. 2. Obama previously promised to veto a short-term extension of the $14.3 trillion debt limit. But White House spokesman Jay Carney said in a written statement the president would consider an exception if congressional leaders look like they’re getting close to a deal for a long-term debt limit extension with deficit reduction.
Republicans say they will not support increasing the debt limit without deep spending cuts. Deficit talks have hit an impasse over tax increases, which Republicans still rule out.

DSNews.com – delinquencies, foreclosures up

Lender Processing Services (LPS) says data it’s collected through the end of June show an abrupt increase in the industry’s mortgage delinquency rate and a smaller uptick in the national foreclosure inventory. The company reports the home loan delinquency rate – defined as loans 30 or more days past due, but not yet in foreclosure – rose to 8.15% last month.
That’s up 2.4% from a rate of 7.96% at May month-end. Compared to this time last year, however, delinquencies are down 14.7%.
The U.S. foreclosure inventory was up on both a monthly and annual basis. LPS assesses foreclosure inventory as the share of mortgages that have been referred to a foreclosure attorney but haven’t reached the final stage of foreclosure sale. The foreclosure rate stood at 4.12% at the end of June, up 0.2% from May and 12.8% from June 2010.

Altogether, LPS says there are some 6,452,000 mortgages going unpaid in the United States. Of these, 2,167,000 are in the process of foreclosure. The remaining 4,285,000 are past due by one or more payments but have not been referred to a foreclosure attorney, with 1,906,000 of the loans in this bucket overdue by 90 days or more.

According to LPS’ analysis, the states with highest age of non-current loans – which combines foreclosures and delinquencies – are Florida, Nevada, Mississippi, New Jersey, and Georgia. States with the lowest age of non-current loans include Montana, Wyoming, Alaska, South Dakota, and North Dakota.

Have a GREAT weekend!

Your Favorite Banker!

RC

NAR – pending home sales drop

Pending home sales fell in April with regional variations following increases in February and March, with unusual weather and economic softness adding to ongoing problems that are hobbling a recovery, according to the National Association of Realtors (NAR). The Pending Home Sales Index (PHSI) dropped 11.6% to 81.9 in April from a downwardly revised 92.6 in March.
The index is 26.5% below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit. The data reflects contracts but not closings, which normally occur with a lag time of one or two months. The PHSI in the Northeast rose 1.7% to 64.5 in April but is 33.4% below a year ago. In the Midwest the index fell 10.4% to
74.1 and is 30.2% below April 2010. Pending home sales in the South dropped 17.2% to an index of 91.3 in April and are 27.0% below a year ago. In the West the index declined 8.9% to 89.1 and is 16.9% below April 2010.

The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. The index is based on a large national sample, typically representing about 20% of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

Greater NO is no different as we benefited from the TAX Credit in 2010. Our Purchase Money Business is down 22% from yr on yr month stats.

Spending up, prices up

The Commerce Department said today that consumer spending increased 0.4%, rising for a 10th straight month, after a 0.5% gain in March. It also said annual inflation rose at its fastest pace in 12 months. Economists polled by Reuters had expected spending, which accounts for about 70% of US economic activity, to rise 0.5% last month. When adjusted for inflation, spending nudged up 0.1% last month after gaining 0.1% in March. Consumer spending rose at a 2.2% annual rate in the first quarter, braking sharply from a 4% pace in the October-December period. That contributed to holding back growth to a 1.8% pace during the quarter. But a recent cooling in gasoline prices should ease some of the pressure on households and boost spending in the months ahead. The national price for regular unleaded gasoline prices slipped to $3.90 a gallon in the week through Monday, according to the Energy Information Administration, after peaking just above $4 a gallon early in the month. High food and energy prices in April kept inflation elevated last month, with the personal consumption expenditures price (PCE) index rising 0.3% after advancing 0.4% in March. Compared to April last year, the index was up 2.2%, the biggest rise in a year, after increasing 1.8% in March. The core PCE index—excluding food and energy—increased 0.2% one month after rising 0.1% in March.
The core index, which is closely watched by Federal Reserve officials, increased 1.0% in the 12 months through April, the largest gain since September. The index rose 0.9% year-on-year in March and the Fed would like to see it closer to 2%.

Incomes rose 0.4% last month, in line with expectations and after a 0.4% increase in March. Disposable incomes adjusted for inflation were flat and savings fell to an annual rate of $570.6 billion, the lowest since August 2009, from $576.7 billion in March. Incomes rose 0.4% last month, in line with expectations.
Incomes gained 0.4% in March. Disposable incomes adjusted for inflation were flat and savings fell to an annual rate of $570.6 billion, the lowest since August 2009, from $576.7 billion in March.

Olick – why should we care about foreclosures?

“Earlier this week, when we got the report of a bump up in sales of newly constructed homes, I cautioned that the home builders are still facing huge competition from distressed properties (foreclosures and short sales). Today we have some new numbers showing just how big and how widespread that competition is.
Foreclosed properties made up 28% of all home sales nationwide in the first quarter of this year, according to RealtyTrac. That’s up slightly from Q4 of 2010, but not the record 29% we saw a year ago. More than 107,000 bank-owned (REO) properties sold, which is actually a drop from the previous quarter and a bigger drop (36%) from a year ago. Foreclosed properties sold at a 35% discount to their non-distressed counterparts. The GNO market is seeing distressed sales at about 1/2 the national rate.

Weak real estate demand is driven by several factors, not the least of which are credit and confidence. The banks are looking at their overall book of business and the losses they’re still taking; the losses are concentrated in those states that are continuing to suffer the most. Regardless, they spread that pain nationwide in their lending standards, tightening up to the point that many borrowers far far away from California can’t get a loan. Confidence, or lack thereof, is a bigger factor than we often give it credit. Yes, the big bad media report all these numbers, and yes, some of the worst of it is nowhere near where you live, but you see and process it. It affects your confidence and consequently how you act.

Housing demand is nowhere near where it should be, and the mix of what is selling is all on the low end. Investors with cash and first time home buyers are bargain hunting, and that pushes the price average/median down in every market. As prices fall on real sales, thousands of borrowers fall underwater on paper…on their mortgages, and that puts them at higher risk of foreclosure.

‘Residential home sales fell by 18% in Q1 2011 compared to Q4 2010 and by almost 32% from Q1 2010,’ notes Sharga. Foreclosures and distressed sales, even if they’re not in your back yard or in your state, affect your home’s value because they affect the overall demand for your home.”

Consumer sentiment up

US consumer sentiment improved in May as job gains offset high gasoline prices, while inflation expectations diminished, a Thomson Reuters/University of Michigan survey showed. Consumers were also more upbeat about the longer term outlook for the economy, although income expectations remained at low levels.
The final reading on the overall index on consumer sentiment was 74.3, up from 69.8 the month before and higher than the preliminary reading of 72.4. Economists polled by Reuters had expected the index to be unchanged from the preliminary figure.
The survey’s gauge of consumer expectations jumped to 69.5 from April’s 61.6. It also came in above a predicted reading of 67.5.
The survey’s barometer of current economic conditions was 81.9, slipping from April’s 82.5 but topping forecasts of 80.2. The survey’s one-year inflation expectation fell to 4.1% from 4.6%, its first decline since September 2010. The survey’s five-to-10-year inflation outlook held steady at 2.9%.

NAR urges comprehensive reform of GSEs

At a Senate Banking, Housing and Urban Affairs Committee hearing, the National Association of Realtors (NAR) urged support for comprehensive reform of the government-sponsored enterprises
(GSEs) Fannie Mae and Freddie Mac, which remain critical to ensuring mortgage liquidity, and expressed concern over recently proposed legislation that takes a piecemeal approach and could increase uncertainty in the housing market. “There are strong negative repercussions for relying solely on private capital to form the foundation of the housing finance system. After the housing downturn, private mortgage capital became nearly nonexistent, and without the GSEs, qualified borrowers would not have had access to the funds required to purchase a home. A government backstop is critical to ensure a continual flow of mortgage liquidity and the long-term viability of the housing market,” NAR President Ron Phipps said. He added that in a fully private market, financial institutions with FDIC-backed deposits would focus more on optimizing their profits in a noncompetitive banking industry, and potentially fostering new, risky mortgage products that place taxpayers at risk, rather than products that would be in the best interests of consumers and the nation’s economy. That could lead to the end of long-term fixed rate loan products, like the 30-year fixed rate mortgage, and drastically raise the cost of mortgage capital for millions of American consumers.

Phipps also testified about another important issue that will dramatically impact the future of housing finance – the proposed risk retention regulation under the Dodd-Frank Act, which requires lenders that securitize mortgage loans to retain 5% of the credit risk unless the mortgage is a qualified residential mortgage (QRM). “A poor QRM policy that focuses on high down payment requirements rather than a variety of traditional safe, well underwritten products will exclude hundreds of thousands of buyers from home ownership, slowing economic recovery and hampering job creation,” said Phipps.
“Realtors® support a reasonable and affordable cash investment coupled with quality credit standards, strong documentation and sound underwriting; but higher down payments do not have a meaningful impact on default rates.” He expressed strong support for making permanent the GSE and FHA mortgage loan limits that are currently in place and set to expire later this year.
Phipps said that in today’s real estate market, lowering the loan limits will restrict liquidity and make mortgages more expensive for households nationwide. More than 612 counties in 40 states and the District of Columbia will see an average decline of $50,000 in loan limits in their area.

WSJ – mortgage rates fall

Home-mortgage interest rates fell last week to the lowest point of 2011 amid signs of a slowing economy, according to the latest survey from Freddie Mac. “U.S. house prices indexes may be nearing a bottom soon,” Freddie Mac Chief Economist Frank Nothaft said, pointing to slower price declines in recent months and a reduction in the serious delinquency rate. At the same time, the U.S. economy has showed signs of slowing, with Federal Reserve banks in Philadelphia, Chicago and Richmond, Va., reporting less business and manufacturing activity in their regions. The 30-year fixed-rate mortgage averaged 4.60% in the week ended Thursday, down from 4.61% the prior week and 4.84% a year ago.
The last time the 30-year rate was lower was in the week ended Dec. 2, when the rate was 4.46%. The rate fell to as low as 4.17% in November 2010 before surging to 5.05% in the week ended Feb.
10, 2011. Rates on 15-year fixed-rate mortgages fell to 3.78% from 3.80% the previous week and 4.21% a year earlier. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.41%, down from 3.48% the prior week and 3.97% a year earlier. One-year Treasury-indexed ARMs declined to 3.11% from 3.15% the prior week and 3.95% a year earlier. To obtain the rates, the fixed-rate mortgages required an average payment of 0.7 point, while adjustable mortgages required a lower 0.5 point. A point is 1% of the mortgage amount, charged as prepaid interest.

If you have any questions re: local mortgage products, home insurance, etc…don t hesitate to call

Your Favorite Banker

Rick Crozier
504.339.5626
www.rickcrozier.com

YES…thats all good news.

Mortgage originations increased for a third consecutive quarter, to $499 billion. That put new mortgages 65% above their low point at the end of 2008, and 31% above their level of a year ago.
Total consumer indebtedness in the first quarter of 2011 was
$11.5 trillion, still 8.2% below its peak at the end of September 2008, just after the collapse of Lehman Brothers and the seizing of financial markets. And consumers and banks continued to cut back on credit cards, as about 195 million credit accounts were closed during the 12 months that ended March 31, while just 166 million accounts were opened over the same period.

Boehner takes hard line on debt

House Speaker John Boehner indicated Monday that he plans to hold a hard line in debt-ceiling negotiations. Among his demands:
Spending cuts in exchange for support to raise the debt ceiling
– and the cuts will have to be greater in magnitude than the ceiling increase. “Without significant spending cuts and the way we spend Americans’ money, there will be no debt limit increase.
And the cuts should be greater than the accompanying increase in debt authority the president is given,” Boehner said in a speech at the Economic Club of New York. Boehner reiterated his stance that the spending cuts should be in the “trillions, not just billions” and that simply agreeing to spending and deficit goals for the future won’t suffice. “They should be actual cuts and real reforms to these programs, not broad deficit or debt targets that punt the tough questions to the future. And with the exception of tax hikes — which in my opinion will destroy jobs
– everything is on the table,” Boehner said.

It’s unclear just how many trillions in spending cuts Boehner is seeking. But he may be laying down a marker of more than $2 trillion, since congressional sources tell CNN they expect the House could vote to increase the debt ceiling by about $2 trillion. Treasury Secretary Tim Geithner has said he expects U.S. borrowing to hit the debt ceiling by May 16, but he estimates he can use “extraordinary measures” to keep the United States out of default until Aug. 2. After that, however, the United States will only be allowed to spend what it takes in from federal revenue. That means, on average, the country will come up short by about $118 billion a month.

At that point, Geithner will have to pick and choose which bills to pay. Several conservative lawmakers say the country won’t be in default on its obligations as long as it continues to pay the interest owed on U.S. debt. But Geithner believes any failure to meet a legal obligation will be perceived as a default by the markets, with punishing long-term consequences for the U.S.
economy. Boehner, who in the past has indicated that the debt ceiling has to be raised no matter what, suggested on Monday that worse things could happen. “It’s true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process.”

Olick – rowning in negative equity

“If you have no desire or need to sell your home, then falling home prices are just on paper and likely temporary, right?
Depends on how you look at it. Falling home prices put more borrowers in a negative equity position, that is owing more on their mortgage(s) than their homes are worth. We call that ‘underwater,’ and for good reason, because for some borrowers that sense of drowning in debt has profound implications.

Today Zillow.com reported a new high in negative equity: 28.4% of single family homes with a mortgage (remember, 32% of all homeowners do not have a mortgage). That’s a national average, but the numbers are far worse in some of the nation’s big metros.
Atlanta, for example, has a 55.7% negative equity rate. Denver, 41%, Chicago nearly 46%. This is on top of all the foreclosure hot spots like Phoenix, where close to three quarters of all borrowers are underwater.

‘Higher rates of negative equity are creating a lot of latent vulnerability in the housing stock, where if the household then encounters some economic shock, like the loss of a job or divorce or death, then that household is much, much more likely to go into foreclosure,’ notes Zillow’s Stan Humphries. ‘So it just means that higher rates of negative equity, we’re going to see elevated rates of foreclosure for the next two to three years.’
But higher rates of foreclosure put increasing pressure on home prices, causing them to fall further, which in turn puts even more borrowers underwater.

One begets the other begets the other. Humphries thinks this is a bigger deal than the ‘walkaway’ issue (or strategic default); that’s where borrowers see no chance of ever having equity in their homes, so they walk away rather than becoming permanent pseudo-renters, responsible for the high cost of the home’s upkeep but reaping no equity benefit. ‘The best research that’s been done right now seems to suggest that negative equity impact on strategic defaults really kicks in at very high rates of value to loan ratio, so that means when people are more like 30-40% underwater does it start to create proactive behavior where they want to walk away from the mortgage. And even at those rates of loan to values, you’re still seeing strategic defaults be a relative…not a majority behavior,’ says Humphries.

Well there are certainly plenty of large metro markets, as I cited previously, where negative equity is that high. And here’s a little more food for thought: What about mobility? As the economy improves, and we see those jobs numbers rise, as we did last Friday, we have to consider the fact that many people taking these jobs may be required to move for said jobs. Those same borrowers may not be able to take the loss on the home that’s required to sell it. What then? What is the fate of the nation’s credit quality. It’s already tough enough to get a good mortgage when you have good credit. Home buyer confidence and demand are the only remedies right now for the housing/foreclosure crisis.
Sadly, we have neither.”

WSJ – small businesses pessimistic

Small-business owner pessimism worsened in April for a second consecutive month, even though current sales performance was the best in 40 months, according to data released today. The National Federation of Independent Business‘s (NFIB) small-business optimism index dropped 0.7 point to 91.2 in April.
That followed a 2.6-point decline to 91.9 in March. The NFIB called the April index “a disappointing outcome following the March decline.” The report said the weak economy and political uncertainty were dimming the outlook. The drags mentioned by NFIB members included the government deficit, a potential inflation threat, and rising gas prices. The subindex of expected business conditions in the next six months fell 3%age points to -8%, and the expected higher real sales index slipped 1 point to 5%. Even so, there was improvement in the recent pattern of earnings.

The earnings trend subindex rose 6 points to -26% in April. One reason for the increase was the rise in the share of small-business owners lifting their selling prices. The report said the seasonally adjusted net % age of owners reporting higher selling prices increased to 12% in April, from 9% in March. In addition, the report said the net seasonally adjusted % age of all owners reporting higher nominal sales over the past 3 months improved by 7 points to a net -5%, the best reading since December 2007, the peak of the last expansion. Hiring was flat, but remained in positive territory. The April employment subindex was unchanged at 2%. And the subindex covering hard-to-fill job openings fell only 1 point to 14%.

Brett Arends – silver lining to housing storm

“Prices in many areas are now cheap. They have corrected a long way since the bubble began to burst five years ago. Of course, it depends on where you are. I’m still skeptical of the real-estate markets that have held up best — prime stuff like Manhattan, San Francisco or Beverly Hills. It’s hard to get a deal there.
But in the places that have fallen the furthest, there are deals aplenty. Zillow found only four metro areas in America that have leveled out, or risen, lately. Notably, two of those are in stricken Florida — Fort Myers and Sarasota. Have they fallen so
far they’ve hit bottom.

The second reason: There are tons of foreclosures and short sales on the market. And there are plenty more sitting in the wings.
Banks are holding back big shadow inventories of homes. And that means you can get a great deal. They have to sell. You don’t have to buy. You hold all the cards. Remember, the name of the game isn’t ‘let’s make a deal.’ It’s ‘take it or leave it.’

Third, in many places rental yields are terrific. It’s cheaper to own than to rent. There have been some forced sales in my building in Miami. Based on my math, the latest buyers have bought condominium units for six times gross annual rents, and maybe 12 times net rents. We’re talking net yields of 7% or more.
And rents are rising, because so many former owners are now renters.

The fourth reason I’m bullish is that you can get a very cheap mortgage. Thirty-year conforming loans are going as low as 4.3%.
Throw in the tax break on the interest, and you are talking cheap finance.

The fifth reason is that, as painful as this collapse has been, real estate has historically proven to offer very good long-term protection against inflation. Returns have typically averaged about 1% or 2% above inflation. At a time when everyone has been piling into gold, commodities and TIPS bonds to protect themselves against the possibility of inflation, it seems odd that the most popular and successful hedge, namely real estate, goes a-begging. Thirty-year TIPS bonds are yielding just 1.6% over inflation, and shorter-term bonds offer even lower returns.
Short-term TIPS are actually offering negative real yields.

The sixth reason I’m bullish is perverse, but I’m sticking by it.
Everyone else is bearish. You cannot find a real-estate bull anywhere. No one wants to own this asset. No one wants to talk about it. No one wants to hear about it. Everyone seems to agree it’s just going down, down, down — forever. They said much the same about stocks in 1987, 2002 and 2009; Treasury bonds in 1982; and gold in 2000. I cannot prove this is capitulation, but it sure smells something like it. As ever, if you aren’t disciplined and patient, this probably isn’t for you.

I have absolutely no idea when real estate is going to hit rock bottom. It may take several years. I suspect it will do so in different markets at different times. But there are good homes out there going really cheap. If you hunt down the bargains, you’re disciplined about price, you get the right financing, and you hold on for five years or more, you’ll probably do pretty well from here.”

Our loan volume use to run 10% 2nd home, 20% investor and 20% stated income. We have seen those segments all but dry up.

Debt ceiling looms again

Treasury Secretary Tim Geithner said Monday that he would start taking “extraordinary measures” this week to keep the country’s debt below its legal limit. In a letter to Congress, he also said that he now estimates he can keep the country out of default until Aug. 2, three weeks later than he estimated last month.
The reason for the extension: The government has taken in more tax revenue than expected — easing the country’s borrowing needs.

He said, however, the pace of US borrowing is still on track to hit the current $14.294 trillion debt ceiling by May 16. But Geithner said he would need to take action starting this Friday because Congress is unlikely to act by May 16 and the debt is already so close to the cap — just $58 billion below as of the end of last week. The Treasury Department will suspend issuance of special Treasury securities that help state and local governments fund, among other things, infrastructure improvements, Geithner said. That will be the first of several steps Geithner will have to take the longer Congress delays action on the debt ceiling. Republicans and some Democrats say they will not support an increase to the debt ceiling unless it is accompanied by spending cuts and enforceable budget measures designed to keep spending or deficits down. And agreements on those types of measures will take some time.

Beazer homes hit

Beazer shares tumbled nearly 8% in premarket trading. Beazer’s order numbers also fell, as have those of their competitors.
Builders of new homes are grappling with stiff price competition from a heavy overhang of used homes and cut-rate foreclosures that date from the housing boom’s years of rampant risky lending and overbuilding. Beazer’s orders were down 27% at 1,194 in its fiscal second quarter that ended March 31, the company said in a statement. US single-family home prices fell for an eighth straight month in February, according to the S&P/Case-Shiller composite index, which showed prices in 20 cities down 3.3% year over year. The company closed 31% fewer homes than it did in last year’s second quarter, and revenue fell 34% to $127.5 million. Beazer said its second-quarter loss from continuing operations was $54.9 million, or 74 cents per share, compared with a year-ago profit of $6.2 million, or 10 cents per share.
Analysts had anticipated a loss of 47 cents per share, according to Thomson Reuters I/B/E/S. Atlanta-based Beazer has operations in 15 states, including those areas hardest-hit by the housing slump, such as the Southwest and Florida.

Late Easter will drive retail

Analysts expect April numbers to be strong across the board, with discounters and department stores predicted to show the largest sales gains. The summer months ahead may not be so rosy due to rising gas prices, investors and analysts said. Retail chains ranging from Target to Macy’s to Saks will report April sales on Wednesday and Thursday, providing a fresh gauge to measure the US recovery. Consumer spending accounts for close to 70% of the US economy. Sales at stores open at least a year, or same-store sales, are forecast to rise 8.2% compared with a rise of 0.7% last year, according to Thomson Reuters data. US retailers have beat expectations in every month so far this year. Still, retail investors and industry watchers worry about future sales prospects as rising prices of gas and food erode the purchasing power of post-recession US shoppers, especially those with lower incomes. Last week, US Treasury Secretary Timothy Geithner said the economy faces new headwinds from soaring oil prices, but said a forecast of 3% to 4% growth for the year as a whole was reasonable.

DSNews.com – 210,000 mortgages modified through banks

An estimated 210,000 homeowners received permanent, proprietary loan modifications from mortgage servicers during the first quarter of 2011, according to data released by HOPE NOW
yesterday. That’s down nearly 20% from the 261,500
private-program mods reported during the fourth quarter of 2010, and 40% fewer than the 347,000 completed in the third quarter of 2010. The proprietary mod tally does not include loan modifications through the government’s Home Affordable Modification Program (HAMP). While the quarterly totals indicate a significant slide in modification activity, servicers reported an uptick during the month of March, when approximately 77,000 proprietary mods were completed. That’s up 26% from the 61,000 tracked in February. “We were pleased to see the increase in proprietary loan modifications from the previous month, despite the challenges facing the industry,” said Faith Schwartz, HOPE NOW’s executive director. “This reversed a downward trend in proprietary modifications seen in the previous few months.”
HOPE NOW’s data also show an increase in foreclosure activity in March. Foreclosure starts for the month were 217,000, up from the 180,000 reported for February 2011 – an increase of 21%.
Completed foreclosure sales in March totaled approximately 85,000, up from the 62,000 from the month before representing an increase of 35%. According to HOPE NOW’s report, 60-plus day delinquencies at the end of March tallied 2.63 million, down 6% from the 2.78 million reported in February. Schwartz commented, “While it’s encouraging to see a continued decline in 60 day delinquency we realize many homeowners continue to be at risk of foreclosure, as evidenced by the increase in foreclosure sales in March.”

For a detail listting of foreclosures in the GNO market just give us a call 504.339.5626

The Census Bureau reported an annual sales rate of 300,000 new homes in March. That was an 11% increase from February’s all-time low of 270,000, but new home sales remained near the lowest levels recorded since the government started tracking the data in 1963. Compared to March of last year, the annual rate was down a 21.9%. Still though, the monthly gain was a bit better than expected. Economists surveyed by Briefing.com had forecast a sales rate of 280,000 in March. The report comes on the heels of slightly encouraging reports on existing home sales and new home construction and permits last week.

The GNO is not big in the New Home category thanks to limited land expansion. So the glut of homes in that arena is a MUCH smaller % for our region.

Economists cautioned that one decent month of data doesn’t mean the housing market has turned around. Even though both home prices and mortgage rates are at attractive lows, demand for mortgages remains weak. Economists at Barclays Capital predict home prices could fall another 2% through the end of the year, as foreclosures continue to weigh on the market. But at the same time, they expect home sales to slowly improve. “We’re expecting a very gradual rebound in the housing market, related to ongoing, gradual improvement in the job market,” said Michael Gapen, senior US economist with Barclays Capital. “But I stress it’s gradual. There’s still a long tunnel in front of us.”

Ford has best quarter in a decade

Ford earned $2.6 billion, or 61 cents a share, up 22% from a year earlier, the company said Tuesday. The earnings not only topped the consensus forecast of 50 cents a share, they were better than the most bullish estimate of any analyst surveyed by earning tracker Thomson Reuters. The last time Ford earned this much in the first quarter was in 1998, when the company sold part of its financial services unit. The past quarter’s performance underlined the continued turnaround at the company, which has now posted seven straight quarters of profit after years of losses.

Revenue rose 18% to $33.1 billion, which also easily topped the most optimistic forecasts, as the number of vehicles Ford sold worldwide climbed 12%. In March, Ford’s US sales topped those of rival General Motors for the first time since 1998. Ford did not give a specific earnings target for the rest of the year, although it said it expects to continue to post improved results. But it warned that lower profit from its Ford Credit unit, higher commodity prices, seasonal factors and the need for increased investments and costs related to its longer-term plans will make it difficult to match the first quarter’s strong results later this year. Still, Ford said it expects to continue to gain market share in both the US and European markets.

MBA – commercial originations up

Commercial and multifamily mortgage origination volumes increased 44% in 2010 over the previous year, with mortgage bankers reporting $118.8 billion of closed commercial and multifamily loans, according to the Mortgage Bankers Association’s 2010 Commercial Real Estate/Multifamily Finance: Annual Origination Volume Summation. “Coming off of the 2009 lows, commercial and multifamily originations increased by a strong 44% in 2010,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Low interest rates coupled with improving economic fundamentals have the potential to draw out even more borrowers in 2011.”

Fannie Mae, Freddie Mac and FHA, collectively, were the largest investor group in 2010, responsible for $42.8 billion of the total, followed closely by life insurance companies and pension funds at $30.6 billion. In terms of property types, multifamily properties saw the highest volume, $48.9 billion, followed by office properties with $22.6 billion of originations. First liens accounted for 92% of the total dollar volume closed. Lending for office properties had the largest percentage increase in originations by property type, followed closely by hotel/motel properties and retail. Year-over-year changes are based on the changes in volume among “repeat reporters” that participated in both the 2009 and 2010 surveys.

Boehner looks at oil tax breaks

Congress should consider cutting multibillion-dollar subsidies to oil companies amid rising concern over skyrocketing gas prices, House Speaker John Boehner said yesterday. “It’s certainly something we should be looking at,” Boehner said in an ABC News interview. “We’re in a time when the federal government’s short on revenues. They ought to be paying their fair share.” “Everybody wants to go after the oil companies and frankly, they’ve got some part of this to blame,” he said. But Boehner, an Ohio Republican, said he also wanted to “see all the facts” first. A New York Times-CBS News poll found that 70% of Americans believe the country is on the wrong track and analysts believe gas prices are a main reason for this.

The Obama administration tried unsuccessfully during the last Congress to cut tax breaks and subsidies for fossil fuels. The attempt to end the subsidies has been strongly condemned by oil and gas companies, which argue that abolishing the tax breaks would reduce domestic drilling, cost jobs and increase US reliance on foreign energy suppliers. “This is a tired old argument we’ve been hearing for two years now. If the president were serious about job creation, he would be working with us to develop American oil and gas by American workers for American consumers,” the American Petroleum Institute’s chief economist John Felmy said.

Unrest in the Middle East has pushed crude oil prices above $110 a barrel. US retail gasoline prices hit $3.88 a gallon over the last week, the highest level since the summer of 2008 when prices reached a record $4.11 a gallon, the Energy Department said Monday. Asked who the American people should blame for high gas prices, Boehner pointed the finger at Obama and said the president won’t win re-election of gas prices are “$5 or $6″ a gallon.

Olick – optimism in housing?

“Thanks to all the streaming feeds of constant news I’m subjected to, I just clicked on a CNBC story titled, Four Years Later, Housing Market Shows Signs of Life.’ I was curious, seeing as I write about housing for CNBC, and I didn’t write that. It’s a Reuters piece, and I don’t buy it. But wait, what about this morning’s report of an 11% jump in sales of newly built homes and last week’s report of a 4% jump in sales of existing homes; March was a great month, right? A little perspective, please.

Yes, the numbers are going in the right direction, but only after big, albeit partially revised, drops in February. We’re working off a bottom here, and we’re still bumping around it. My concern, as it has been for years now, is distressed properties. Foreclosures and short sales (where the home is sold for less than the value of the mortgage) are ruling the roost, and that is not good news for home prices, which are still dropping, despite this one month of rising sales. Sales are all well and good, but prices are key in so many ways.

For existing homes in March, the bulk of the market, 35% of all transactions were all-cash (that’s a new record), and 22% were sales to investors; investors don’t necessarily want to hold on to these properties for very long, so they may come back on the market again soon. But back to the distressed properties. While the National Association of Realtors says 40% of March sales were distressed properties (up from 39% in February and 35% a year ago), another survey from Campbell/Inside Mortgage Finance finds nearly half of all homes on the market are distressed. Short sales are ‘booming’ according to the same report up to nearly 20% of sales. But short sales are a double-edged sword. Yes, they’re better for the banks and the sellers because there is less of a financial loss to the bank and less of a credit loss to the seller, but they make comps and appraisals even murkier than they already are.

From the Campbell/IMF report: ‘Home values continue to decline, making normal sale homes worth much less than they should be. Appraisers continue to use distressed property sales to establish value on non-distressed listings. Further, these same appraisers will not make any adjustments for amenities, (pools, spas, solar, etc.), when compiling a normal sale vs. distressed comps. I have had at least one appraiser tell me that his firm has been given marching orders to calculate the current value based on all properties sold within the last 3 to 6 months and only use the average square footage minus 10% to establish neighborhood value comps. If this is indeed standard practice, it will take a mighty long time to realize any increases in property values,’ complained an agent in Arizona. It’s not just in Arizona either.

Builders complain that tight credit, poor appraisals and lack of buyer confidence are still standing in the way of real recovery. Realtors complain the same, and both say home prices have further down to go. Home buyer traffic is still not where it should be right now, in the heat of the Spring market, and that’s primarily due to confidence. With gas prices over $4/gallon, and concern over rising interest rates and inflation, big ticket purchases are moving to the back burner.

Another survey out today from First Command Financial Behaviors in Ft. Worth, TX finds a big drop in Q1 in the percentage of middle-class Americans who feel financially secure. The survey of 1000 consumers found more than a third of respondents said they plan to focus on debt payment and 19% on savings. Don’t get me wrong, I’m thrilled to see the sales numbers going in the right direction; I just question whether ‘optimism’ is the right word right now. I’m not even sure about ‘recovery.’ Tomorrow we get the latest home price report from the folks at S&P/Case Shiller. Let’s see how that goes. Oh, and that Reuters piece was all about sales gains on the high and low end of the market. Rich folks with cash and investors with cash.”

US economy losing steam

In 2010, the economy seemed to be on firmer footing, finishing out the year with a 3.1% growth rate in the final three months, compared to the same period last year. Only three weeks ago, expectations were for 2.7%, while some forecasts ran as high as 4.3% just one month earlier. Now expectations are lower. The government is set to announce first-quarter gross domestic product — the broadest measure of the nation’s economic health — on Thursday. But the good news is that economists don’t expect the sluggish quarter to drag down growth for the entire year.

They’re forecasting the economy to grow at a healthy 3.1% pace for all of 2011, just slightly below the 3.5% growth rate they were forecasting earlier in the year. “We view the first quarter as being a pause in the pace of expansion,” said David Berson, chief economist for the PMI Group. “That won’t stand in the way of a modest expansion over the remainder of the year.” The cause of this sudden wave of pessimism? Rising oil and gas prices. High pump prices act like a tax on consumers, forcing them to cut back spending on other items. In addition, the large amount of oil the United States imports means that higher prices cause the trade gap to widen, which also cuts into GDP. Other factors include businesses holding back on increasing their inventories and less construction activity than previously expected.

Home prices near double dip

Well, here’s the report Olick was waiting for: According to the S&P/Case-Shiller index of home prices in 20 cities, home values are down 32% from their peak set in May of 2006,. “There is very little, if any, good news about housing,” said David Blitzer, spokesman for S&P. “Prices continue to weaken, trends in sales and construction are disappointing.” The drop has come in two stages. First, the index recorded 36 months of nearly uninterrupted declines after reaching the spring 2006 peak.

Then came a 13-month upswing during which the index recorded a 5% gain. That rebound ended last June. Since then, the index has recorded losses every month and it has now edged closer to a new bottom — the dreaded double-dip. The index now stands at 139.27, just a whisker above the first low, which came in April of 2009, when the index was at 139.26. All of the major areas saw prices decline from a month earlier, with Minneapolis seeing the biggest drop at 3.1%, followed by San Francisco at 2.6%.

In my view, regardless of whether the current phase of the central bank’s policy (known as quantitative easing) ends in June as scheduled, you may anticipate that Fed policy will still be a long way from returning to normal — much less tightening.

That being the case, the effects of its current policy will linger for some time to come. Those who have been helped will continue to enjoy the Fed’s support, while those who have suffered can only look forward to more of the same.

On the positive side, the threat of deflation will remain a back-burner issue. This is due to the fact that the central bank has provided the wherewithal for prices to rise by dint of flooding the financial system with gobs of cheap cash.

Because this has forced interest rates down to near-record lows, stocks and other assets will continue to benefit from investors’ search for better returns than those available on Treasurys. For their part, U.S. exporters can look forward to the lift they have already received from the lower value of the dollar.

That’s the good news. The bad news is that this monetary largesse has passed over some while actually hurting others.

Cheaper borrowing costs, another result of lower interest rates, were supposed to induce more borrowing by business, presumably to buy capital goods and hire employees. But commercial and industrial loans continue to fall, according to data provided by the Federal Reserve Bank of St. Louis, and unemployment remains high.

Meanwhile, household buying power has been dented by the sharp rise in prices to which I referred above. Retail prices in total are nearly 3% above where they were a year ago, led by soaring food and energy tags — items that people buy and use every day. Since the end of 2010, consumer prices have actually risen twice as fast.

Prices are outstripping wages. Average hourly earnings for all employees on private nonfarm payrolls were unchanged in March and less than 2% higher than they were a year earlier.

Those who managed to eke out some savings have been rewarded by near-zero interest rates — another byproduct of the Fed’s extraordinarily easy monetary policy. While young families have a long-enough time horizon to invest in the stock market, seniors are usually best advised to stick to relatively safe, fixed-income investments.

As you might imagine, seniors are the biggest losers from the Fed’s easy-money policy. Their fixed incomes are constantly losing buying power while their savings accounts earn virtually nothing.

Quint Crozier
Jesuit High School