Brian Davison's Alternative Investment Times

Will Unintended Consequences of Dodd-Frank Make a Mess of the Mortgage Market?
The Dodd-Frank Wall Street Reform and Consumer Protection Act that passed was enacted into law in 2010, commonly referred to as simply "Dodd-Frank", is supposed to lower risk in various parts of the U.S. financial system. It was named after former U.S. Senator Christopher J. Dodd and former U.S. Representative Barney Frank because of their significant involvement in the act’s creation and passage. Dodd-Frank established new government agencies such as the Financial Stability Oversight Council and Orderly Liquidation Authority, which monitors the performance of companies deemed “too big to fail” in order to prevent a widespread economic collapse. Ultimately, the purpose is to protect consumers from the crazy home-lending excesses that caused the Great Recession of 2008. Banks are exiting from the mortgage business in large numbers, primarily because of the high operating costs and heightened litigation risks imposed by the Dodd-Frank financial-reform law. As banks...
Mortgage Applications Continue to Fall
Business Insider reports that mortgage applications, for the week ending November 9, 2013, fell 1.8%, on the heels of a 2.8% decline the week before. Also, the purchase index was down 1% for the week ending Nov. 9, compared to a drop of 5% the week prior. A similar trend was seen in the refinance market with that index dropping 2% during the week ending Nov. 9, a noticeably smaller decline than the 8% drop the week before. According to Freddie Mac, an organization chartered by Congress in 1970 which is designed to provide liquidity in the mortgage markets by purchasing qualifying mortgages from lenders, the 30-year fixed mortgage rate remained relatively unchanged at 4.16% for the week ending, down from a recent two-year high of 4.58%. However, in the following week ending November 14, rates took a significant one-week jump to 4.35%. Rates across the...
Why Self-Storage is Good for the Community
The Wall Street Journal reports that there are currently 2.3 billion square feet of self-storage space in the U.S., which equates to approximately 7 square feet for each person in the United States. This includes the 8.9 million square feet added in 2012 and 16.5 million square feet expected to be available by the end of 2013. The downturn in the U.S. economy created a growth spurt within the self-storage industry among college students, densely populated city dwellers, shortage in demand, and households making do with the space they have instead of adding-on to their existing residences. According to documents filed with the United States Securities and Exchange Commission (SEC), Public Storage, the nation’s largest self-storage company, had 2,078 facilities in 38 states within the U.S. and 189 storage facilities in 7 western European nations. Not only is Public Storage large, but also profitable and growing....
Flood Plains and Flood Pains
A law most Americans have never heard of quietly went into effect on October 1, 2013, the same day as the U.S. government came grinding to a shutdown. The law, known as the Biggert-Waters Flood Insurance Reform Act, will roll out over several years. Each year, a portion of the subsidies that keep federal flood insurance premiums artificially low for over 1 million policy holders around the country will be eliminated. Homeowners qualified for the subsidy because their property existed before the initial drawing of flood insurance rate maps. Approximately 20% of all property owners with federal flood insurance receive these subsidies. For example, some homeowners who currently pay approximately $1,000 per year for federal flood insurance will end up paying, after all subsidies are removed, an estimated $8,000 and $9,000 per year for the same policy. Premiums are based on the cost of the...
Alternatives to the Stock Market Bubble
On Friday, November 8, all 3 of the major U.S. stock indices, the Dow Jones Industrial Average, NASDAQ, and the S&P 500, all closed at all-time record highs. As a whole, the U.S. stock market has been soaring recently, bringing untold ‘paper profits’ to millions of investors. However, there are people associated with the market that believe it to be significantly overvalued. Fund manager John Hussman points to the following measures in his weekly Hussman Funds Newsletter during the first week of November:
  • Cyclically adjusted price-earnings ratio (current P/E is 25X vs. 15X average)
  • Market cap to revenue (current ratio of 1.6 vs. 1.0 average)
  • Market cap to GDP (double the pre-1990s norm)
These are not just slightly overvalued indicators, they are grossly overvalued indicators. In his same newsletter, Hussman provides commentary that supports his claim that the stock market crash that is forthcoming will be extreme, somewhere in...
Rolling Over Your 401K
One of our primary services at EquiAlt is handling rollover 401K accounts. The pension funds of your grandparents have given way to a newer type of workplace retirement account which is called a 401K. More formally, this is a defined-contribution pension account named after subsection 401K of the Internal Revenue Service Tax Code which establishes the tax rules on this type of accounts. Many employers offer a 401K retirement account. In most cases, you defer a portion of your current earnings until retirement and in return, your employer matches some portion of your contribution. Each year, a greater percentage of your retirement account becomes vested. This means that even if you separate from your employer, your contribution plus the vested amount of the employer’s contribution is yours to keep. You are allowed to move your account to another investment advisor, which is referred to as...
Looking for a Leader When it Come to Mortgages?
Taking a broad view of mortgage interest rates, one could easily argue that compared to interest rates of the past several decades, today’s rates are comparatively low. However, no one has the opportunity to finance a home with comparison rates from yesteryear. The reality is we are at the mercy of the interest rate markets at the time we are looking to finance a property.  The leading 30-year, fixed rate mortgage in September ascended to 4.53% from 3.35% last spring. That small 1.2% change in interest rates may not seem like much on the surface, but as we drill down, it plays a much larger role in easing pace of the U.S. economy. In late October, Bankrate.com reported that households earning the median income in only 8 of 25 major U.S. metropolitan areas could afford the median priced home in the same metro area. That is...
Back Again: Bubble-Like Markets
A lot of people are worried that stocks are headed for another crash. Stocks have been rising almost daily, but the missing component is the expected backtracking that comes along with health ascents. And so the questions loom, when is the crash going to occur? Why is this happening is and what can we do to prevent it? Larry D. Fink, whose company, BlackRock Inc., is the world’s largest money manager ($4.1 trillion in assets), has recently stated that the Federal Reserve Policy is contributing the “bubble-like markets”. Fink is quoted as saying, in October 2013, that “We’ve seen real bubble-like markets again. We’ve had a huge increase in the equity market. We’ve seen corporate-debt spreads narrow dramatically”. The most apparent danger for stocks is, in essence, the Federal Reserve; and, because of the contributing factors, it is now imperative that the Fed starts to reduce their heavy...
A Unique Credit Instrument Fueling an Equally Unique Trend in Home Ownership
From the time of the real estate pricing peak 2006, the average price or residential real estate across the United States fell 35%. This price drop precipitated the start of a quiet trend among private equity firms, hedge funds, and real estate investment trusts. Companies such as Blackstone Group LP have entered into transactions to purchase almost 200,000 residences, paying upwards of $20 billion for the properties. Many of these properties are in some of the hardest hit housing markets in states such as Florida, Nevada, California, and Arizona. These companies are looking to take the landlord/tenant relationship to a new level. When purchasing distressed properties, in bulk, from lenders that foreclosed on their original mortgagees, these companies gain several significant advantages. First, they are able to negotiate a better price.  A commercial lender is in the business of lending money, not managing real estate. ...
You Don’t Need to be a Weather Man to Know It’s Warm Outside
To simply make the declaration that “it is warm outside” can be a reckless statement, depending on your audience. A person from Orlando, FL will likely have a different definition of ‘warm’ than someone from Juneau, Alaska. You need more facts than just the air temperature to best assess the situation and make a comment that fits the scenario. Recently, RealtyTrac LLC. released its recap of U.S. foreclosures for the United States, during the 3rd quarter of 2013. The report found there were 131,232 properties indicating a default notice, scheduled auction, or bank repossession during September. On the surface, this may appear like a lot of properties, or referring back to our weather analogy, “warm”. In actuality, we need to view it in context of where the U.S. real estate and mortgage industries have been over the past few years. This number actually represents a...