Fun With Housing Finance

The Mechanics of Refinancing In a Mortgage Market Gone Crazy

As should be obvious to anyone watching the markets, mortgage rates have fallen to record lows once again.  Turmoil in equity markets, sovereign debt fears and probably expectations about central bank actions have continued to drive interest rates lower on a wide variety of fixed income instruments including agency mortgage backed securities (MBS).  For conforming mortgage loans, yields on MBS drive pricing and rates on loans.  However, the mortgage market is a bit of a mess in the wake of the real estate crash and the dissolution of a large part of the mortgage origination machinery in the last several years.  The silly-low rates being dangled in front of would-be borrowers come with a bunch of strings attached and if you do not meet the many requirements to qualify for the advertised rate you are likely to pay far more in rate/fees or simply be unable to borrow at all.  Since the list of requirements moves around not infrequently, potential borrowers who are on the edge will have a tough time figuring out if they qualify until they actually commit time, money and hair-pulling to an application.

Late last week I locked a rate to refinance my current mortgage.  I will now explore the whys, hows, and what has changed over time in the mortgage process.  I am lucky enough to comfortably meet the current requirements for receiving the advertised rate, so my comments will largely be confined to the so-called "conforming" mortgage market.

How To Buy Life Insurance

Cutting Through The Sales Literature, Marketing And Misinformation

Many people at some point in their lives come to the realization that if they were to unexpectedly die their families would be in serious financial difficulty.  Often this realization happens when you start having children or take on a major financial commitment, such as a large mortgage.  A natural response is to buy life insurance to protect themselves, but all too often people do not buy the right amount, don't buy the right kind, or don't buy it from the right provider.  There isn't a great deal in the way of common sense guides out there and the insurance industry and the agents have a vested interest in pushing certain types of products to less-than-well-educated customers.  In addition, the insurance industry seems to thrive on producing an endless array of complex products which often sound a lot better than they are.  This will be an attempt to offer some basic guidelines of buying life insurance coverage.

An Experiment In Bottom Fishing

Holding An Outsized Cash Position In Hopes Of Scooping The Market

Like many long term investors, I generally try to stay fully invested as a general rule.  Even at the best of times, cash typically drags down overall portfolio performance over the long term and most of us (myself included) are not great at guessing which way the market will leap next.  However, the past 5 years have presented investors with an amazingly large number of buying opportunities and I often found that being fully invested at such times meant that I could not fully take advantage of such opportunities.  I don't generally like keeping lazy cash around doing nothing, but I decided this spring to try hanging onto an abnormally high level of portfolio cash in expectation that a buying opportunity would materialize shortly.

That Was Fast

Chesapeake Caves To Shareholder Pressure Ahead of Its Annual Meeting

Chesapeake Energy (CHK) announced today that the company has pretty much completely caved in to pressure being applied by Southeastern Asset Management and Carl Icahn, who collectively own more than 20% of the company.  As I detailed in my last post (http://lifeinvestmentseverything.blogspot.com/2012/05/chk-little-help-from-your-friends.html), CHK has been subject to a great deal of criticism due to its apallingly poor corporate governance.  Against a background of extremely low natural gas prices, this criticism has helped push the company toward a crisis and the share price has plunged as a result.  There is still one major unresolved issue with respect to the company's Board structure, but the increased clarity in governance allows an investor to begin to make an informed decision about the company and formulate an investment thesis.