by Bill James, CMC
Residential Bancorp
Canton, Ohio

January 2007
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December 2007

JANUARY 2008

POTPOURRI by W H James, Jr., CMC, Board Chairman-Residential Bancorp, Canton, Ohio,  December 11^th, 2007.

The leaders and executives of the mortgage industry have received their “orders and instructions” for this year. 2008 is going to offer challenges and risk not seen since the 1930’s. These leaders know quite well (or should) that failure is a real possibility and the ramifications great. Well consider the orders this young leader received in 1944. These are the total and exact words his “board of directors” placed in his hands.

         “You will enter the continent of Europe and, in conjunction with the other United Nations, undertake operations aimed at the heart of Germany and the destruction of her armed forces”

Kind of makes our job pale in comparison. By the way, this man’s name was General Dwight David Eisenhower, and he along with his “employees” got the job done. His pay, $660 per month plus room and board, medical coverage and a small life insurance policy.

The Fed did lower the fed funds interest rate for the second time in November. This action was either very astute or incredibly dumb, time will tell. On December 11^th they will probably make another cut of ¼% or possibly ½%. They are really between a rock and a hard place. As expected mortgage interest rates have decreased substantially and 30 year rates of less than 6% are prevalent. Signs indicate we could see rates approach a low of 5 1/2% over the near term. This will spark activity in real estate sales, both existing and  the huge overhang of new homes sitting and unsold. The deluge of gloom and doom spewing from the news media has reached an ignorance level of “Biblical proportions”. For the record, we’ve seen worse. It was worse in 1959, it was worse in 1964, 1974, and it was worse in 1980. Most of you remember 1990, new home sales were off nearly twice the number we are seeing today. The difference being, today we have a huge number of new homes sitting unsold . . . guess what? They will sell. One of our better Presidents said it,” All we have to fear, is fear itself “. We are dealing with the only product I know that human beings cannot live without . . . . Housing!

After screaming that inflation is non existent in the U.S. for the last 15 years I now have to change my tune. Conditions worldwide primarily brought about by the collapse of the value of the U.S. currency make increased inflation a very real possibility. Naturally our bureaucrats and the Federal Reserve are now assuring us we can expect very little inflation; they are predicting 1.6% to 1.9% on average over the next few years! Figures! Reminds me of the Clinton years when we were actually running huge surpluses in government operations. I’ll never forget hearing our Congressional yoyos proudly proclaiming we would continue to run these surpluses for over 10 years. . . . . right. It took their incompetence and mismanagement less than 2 years to achieve the largest deficits in history. At this point it is appropriate to once again reiterate “the opinions and rhetoric offered in this column are not those of the OAMB, NAMB, National Mortgage Press or the SPCA.

Here’s a stroke of genius . . . . . The Federal Bankruptcy Court has ruled that the officers that led American Home Mortgage to Bankruptcy will be AWARDED $9,000,000 (that’s nine million dollars!) in bonuses! I don’t wish these people ill, but I am very confused when crap like this goes on, and it happens everyday it seems! Incompetence breeds huge rewards in our country . . . . Ignorance and stupidity if not treated, becomes self healing !

Watch the Bush plan to freeze mortgage interest rates very closely. This plan contains the seeds of a giant cluster coitus . . . .  This plan is so thoroughly flawed it defies any logic. . . . . here’s just a couple examples. These mortgages were securitized and sold to many types of investors including individuals, pension funds, Ira’s etc. In other words hundreds of millions were invested by Ma and Pa who realistically should expect their return to be based on the promise of adjustable interest rates. Mortgage servicers have absolutely NO authority to freeze rates; they are bound by the mortgage servicing agreement which references the mortgage security prospectus terms. Law suits by the thousands should be expected. In addition the marketability of future mortgage backed bonds will invariably be forever tainted! Simplistically, imagine you bought a car with explicit guarantees and warranty. The engine freezes up but just as you return to the dealer for honoring the warranty, the government voids the engine warranty!  The final nail is the rule to determine who will be brought under this freeze …… basically it protects only those who are paying, and includes a convoluted qualification procedure that would test the Wisdom of Solomon. We need to freeze our bureaucrats and politicians for about 3 years, let the law of the jungle prevail, tempered by the existing laws and safeguards now in place, enforce those laws strictly not selectively, and get back to the common sense, responsible, law abiding country we once were!

The Browns are showing promise . . . . we are seeing flashes of an NFL QB, a receiving corps of quality, a respectable offensive line, a defensive line that needs help and a defensive secondary that forgets to show up, the best return specialist in football, and a coaching staff that still doesn’t understand they have a running back who if used 25 times per game will offer the possibility of W’s. . . . The Jets game showed Jamal Lewis is a real NFL running back and absolutely reminds me of Jim Brown. They used him 24 times in the game and he is the reason they won. His touchdown run at the end of the game was incredible! The play calling was superb!

For pure unadulterated comedy don’t miss the Presidential candidates debates . . . . . these people are the finest examples on NIMNULS you could ever have entertain you! They have not a single intelligent thought or proposal to offer, only endless juvenile bickering and infighting. I keep hearing Dean Martin saying, “We in a heap a trouble heah”.

Sure would like to hear from some of you as to what you are seeing, hearing, or perceiving in our industry. E mail me . . . . billj@bancorp.com

Bill James is Board Chairman of Residential Bancorp in Canton, Ohio and can be reached @ 330-495-6041.