Smart Borrower Blog

Refinancing Models Beginning A New Boom?

Dec 29th, 2008 @ 5:07 PM by Alden Smith

From reading my posts, you might think that I tend to dwell on the negative aspects of the banking and mortgage industry.  That isn’t really the case – my sources don’t really give me a lot to crow about.   Actually, I look for good news every post.  It is a bit hard to do lately.  Today, however, I have news that is a bit hard to believe, and I have to think that it might be best to take with a grain of salt.

Richard Bove, a Ladenburg Thalmann analyst, states that “U.S. government programs will work and the negative assumptions concerning the weakening of the economy may be excessive.”  He bases his analysis on data from the Federal Deposit Insurance Corp for the third quarter of 2008.  Bove goes on to say that “To this point investors in bank stocks have paid little attention to the new programs believing them to be inadequate to reverse the economic decline underway. Therefore, bank stocks are falling to levels not experienced since the late 1980s and early 1990s.”  If that is the case, wouldn’t a wise investor be interested in buying into financial stock right now?

Bove bases his analysis on the refi sector of the banking industry.  There is merit to this as reported in my post of December 26th, 2008.  Bove goes on to say that “One sector that is already reacting to the government is the mortgage refinance industry that is now beginning a new boom.  There is reason to believe that a mortgage refinance boom is about to begin and this will change all of the metrics. Loan volume is expected to grow, again. However, the loans being originated will be more conservatively underwritten,” he added.  Conservative is the watchword here.  Banks are actually in fairly decent shape due to the influx of money from the TARP program.  From what I have read, banks are using this bailout money to make their ledgers look pretty.  Well and good, as long as they move that cash back into the economy at some point.

I look for refi to open up in 2009 to the point where people can see some growth in the economy.  I also believe that we are a long ways from being out of the woods just yet.  Smart investors are not going to jump on every recommendation from an industry expert.  We need to remember that billions have been lost, and fortunes wiped out.  To jump right back into the fray is foolhardy right now.  And that, I believe, is what is going to hamper the jump start of the economy.  Tonight’s NBC news predicts that 26% of retail stores will be closing shop next year because of the dismal turnout during the holiday season, when retailers depend on 50% of their income to stay afloat.  We see Mervyn’s, Linens & Things, KB Toys and many others going belly up.  I am sure a lot more are to follow.  Certainly, the playing field is beginning to level.

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