Shamrock Financial Corporation

August 2, 2010
Ranchos Palos Verdes, CA

Note: Lenders One is the nations largest mortgage banking cooperative. (http://alturl.com/gasrz)

Day one of this bi-annual three day event kicked off this morning with Howard Glaser, lead council for the Community Mortgage Lenders of America (CML of America) and Rob Zimmer of CML of America, followed by Doug Duncan, VP and Chief Economist of Fannie Mae.

We’ll summarize Mr. Duncan’s comments today and CML of America’s comments later on.

The economic forecast for the real estate and mortgage market is best described as “Unusually Uncertain”.Today’s “recovery” is historically about half as strong as most recovery’s but Mr. Duncan places the odds of a double-dip recession at only one in four. Housing represents about 18% of today’s “recovery” and without “incentive policies” this figure may very well have been a negative number. The absence of those incentive policies (read: home buyer assistance programs) fosters this “unusually uncertain” forecast as does the recently passed financial reform bill, which CML of America covered in detail in their remarks this morning.

Of all the key economic indicators, the one most vital to Duncan in forecasting of any strength in a recovery is Private Sector Payroll. He cautioned that looking at Public Sector payroll was unwise as it is created largely from monies removed from the private sector and therefore runs counter intuitively from the private sector.

Corporate profits and liquidity are strong and this should indicate a willingness to expand hiring – and thereby Private Sector Payroll but “policy uncertainty” has employers reluctant to expand payrolls and has consumers reluctant to increase demand with spending.

Duncan also cautions that any income tax increase in 2011 will further reduce Private Sector Payroll as prospective job seekers, already compromised in their job search by lengthened unemployment benefits, may become further dissuaded from returning to the work force by lower projected take home pay realized with an income tax increase. In addition, Duncan notes that consumer confidence is at it’s lowest point since the mid-1960′s.

Additional points:

• Credit has stopped tightening but has not yet begun to start loosening.
• Vacancy rates are at historic highs with excess supply expected to top 7 million units. This has all but stopped the demand for additional construction, a key leader in any economic recovery. Duncan forecasts a return to normal vacancy rates and a corresponding up-turn in housing starts to begin no sooner than early 2013.
• Home ownership rates reached a high of 69.7% nationally and has now fallen to 67%, a number that needs to go even lower in his estimation.

More later on comments by Mr. Glaser, Rob Zimmer and Clint Rockwell.

Dean Harrington has been active in the consumer finance industry since 1984 and is the current Chief Executive Officer of Shamrock Financial. Dean can be reached at dean.harrington@shamrockfinancial.com .