Mortgage Rate News

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Just a couple of days ago, JP Morgan reported significant profits in the third quarter of 2009. This news was greeted with enthusiasm from investors, and sent the Dow above 10,000. The thought was that the financial system was improving, and that things were on the verge of improving. Yesterday, though, Citi announced that it is still struggling with bad debts and mortgages, and that put a damper on the party. Today, the stock market is in rout mode as Bank of America announces its third quarter was a rather dismal one. MarketWatch reports the bad news about Bank of America:

Bank of America said on Friday that it lost more than $2 billion in the third quarter as its provision for credit losses almost doubled, reflecting stressed consumers.

Bank of America said its net loss applicable to common shareholders was $2.24 billion, or 26 cents a share, in the third quarter, compared to a profit of $704 million, or 15 cents a share, a year ago.

The loss applicable to common shareholders includes preferred stock dividends of $1.24 billion in the latest quarter, compared to $704 million a year ago.

Before the accounting for preferred dividends, the company reported a loss of $1.00 billion in the third quarter, versus a $1.78 billion profit a year ago

It is clear that the financial sector may not really be ready to come roaring back. The news has sent the Dow back below 10,000 today as bears react to the sentiment. In the end, the financial sector is still trying to recover from the losses inflicted by the subprime mortgage market implosion and the financial crisis. These mortgage lenders are in tough shape, still. Even JP Morgan, which saw great profits, had to qualify its earnings report with the fact that non-performing assets are still on the balance sheet. Until the foreclosures stop, it is unlikely that the financial sector will be able to lead the economy to recovery.

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It’s an exciting day on the stock market — and for the financial sector. JP Morgan profits are in, an it appears that third quarter earnings are $3.6 billion. This is even better than a year ago, just before the global financial crisis really hit. As the first major bank to share its earnings, JP Morgan is setting the tone for expectation moving forward. There is hope that the financial sector is moving out of the woods. And, of course, the JP Morgan results underscores a difference in the way people on Wall Street view things versus the view on main street, reports MarketWatch:

“Economists and politicians have stated the market is turning, and while most Americans looking at double-digit unemployment figures aren’t ‘feeling the love,’ today’s announcement by J.P. Morgan Chase suggests that at least the business tide may be turning,” Aite Group analyst Denise Valentine wrote in a research note.

“We certainly expect year-over-year figures to improve, but beating analyst earnings projections by 30 cents a share is impressive,” she concluded.

But it isn’t all good news for JP Morgan. There are concerns about non-performing assets. These are loans that are more than 90 days past due. Apparently, JP Morgan has rather a large amount of these types of loans still on its balance sheet. Non-performing loans have double since last year’s report. This is probably due mainly to the fact that the slumping economy has resulted in job losses and other undesirable economic conditions for the borrowers that JP Morgan services.

The expectation is that the general credit situation is unlikely to improve any time soon. The increasingly possible CIT bankruptcy offers proof of this. Indeed, there are concerns that until the employment situation improves, and consumer spending starts to pick up, that the credit situation will remain tight. This will mean that it will be difficult to get any number of loans, from auto loans to credit cards to mortgages.

One of the things that the mortgage lender looked at when I was applying for my home loan was whether or not I had money in my retirement account. We have a Roth IRA, and that was money that the mortgage lender considered as “available” for a down payment. We didn’t use it, but there are many people who feel that using money from their Roth IRAs is a good idea. After all, there are no penalties if you withdraw money from a Roth IRA for use to buy a home. And, with the current market showing many people losses in their retirement accounts, many of them feel that perhaps “investing” in real estate might be the way to go.

However, it may not be the best course of action after all. Usamy News offers this insight into using a Roth IRA to fund a down payment for a home:

But don’t forget, the stock market is way down as well. And investments in equities and mutual funds are just as likely to show strong increases as real estate, once the economy recovers. Your money will likely earn a better return staying in your Roth IRA than it would investing it in a home - over the past 22 years, existing home prices appreciated an average of 3.4 percent a year, according to the Case-Shilling Index, while the “ballpark” figure for returns on an IRA is 8 percent a year - so financially, your deposit money is likely to appreciate faster by leaving it in a Roth.

In the end, taking money out of your retirement account is rarely a good idea, even if you are doing something important like buying a home. This is because you miss out on the earnings that you could be receiving. Even if you pay the money back eventually, you may find that you are growing your account slower with the missing principal.