In his annual letter to shareholders, released today, Warren Buffett talks up one or two bright spots in the Berkshire Hathaway portfolio.  Geico, he says, has some buying opportunities in the insurance industry.  “Like mosquitoes in a nudist camp!” quips the Sage.

And, Buffett points out that loans made within Clayton Homes, the Tennessee manufactured housing company that he acquired several years ago on the urging of a group of MBA students, is actually performing very well.  In spite of all the factors that could lead to it having difficulty, less than four percent of its homes are in foreclosure.

This is an ineresting statement.  On the one hand, four percent in foreclosure is actually pretty high.  Yet, (more…)

The FDIC has issued a cease and desist letter against Republic Bank of Kentucky (RBCAA).  The issues concerns the funding of refund anticipation loans (RALs) by RBCAA.  The FDIC is asserting that Republic does not have adequate safeguards in place to thwart fraud among the tax preparers that submit their refund applications to RBCAA.

RBCAA also got its Community Reinvestment Act Evaluation today.  The company did well on services and investments, earning a high satisfactory rating.  However, on the lending test, RBCAA got a “needs to improve.  A “needs to improve” is a very bad score.  In recent years, less than 3 percent of all ratings have been as low as this.

RBCAA would be stung if they were unable to continue with their RAL lending.  Although the bank has regular branches in Louisville, they draw a substantial portion of their business from their tax refund services (TRS) segment.  In 2007, TRS consisted of 11 percent of net income.  Its steady income, too, so going forward it might be a hard thing to give up.

Losses on what would appear to be a relatively risk-less business, given that the Federal government provides underwriting to cue Republic if a filer has an outstanding tax lien, were actually 1.14 percent of TRS revenue in 2007.

The RALs are troubled by the lack of a healthy securitization market, more broadly.  It is not yet evident (more…)

Obama’s new budget contained an unexpected wrinkle.  As written, the President’s plan intends to shelve the guaranteed student loan program.  In its place, students would apply for loans directly to the US Department of Education.

The announcement came after markets closed on Thursday.

This sets up a battle between lobbyists for some of the top for-profit names in education (Sallie Mae, Apollo/University of Phoenix, and First Marblehead against the Democrats.

Students generally can get a better deal through the US Department of Education.  In spite of that opportunity, students still went to private loans because rising tuition often outpaced available grants and US Ed loan funds.

Obama believes that the new proposal would save taxpayers approximately $4 billion per year.

Most times, discussions around the trends in student loans originate from a few places – at the Department of Education or from reports made by corporate student loan providers. But on the ground, its rare to hear much from student aid offices or from registrars.  It’s not that these places are buffeted by the student loan crisis, but that they are normally more strict about entering into the policy fray.  Their mission is to help students get loans.  They serve that motive and it generally stops there.

This is changing as more and more students encounter trouble, either in getting enough loans to pay for school, or in repaying their debt loads.

Some schools are finding that their students can’t put their hands on enough money to (more…)

It appears that cash is the key principle in more and more real estate deals.  Today’s Wall Street Journal reports on a disquieting trend where lenders are turning down buyers willing to pay much higher prices, on the condition that they get financing, in order to take under-market cash prices.

In one instance, a lender turned down an offer of $179,000 contingent upon FHA financing in order to take a cash price of $133,000.  The borrower was a first-time homebuyer.

In some markets, particularly in Florida, all cash deals account for more than 60 percent of all sales.  The article also mentions that lenders are requiring 50 percent down on some condo loans.

Part of what motivates people is a sense that distressed real estate represents a better investment than equities or bonds, even after factoring in the opportunities for leverage.

Time to Pay Off your Mortgage?

This same thought may also lead many existing homeowners with plenty of stock market wealth to consider buying down or even paying off their mortgage.  The conventional wisdom is that this is a poor choice, because with tax benefits, investors can usually beat the borrowing costs with a mix of equities and bonds.  The first trade-off is that these owners give up their deduction on home mortgage interest. The payback definitely includes some peace of mind.  Living debt-free is highly appealing, and knowing that you have a secure home over your head is a great way to feel better in any recession.

Then again, doing means that a borrower with a mortgage paying 6 percent interest is probably getting an effective rate of return of at least 4.5 percent.  It’s a guaranteed return, as well.  That is hardly dramatic, but its a prospect that looks a lot better than many other investment opportunities available out there right now.