The Wall Street Journal has a story today that is meant to provide some insight about the Obama plan to create a “plain vanilla” home mortgage product (s).  The Journal infers that these products represent some kind of constraint upon lenders – like a taking of real property, except this is not real estate.

The plain vanilla concept is borne out of behavioral economics.  In the case of home mortgages, it says that consumers forego making fully rational decisions because they do not want to pay the search costs of fully (more…)

Morgan Stanley‘s home mortgage lending vividly portrays the drop-off in lending after 2007.

You could say that it plummeted…as in like a lead weight.

Morgan Stanley has made loans through two financial institutions in the last two years.  Saxon Mortgage makes subprime loans.  Morgan Stanley Credit Corporation provides prime credit.  The two lenders could (more…)

Pacific Capital Bancorp uses its tax refund business to offset its poor performance in wealth management and community banking.

That should tell you something about how much confidence a person ought to have in their management.  Remember, Pacific Capital Bancorp is located in Santa Barbara, California.  That’s a pretty nice address.  There are a lot of deposits in that neighborhood.

In spite of the advantages that would be conferred upon a bank that serves (more…)

Pacific Capital Bancorp reminds me of that difficult family member that keeps on finding new ways to create problems.

This week, the news is that Pacific Capital is one of three banks that has announced that it will not be able to make its TARP dividend payment to the Treasury Department. Pacific Capital (PCBC) received $180.6 million last fall. It is a bad sign about the financial health of a bank that routinely pushes bad financial products on poor consumers.

For a refresher about PCBC, read this here.  The summary of the facts are that PCBC, located in posh Santa Barbara, California, is unable to turn a profit through traditional branch banking.  The bank makes loans on small businesses and home mortgages.  Even in Santa Barbara, though, they aren’t able to find a way to make that work profitable.

Instead, PCBC makes its profits by capitalizing the refund anticipation loan (RAL) business.  It partners with main street RAL providers like Jackson Hewitt.

A RAL is an unusual product.  If you haven’t heard of it, its probably reflects well about your financial habits.  Nonetheless, millions of Americans use this product during tax season.  A RAL is an advance on a tax refund.  Typically, a tax preparer will (more…)

The new Consumer Protection bill for financial services will finally bring mortgages down to earth.

I’m talking about the idea of finally forcing the mortgage industry to offer a “plain vanilla mortgage.”  That’s a mortgage with a standard set of features.  The Obama administration imagines a plain vanilla 30-year fixed rate mortgage, and another one with a 5-year adjustable-rate product.  Neither would have prepayment penalties.

Imagine if, when you signed up for an update on your Windows Service Pack, if Microsoft only gave you a custom configuration option.  You know, the one that is for advanced users.  Hmmm….for most of us, that would be decidely not so great.  That’s why we just go for the “express” button.  We want the update, but we don’t want have to study information science.

Imagine if you wanted to drink some milk, but there was no “homogenized and pasteurized” version.  The only version available was “raw milk.” Not only would you have to take special care in handling your milk, but you would also experience high “search costs.”  You would have to find a reliable farmer, and then you would have to learn about how to maintain your cow juice.

About the milk, I suppose it could be better.  If you know what you are doing.  Hey, an individual is entitled to have their own (more…)