YCG Investments
“If you buy above average businesses at below average prices, on average, we believe you should come out ahead.” — Brian Yacktman

Mortgage Resets


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Today’s front page of the WSJ has an article titled, “Mortgage Increases Blunted.” As you know, another oncoming wave of resets on adjustable rate mortgages (ARMs) has been a concern of ours. This article did bring up a good point, though:

“Lower-than-expected interest rates, coupled with efforts to aggressively modify loans, are likely to mute payment shocks for some borrowers.”

While this is very true, we’d also like to point out that mortgage resets will continue into the future, and there is long-term inflationary pressure building. Of course, borrowers could refinance to fixed rate loans, but many are finding it difficult to refinance because their home is under water. Overall, 1 in 4 homes are under water, and even more frightening, more than 3 of 4 option ARMs are under water! Others can’t refinance because their incomes have either declined or they’ve lost their job altogether. So, for the time being, the mortgage reset concern may be dampened, but it won’t disappear forever. And until the housing market truly stabilizes, it will be difficult for our economy to be on firm ground.

Disclaimer: The specific securities identified and discussed should not be considered a recommendation to purchase or sell any particular security. Rather, this commentary is presented solely for the purpose of illustrating YCG’s investment approach. These commentaries contain our views and opinions at the time such commentaries were written and are subject to change thereafter. The securities discussed do not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. These commentaries may include “forward looking statements” which may or may not be accurate in the long-term. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable. Past performance is no guarantee of future results.

Posted by: Brian Yacktman | March 29, 2010 | Permalink

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