Find Out More About Opportunity Cost In This Market

When mortgage banks are constrained by their warehouse lines, and they have to decide which loans to fund or not to fund, is that an example of “opportunity cost”? Yes, although it doesn’t show up on P&L statements. “Opportunity cost” is defined as “the value of the next best alternative forgone as the result of making a decision”. Mortgage banks, and every other company, must deal with these costs every time they make a decision: deciding between something desirable (funding a given loan) and mutually-exclusive (we can only fund $1 million but we have $3 million out for funding). But this is not limited to companies – individuals deal with it every single day. “Do I watch TV or take the dog for a walk?” “Do I buy a flat screen TV for every room or put my child through college?” And so on.

The reason I mention this is that behavioral economists feel that successful business men and women have both an intuitive grasp of this concept, and also a firm grasp of the economics that contribute toward the decision. In other words, successful mortgage bankers don’t just “flip a coin” in deciding to open a new branch in a different town, opening up or closing down a product line, or being originating loans out of state.

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Back to something simple, like the economy! We saw many intra-day price changes yesterday, mostly for the better. Wall Street firms reported a “decent bid” for product, especially given that there are no major Treasury auctions this week. We did have the Chicago Purchasing Managers Index, which increased to its highest level since September. As I explained yesterday, economists watch this number for an early read on the economy, in spite of manufacturing here in the US being only 12% of the economy. Today we will have Construction Spending and the ISM index. Currently the 10-yr is at 3.40% and mortgage security prices are a smidge worse than yesterday afternoon, but a smidge better than yesterday morning.

DocMagic is suing Ellie Mae(for $5 million and an injunction) for antitrust violations, intentional interference with contractual relationships, interference with prospective economic advantage and unfair competition. According to the suit, DocMagic’s loan document software was available to users of Ellie Mae’s Encompass loan origination software, and that Ellie Mae used information specific to DocMagic’s software integration to create its own software product.

A US Congressman was seated next to a little girl on the airplane when the Congressman turned to her and said, “Let’s talk. I’ve heard that flights go quicker if you strike up a conversation with your fellow passenger.”
The little girl, who had just opened her book, closed it slowly and said to the stranger, “What would you like to talk about?”
“Oh, I don’t know,” said the Representative. “How about the banking crisis?” And he smiles.
“OK,”’ she said. “That could be an interesting and timely topic. But let me ask you a question first: A horse, a cow, and a deer all eat the same stuff – grass. Yet a deer excretes little pellets, while a cow turns out a flat patty, and a horse produces clumps of dried grass. Why do you suppose that is?”
The Congressman, visibly surprised by the little girl’s intelligence, thinks about it and says, “Hmmm, I have no idea.”
To which the little girl replies, “Do you really feel qualified to discuss banking when you don’t know sh-t?”

For more news and to see today’s rates visit www.californiadirectlender.com
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Carlos Sagastume

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Posted by Carlos Sagastume on September 5, 2009. Filed under HUD Homes. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry