December 15, 2005

Bizzy’s AM Coffee Biz-Econ Links (121505)

Filed under: Corporate Outrage,Economy,Scams,Taxes & Government — Tom @ 8:02 am

Loan Standards for Mortgages May Get Tougher

Unspecified “regulators” are concerned about risky mortgages:

Qualifying for a low-payment, high-risk mortgage is getting harder.

Federal regulators plan to issue a notice this month that could make lenders more hesitant to offer “non-traditional” mortgages — such as interest-only loans and option adjustable-rate mortgages — to people with weak credit or finances.

In the third quarter, 33% of first mortgages approved by lenders were non-traditional loans, compared with 1% five years ago, according to LoanPerformance, a research firm.

Interest-only and option ARMs are fairly complex mortgages. Typically, borrowers make artificially low payments for a period, such as five years. Afterward, payments shoot up to reflect current interest rates and the principal owed. Regulators worry that some borrowers lured by these mortgages’ initial low payments won’t be able to handle higher payments later. Lenders would then be at risk for loan defaults.

Though it’s not at all clear from the article, it appears that the Office of the Comptroller of the Currency will bring pressure to bear on the national banks under its jurisdiction.

A better answer would be to have the securitizers, Fannie Mae and Freddie Mac, either tighten their standards or simply buy fewer mortgage loans. The more lenders are forced to keep loans on their books, and thus retain the risk of default, the more careful they will be in their lending decisions.

Institutional Investors Say Exec Pay Is Too High

Per MarketWatch (registration required):

Ninety percent of institutional investors said U.S. firms’ current pay model results in some executives being “dramatically overpaid,” according to the survey of 55 institutions which manage a total of $800 billion in assets.

Sixty-three percent said the current pay model is an example of poor corporate governance, and 64% said companies should do a better job disclosing pay packages, the survey found.

Institutional investors “don’t like the executive pay model,” said Ira Kay, an executive compensation consultant with Watson Wyatt. Kay is in New York, and Watson Wyatt is based in Washington.

These investors are particularly bothered by the steep severance packages firms award to many business leaders, and they’d like to see pay more closely tied to specific financial measures, such as earnings-per-share growth or revenue growth, Kay said.

Most of the institutional investors approve of companies awarding stock based on the executive’s performance. While about a third of the investors don’t mind stock options that simply vest over time, 65% support stock options that vest based on performance, and 70% approve of performance-based restricted stock grants.

Still, overall, institutional investors believe executives “are just paid too much … and that management has too much influence over its own pay,” Kay said.

What a hoot. The institutions have to start exercising their powers as shareholders and stop whining. Outsized executive pay, especially the golden parachutes that get triggered when companies change hands, and the outrageous severance packages of those who fail, represents one of only a few unfortunately valid indictments of the American capitalist system.

Text Message Stock Scams

This seems dreadfully obvious, but apparently people are falling for it. If you get a text message saying that a stock is a hot buy, ignore it.

Better idea: columnist, talk show host, and CNBC commentator Jim Cramer recommends at least a few of hours of research and several weeks of following a company before investing in an individual stock. Hard to argue with that. Cramer further states that if you don’t have the time for that, as well as an hour a week to dedicate to tracking a stock and monitoring the company once you buy it, you should not own individual stocks.


1 Comment

  1. Morgan Stanley chief John Mack has just been awarded $11.5 million for just five months work. Fulsome by any standards. Check it at

    Comment by soxfirst — December 15, 2005 @ 2:01 pm

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