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Mortgage-Related Stock Investing & Option Investing

Mortgage rates are near record lows. This came about from the Federal Reserve Board’s relentless downward bias pressure on interest rates. Ben Bernanke, chairman of the Federal Reserve Board, wants a near zero percent rate for short term interest rates based on prevailing economic data. With this near zero rates, the Fed’s goal of spurring up economic activity is gaining foothold in the industry where this financial mess started in the first place – the mortgage sector of the housing industry.

The decision to take over Fannie Mae (FNM) and Freddie Mac (FRE) , and Federal Home Loan Bank System as well as Fed’s plan last month to buy up to $600 billion worth of securities from these mentioned banks fueled the interest rate downtrend. What proverbially followed was the surge in applications.

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Just last week Mortgage Bankers Association said overall applications pointed to a 48% increase. Refinance applications rose by 63% and purchase applications registered 11% growth. Be reminded that this was last week’s growth. But this includes rejected and multiple applications. The increase in multiple applications can be ascertained due to tighter lending standards.

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Compared to last week’s national average rate of 5.5% 30 year fixed, it is now pegged at 5.1%, a 40 basis points spread. While the 15 year fixed presently at 4.8% is up 10 basis points from last week’s rate of 4.7%. But these rates are much better versus 2008 January’s rates of 6.31% for 30 year fixed.

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No matter how we look at it, companies involved in mortgage loans are surely to benefit from these large applications influx. Spearheading the group of banks and mortgage companies are:

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Bank of America Corp. (BAC)

Bank of America Corp. (BAC), – One of the three largest banks in the US by assets. Bank of America boasts the country’s most extensive branch network, with more than 6,100 locations covering some 30 states from coast to coast. Its core services include consumer and small business banking, credit cards, and asset management.

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JP Morgan Chase & Co. (JPM)

JP Morgan Chase & Co. (JPM) – The number three financial services firm in the US behind Citigroup and Bank of America is keen on its retail operations (more than 3,000 bank branches and growing) and is also among the nation’s top mortgage lenders, automobile loan writers, and credit card issuers. It also boasts formidable investment banking and asset management operations.

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Wachovia Corp. (WB)

Wachovia Corp. (WB) – Wachovia is a diversified financial services company that provides a broad range of retail banking and brokerage, asset and wealth management, and corporate and investment banking products and services.

Wells Fargo & Co. (WFC)

Wells Fargo & Co. (WFC) – Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services through stores, its Internet site and other distribution channels across North America as well as internationally.

Citigroup Inc (C)

Citigroup Inc (C) – the leading global financial services company, has some two hundred million customer accounts and does business in more than hundred countries, providing consumers, corporations, governments, and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management.

Quantum Servicing Corp

Quantum Servicing Corp, a subsidiary of Quantum Servicing, handles mortgage loans through its parent company Clayton Holdings, Inc. Clayton is an information and analytics company serving lenders loan buyers and bond issuers, services and fixed income investors in mortgage-related loans and other debt instruments.

Quicken Loans

Quicken Loans Inc. is a mortgage loan provider always rated highly by customers. Quicken Loans Inc consists of the online lending site, the Rock Financial brand in southeast Michigan, One Reverse Mortgage, based in San Diego, California, and Title Source, a mortgage settlement service provider.

Are we to expect forthcoming price stabilization in the housing sector? Is this the start of what everybody is waiting for, a sign of encouraging data? Bear in mind that refinances and purchase application increase recorded last week was highest over the last five years.

Mortgage related companies are beginning to look like attractive investments, especially with the mortgage rates dropping, however, is this really the bottom, or is their more pain left in this sector?

A prudent investor might consider hedging or protecting his/her investments in the mortgage industry with stock options. A put option can provide an investor “stock insurance“. An investor can participate in the upside potential of a stock while being protected from a stock’s downside with the put option. Investors may also consider a married put strategy and use stock options for generating income against the stock. Investors interested in a married put / income generating strategy should check out this website: .

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[tags] Federal Reserve Board, Ben Bernanke, Federal Home Loan Bank, Mortgage Bankers Association, Quantum Servicing, Clayton Holdings,, Rock Financial, One Reverse Mortgage, Title Source, mortgage industry, BAC, BankAmerica Corp., C, Citigroup Inc., FNM, Fannie Mae, FRE, Freddie Mac Corp., JPM, J.P. Morgan Chase, WB, Wachovia Corp., WFC, Wells Fargo & Co., covered call investment strategy, investment strategy, iron condor, poweroptions, stock insurance, stock option trading, stock options [/tags]

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