Fannie Mae and Freddie Mac have both shown dramatic losses. Combined they control $5 Trillion dollars of the US mortgage market. In comparison the US deficit is 9.5 Trillion. Now keep in mind that it would be impossible for all 5 Trillion dollars worth of loans to go bad at the same time. However, when you consider that this week Fannie Mae showed a 2.3 Billion dollar loss which is a large impact on their cash reserves it give you a better picture of what is going on. Fannie Mae and Freddie Mac where both given more lenient cash reserve requirements as a part of the recent changes that Congress and the President gave both companies in an effort to help control the Sub-Prime mess. This reduction in the cash reserves is a formula for disaster. Imagine Bears and Sterns just prior to the Fed take over. You have a company who could not withstand any demands on its liquidity and yet you allow them to lower their cash requirements? If you want another example then look at what just happened to IndyMac.
Paulson got a blank check from Congress and instead of investing it he literally told Fannie and Freddie to go spend. He will feel the repercussions of this action in the near future when the next wave of foreclosure makes the impact during 2009 and 2010. He will need to pull out that check book and empty the bank account and then turn to the Tax Payer again for more money. When all said and done I think that the true mess of the current bank crisis will cost around 500 Billion.
Housing starts are at record lows. Building permits fell 1.3% from the previous month showing a level not seen since March 1991. Builder confidence is at a 22 year low based on the NAHB Housing Market Index (HMI) which dropped to 18.
The economy itself is also facing a recession according to Greenspan. I personally feel that we were in a recession last quarter and possibly facing a long term recession or dare I say a depression. I say this because the real estate market and Wall street are the too largest investment vehicles that investors have. Usually when Wall street is doing well investors will pull money out of the real estate market to invest into stocks and vice versa. Right now the Dow Jones suffering a 20% decline since October of last year when it was at 14,164 and currently closing on Friday at 11,346. And the real estate market is showing a record number of foreclosures that may top 1,000,000. This is forcing most investors to park their money in cash accounts or government bonds until the smoke clears. This will only prolong the recession because of the lack of confidence and lack of cash infusion into either arena. Now you also need to add that interest rates are heading up, qualifying for a home is harder, and inflation is on the horizon, and you get the perfect storm for the United States. This may compare to the Great Depression of the 30’s.
The silver lining is that I see the bottom of the market to be mid or late part of 2009. 2010 and 2011 will be time to shop and look for great investment opportunities. 1-4 Family units that actually debt service themselves and even show positive cash flow. If you buy right now make sure you bargain hunt and don’t be disappointed if you equity disappears in the first 2-3 years. Eventually is will come back and if you are looking for long term investments then this is the market for you. Keep a close eye on interest rates and keep a close eye for auctions and bank owned properties.
Filed Under (Mortgage New) by jorge on 30-04-2008
The Federal Reserve cut the rate by 1/4 much in line with what was expected. It was less aggressive than their positions late in 2007, but it helped calm the market. Wall street showed a positive response and is currently in positive territory only two hours before the closing bell.
In addition the Federal Reserve issues a positive note that it expects inflation to improve. That however remains to be seen. Their actions today shows a conservative stance but they did say the they are ready to "act as needed to promote sustainable economic growth and stability."
"Financial markets remain under considerable stress and tight credit conditions and deepening housing contractions are likely to weigh on economic growth over the next few quarters," the Fed officials said.
While saying the central bank expected inflation to moderate in coming months, the Fed statement said that "uncertainty about the inflation outlook remains high," adding that it would be necessary to "continue to monitor inflation developments carefully."
Current Mortgage rates are showing a different picture and are heading slightly upward over the past two weeks. Fears of inflation have reflected on the Bonds and thus producing a higher interest rate for Mortgages. Currently levels are just under 6.0% for a 30 year fix loan. Consumers are not getting the benefit of the Feds actions. So where is the benefit? It is in the pockets of the lenders. They are hedging their portfolios against losses.
X-Paste Toothpaste Dispenser
know this has nothing to do with Real Estate or Mortgages but I think that it is such a cool gadget that it was worth sharing. I have seen it around the net, but never able to buy one. Finally I found it on Ebay and ordered one.
It is a Toothpaste Dispenser designed by X-Paste. It is made of a high quality chrome and functions with ease. Installation was a piece of cake. Simply took it out of the box and pressed the suction cups on my tile wall. I then inserted my favorite toothpaste and it worked like magic.
My bathroom looks so nice and clean and when it comes to brushing your teeth, all you do is pickup your toothbrush and insert it in the base of the unit and press until you get the desired amount of toothpaste. It really makes things simple. I can’t understand why it has take so long for someone to invent this. I would think that all of us thought of this at some point or another. If you want one check out the link below.
I did check out TouchandBrush and will take your order but never deliver the product. It also seems to be in a cheap ABS imitation. Make sure your stay away from that site. Their customer service will tell you its on order and should be in anytime now. I ended up waiting for over 3 months and they still don’t have it.
I placed my order on Ebay and received it in 3 days. I love it.
Filed Under (Mortgage New) by jorge on 20-04-2008
Since the news on February 13 that the President signed into law the Economic Stimulus Act of 2008 which included a "temporary" increase in the conforming loan limits of Fannie and Freddie everyone has hoped that it would be a major boost to the Real Estate market. So far it seems to be the big disappointment that I expected.
I have spoken to 5 wholesale representatives of major lenders and they say volume is not there. The main reason is that rates start around 7.25% and nobody is buying. Most of the loans that were originated with the old Wall Street programs were priced just around .25 to .375 above the conforming loan programs. Based on todays market that should give you a jumbo loan rate of about 6 to 6.25% as of 4/17/08. Currently the difference in rates between a conforming loan and a Jumbo loan are over one full percent or more. Who wants to buy in this market when the rate is high and prices are dropping.
I think that they need to bring back stated programs for the self employed at a rate that is only .25 to .375 above the conforming rate. Keep the stringent credit score requirements and lower the down payment required to around 10%. Most lenders now require 20% for stated income loans and this creates a hardship on the most buyers in todays market with the prices of homes were they are. I am not saying that they should go back to the way things were but the new model is not going to work. What is more likely to happen based on the current programs available to consumers in the higher price range is that they will just sit out and wait till the market drops some more. This will eventually lead to the Economic Stimulus Act of 2008 being nothing more that a paper weight on the "desk" of our economy. The word "temporary" will definitely have been appropriate.
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