• The bond market is once again taking off this morning. Mortgage rates should be lower again today.
• But remember, this momentum can change. Lots of emotion and volatility.
"A tournament, a tournament, a tournament of lies. Offer me solutions, offer me alternatives and I decline. It's the end of the world as we know it and I feel fine."
• Perhaps the bailout plan would have a better chance if it was renamed the Economic Stabilization Plan.
• A friend sent an email proposing an alternative for the $85 Billion bailout of AIG, the insurance company. My colleague suggests that the $85 Billion would be better spent in what she called a "We Deserve It Dividend". Split the money equally between all bonafide US citizens that are 18 years or older. Assume that there are approximately 200,000,000 people that fit that profile. If you do the math that means each would get $425,000. BUT THE MATH IS WRONG. Actually, punching the calculator buttons and dividing $85B by the $200M gives everyone $425. Many people received this email and assume the math is correct. By the way, $700 billion would give 200 million Americans $3,500 each. Not enough to pay off the mortgage.
• Bond yields dropped today as the "flight to quality" resumed. We should see lower mortgage rates tomorrow.
• Normally we would only write about the mortgage market. But these aren't normal times as evidenced by the proposed bailout plan. In particular, in section 8:
"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
• Did I miss something or does this fly in the face of the balance of powers concept in our Constitution?
• Bonds are being sold again this morning. Rates are up over 1/2% since the lows last week. At this moment, it feels like they are selling everything that has to do with the good 'ole USA which leads to the next item:
• There is the notion of financial terrorism starting to make the rounds within the financial community. There were massive short sales coming out of Dubai starting September 11th.
• Understand where you stand now in relationship to the current turmoil. I am available to act as an independent voice in response to your concerns with respect to your financial profile.
• Let us know what's on your mind. Where are your aspirations or concerns? We can all grow through discourse.
• "May you live in interesting times". Is that a saying or a curse?
• The ten year bond has cratered in price today. Yesterday may have been a top in the bonds and a low in yields. Should we get back to the lows in the equities that we reached yesterday, there's no longer anything to hold us up.
• A lot of people were whining on the tv yesterday and I guess Uncle Hank was listening. The patient's disease has not been cured. It's simply been masked (with oxygen).
• On the face of it, it feels good. But imagine if you were to buy your house and then told that you couldn't sell it for a certain amount of time, or you couldn't insure it (hedge it) against future unknowns. Wouldn't seem like America, would it?
• Heard that stress rises as the level of people's uncertainty rises. Will this action create more certainty or less?
• If you have a mortgage that is due to adjust sometime in the near future be sure you understand the ramifications for the potential change. I am available and willing to review that information with you.
• A company that survived the Civil War, the railroad bankruptcies, WWI, the Great Depression, WWII, and the Cold War couldn't survive the biggest financial boom in Wall Street history?
• What does it mean for capitalism when it’s biggest firms go bust?
• A Managing Director of Pimco is on CNBC suggesting the US Treasury or Federal Reserve step up and provide additional liquidity for the mortgage backed securities (MBS) bond market. Pimco is perhaps the largest bond fund in the world. Is that someone “talking their book” as they are one of the largest investors in that arena?
• Interest futures are down this morning (rates are higher) as there is a more optimistic note in the equities’ market.
• Credit Default Swaps: who ever figured that term would carry such weight?
• Anger, sadness, fear and confusion. Societal moods are changing fast. Risk appetite has disappeared.
• To get through this, we need to get to the other side of it. There will be consequential changes. We may have a few unsettling years ahead of us but nothing to fear. This shakeout will be viewed as healthy and positive.
• Don't blame this on the "subprime meltdown". Or only lenders, borrowers, realtors or loan officers.
• Why are people pointing fingers at Lehman, WaMu and AIG?
• The same way they did with Mac and Mae last week (Fannie Mae & Freddie Mac).
• And Bear Stearns before that.
• When will it be understood that this is a systemic issue?
• Isn't this a necessary evil? The destruction of 20 years of derivative growth with huge amounts of leverage unchecked by oversight and regulation? And although painful, isn't this one step closer to resolution?
• When it all does end where will you and your family be? Will you have successfully navigated the era of debt destruction? Remember, net worth isn't self worth, having fun isn't the same as being happy. Be grateful for the small blessings.
• Understand the difference between having fun and being happy.
• Realize time is a precious commodity.
• Today's a day of reflection, remembrance and personal introspection.
• Take a moment to appreciate what we do have.
• May we find peace in all that we do.
Trying to make sense of the GSE bailout? What will happen to interest rates? How much will it eventually cost US taxpayers? We all are.
To understand where we’re going we have to know where we’ve been.
Listening to Larry Kudlow last night I heard a statement that wasn’t true. He said the US never had the Government Sponsored Entities (GSEs) Fannie Mae or Freddie Mac on its balance sheet. Not true! Fannie Mae was a creation of the FDR’s administration. The FHA Administrator chartered Fannie Mae in 1938 at a time when there was an inability or unwillingness of private lenders to ensure a reliable supply of mortgage credit throughout the country.
Later in in 1968 during Nixon’s tenure as president, The Charter Act provided for Fannie as a "government-sponsored private corporation". Little is mentioned of the fact that The 1968 Act also provided the authority to issue Mortgage-Backed Securities (MBS). In 1970, Freddie Mac was created as a counterweight in the market.
One of the main impetuses for this move was to get Fannie Mae off the US government’s books to balance the budget. Kudlow was wrong!
There seems to be a public disdain by hard-core free market capitalists for this agency born out of the New Deal era even though it functioned as a private company with government oversight much the way today’s banks do.
Some months ago we heard it said that Bank of America and its cadre of lawyers and lobbyists wrote the housing bill that becomes effective October 1. This comes after buying the largest mortgage originator in the US. In that case Fannie and Freddie could prove to be effective competition. Perhaps the reason for the current disdain for GSEs becomes more apparent.
When it hit the fan in August, 2007, all the players were clamoring for Fannie and Freddie to be given greater lending authority, buying more loans of ever bigger sizes. Neither actually makes loans. They buy closed loans from lenders thus creating liquidity to lenders to make more loans. Was the plan to give them just enough rope to hang themselves.
A number of talking heads including one republican congressman spoke of “covered bonds” as the solution. This is based on a European model that is now in place. Banks will make the loans as they do now but they will be the ones to offer the mortgage backed securities or covered bonds, call them what you want. They say it allow us to avoid today's problems. Kudlow was screaming several times that your mortgage "won't be in some Singapore fund". If banks want to create these “instruments” then there must be some profit there, some redeeming value.
Whether banks sell these mortgages as covered bonds or Fannie and Freddie continue to sell them as mortgage backed securities, if there is a lack of oversight as there has been the last decade or so if won't matter. There will be problems. Fannie, Freddie and the "subprime" problem are scapegoats. They are the symptoms of the illness.
As Sue Herera of CNBC said Wall St will just wait for the next cycle to once again push the envelope of greed.
Don't forget the Linton Hall Manor Celebration
Welcome to the inaugural edition of My Mortgage Info's blog. Since February, 2007, I have been writing the column at MetFund.com's Points of Interest. Lately, the writing covered financial news items that impacted the mortgage market and it will continue to do the same. But here, I will write how you can best use and make sense of that endless noise called news.
We are bombarded by an endless stream of information. Information that at times may seem too fragmented to act upon. I will attempt to provide insight and advice which you can use on a daily basis.
And, by the way, don't hesitate to add your two cents to the discussion. Agree with me, disagree with me, challenge the prevailing winds, express your unique perspective. We'd all like to hear from you.
Everyday we are presented with a multitude of ways to help and assist others with their individual needs. But there are so few opportunities in life to make a difference on a grander scale. I hope this is only one of my opportunities.
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