It is funny how people don’t really want to know things. I have been laughing that the media, and thus the majority of the general public, has been calling the real estate financing problem “Sub-Prime.”  The reality is, sub-prime mortgages were simply the catalyst or the first cards to drop in the house of cards. The financial system is so heavily built on leverage that it doesn’t take much of a ripple in the cash flow to cause a problem for the whole system.  Moody’s just announced today that they will be reviewing all prime-jumbo mortgage securities from 2006 and 2007 because late payments are, “building more quickly in the past few months.” No shit.

tags: moodys, mortgage, sub-prime

I was just reading the latest housing market commentary on the National Association of Realtors website. I had to chuckle a bit as the NAR commentary tries to paint the best picture of the housing market possible. I guess my perspective, knowing the financing/debt markets better than most average people, allows me to see through much of the rhetoric that economists, REALTORS and other “experts” spew on a daily basis.  I think it is pretty easy to understand that a four-one-hundreths of a percent increase in home sales month over month is marginal at best…and that surely one cannot deduce anything about the housing market using only this one statistic.

Of course, as I drove to the office this morning, the news on the radio was all roses with regards to the housing market. “We have turned the corner” one expert said. I think I laughed out loud and I hope others listening did as well. What scares me most is that the overwhelming majority of people in this country have no clue what is going on in the debt markets. They have no idea how fragile some of the largest financial institutional players are right now. Leveraged to the hilt, it is not going to take much of a hiccup for more of the big boys to take the same path as Bear Stearns. Of course, you will hear shock and awe from the interviews of everyday employees and passers by when listening to the radio and reading the paper.  I was never one to be a media basher in the past, but the more I learn and the less I watch the nightly and local news, the more I realize that the media is making a mountain out of a mole hill 99% of the time.

I guess that is enough ranting for one morning. Have a good one.

tags: media, nar, national association of realtors, housing market, real estate

Office of Federal Housing Enterprise Oversight Director James B. Lockhart announced yesterday that the maximum 2008 conforming loan limit for single-family mortgages purchased by Fannie Mae and Freddie Mac (the Enterprises) will remain at the 2007 level of $417,000 for one-unit properties for most of the U.S.

The conforming loan limit determines the maximum size of a mortgage that an Enterprise can buy or guarantee. By law the maximum conforming loan limit is based on the October-to-October change in the average house price in the Monthly Interest Rate Survey (MIRS) of the Federal Housing Finance Board (FHFB). The FHFB reported the decline in the average price was $10,685 or 3.49 percent, from $306,258 in October 2006 to $295,573 in October 2007. The combined two-year decline is now 3.65 percent.

While many in the mortgage industry have felt that this number needs to increase, as the rise in property values in some states has outpaced this limit, the limit will remain the same…even though pricing indicators are showing a decline in values. This is good news for homeowners and mortgage professionals alike as a drop in this limit would make financing even more difficult and more expensive for the end user.

tags: fnma, financing, housing, loans, mortgages

FOMC Chairman, Ben Bernanke, is scheduled to speak on the Fed’s new talking points in just over an hour and a half.  I would expect the Chairman to say something like inflation is their primary concern (duh) and that they are slightly concerned still with revelations in the credit markets. At some point we will have all of the information about the derivative action that the hedge funds have been involved in with relation to the MBS market. I don’t expect that will be the case for another couple of months.  However, the news this morning from Freddie Mac that they have suffered a $2B loss in Q3 of 2007 should make a lot of the people out there who have been saying we have all of the information and this problem is only a “sub prime” problem, take notice.  I would expect that many new “revelations” will take place after Thanksgiving and before Christmas when the markets are typically pretty quiet.

Housing start numbers were off this morning as well as the new home permit numbers were down and the only numbers that were up a bit were new multi-family starts in some areas.

tags: bernanke, fed, fomc, freddie mac, mortgage

This is the first item I have read that is written by someone (well two people actually) that knows what they are talking about.  Most people today think that lowering the discount rate or the fed funds rate is going to save the US real estate markets….guess again Beavis. The only thing that should do, and has already started to do, is put more money in the M&A people’s pockets because you just made their cost of funds a heck of a lot cheaper. Great job Bernanke, you puss.  Check out this paper by two Wharton School professors (yeah, I know, I don’t like professors either, but this is good) entitled, “The Housing Finance Revolution.”

tags: home loans, loans, mortgage, subprime, wharton, market

The Fed will be making an announcement tomorrow and the media as well as everyone else who doesn’t know what they are talking about, are hoping that they will announce a rate cut of some sort. While this will bring increased liquidity into the financial markets, it doesn’t mean the housing market will improve or be saved…or that Jane and John Doe who are losing their house will have a solution to help them. The issue today is that lenders have stopped making high leverage loans (loans with Loan to Value ratios above 80% as an example) to just about everyone. The people that need these loans the most, are the people that 1) have something like this in place and can’t afford it and probably never could and 2) are the ones losing their houses. A FFR cut is not going to help these people as it will have NO effect on lender’s lending policies and standards. As Lonnie said this morning in his email:

Everyone is waiting for the Fed announcement tomorrow and is hoping a Fed rate cut will rescue the housing and mortgage markets. As I stated once before, a rate cut may create liquidity in the financial markets, however, investors still need to believe mortgage lenders are making quality loans.

People need to understand that increased liquidity at this point merely helps people who have credit and the ability to support it, to borrow at cheaper rates. Lending guidelines are still extremely tight and that is not likely to change until the fat is trimmed from the housing market.

tags: bernanke, bubble, fed, fomc, foreclosure, housing market, interest rates

According to the TBWS.com daily update:

Washington Mutual is to stop providing warehouse lending lines (ouch)

Option One (Sub Prime) is to cut 575 jobs

First Horizon to cut 1,500 jobs in their secondary division

Countrywide funded ~$34Billion in loans in August of 2007, off 17% from August of 2006

tags: economy, loans, market, mortgage, residential

Rumors this morning that Citibank re-packager Lown Home (catchy name right?) is not funding loans anymore. This is just a rumor at this point, but I would suspect that their time in the market may be numbered based on what I have heard and read from a number of different sources.

tags: economy, financing, home loan, mortgage, sub prime

What is seldom reported by our amazingly accurate media is that the NEW home sales figures do not include cancellations…which is what has been hurting big home developers recently.  The new home sales figures are bloated simply because they decide not to include deals that are no longer in contract…that makes sense.

Today, the National Association of Realtors reported that existing home sales fell 0.2% in July, marking the fifth consecutive monthly decline. On a year over year basis, sales dropped 9.0%, while the median price of an existing home dropped 0.6% to $228,900, and the supply of homes for sale at the end of the month climbed 5.1%. At the current sales pace, that represented 9.6 months’ of inventory, the most since October 1991. I like their title for the article though.  It is all about perception in the marketplace my friends.

tags: existing home sales, home sales, nar, national association of realtors, real estate

Well, I can smell blood in the water, and apparently B of A could as well. Yesterday’s late announcement that B of A would pick up $2B of Countrywide’s preferred stock (that means that if Countrywide goes under, preferred stock holders have access to assets) and the deal funded today.  Good pick up for BofA as Countrywide is the nation’s biggest loan servicing company I believe.  I hope the idea of the country’s largest residential mortgage lender being in serious trouble has your attention.

In other news, the Fed lowered the Discount Window Rate from 6.25% to 5.75% in an emergency session last week after announcing they would not change it…interesting, I wonder who called them to change their minds.  They also increased the amount of time banks can borrow from the window to 30 days, probably more significant than lowering the discount rate. Comparing this to the Fed Funds Rate (the rate that banks borrow from each other) for 30-day money @ 5.5%, and you can see that this makes letting other banks borrow money from you, if you are a bank, more palatable.  Personally, I think this is pretty irresponsible and almost as irresponsible as Senator Chris Dodd’s comments the other night on Hardball. I didn’t write anything about his blaming the vast majority of the mortgage market problems on mortgage brokers because I was pretty pissed. I think what he said is irresponsible and shows that he is no different than the rest of the BS finger pointers looking for a scapegoat on Capitol Hill. The really crappy part is that he chairs the Banking, Housing and Urban Affairs Committee up there. More proof that we simply need to kick all of the people in Congress out of office and start from scratch.

A great write up on the recent Fed action and the difference between the Discount Rate and the Federal Funds Rate.

tags: banking, bofa, chris dodd, countrywide, discount rate, fomc, fed, fed funds rate