July 25, 2008

On a (Sunday), July 14, we all know by now that Congress met about 'rescuing' Fannie Mae and Freddie Mac. Since then, they have been able to issue /sell bonds and raise some capital. However, investor confidence is still waning, and the S&P is considering downgrading their credit rating. Uh oh. The July publication of ‘The Economist’ makes some very interesting comments . The name of the article is ‘End of Illusions’. A couple of illusions are cited : (1) Investors fell for the idea that American house prices would not fall across the country, and (2) that debt issued by Fannie Mae and Freddie Mac is backed by the government. These 2 beliefs alone have allowed the ‘twins’ to borrow cheaply for as long as I can remember , and offering fixed interest rates at a low cost (comparatively to the market). Now they are at risk of their own demise, since their portfolio has consisted (since the 1990’s) of ‘other’ than conforming mortgage backed securities. They lowered their standards just like everyone else, and have had pools of non performing assets as well.



Did you realize that Fannie and Freddie do not actually service any loans? They merely guarantee them to lenders, for a fee, and let the lenders retain the servicing rights. NO ONE pays a mortgage note to Fannie Mae. Now, Fannie Mae and Freddie Mac ARE the ones who make the rules. They have a general set of guidelines (call it a box) that all loans (conforming, <$417,000) must fit into. It 'used to be' over the last 5-6 years, that box got bigger and bigger. Or maybe we should say it kept getting holes in it. Until there almost was no box! Well, now the box is revived. And if you don't fit into it, there is no loan. That is right, no loan. In fact, just this week, a national leading lender (who shall remain nameless) that we sell (most) of our mortgages to.... said that EVERYONE has to verify income with paystubs and/or tax returns. What a concept! Really! How did we ever get away from that? I am not sure. It just happened.



The Dow plunged and surged at least 7 times in a 2 week period (normal these days). After almost a week straight of increasing rates, we had some relief early last week, that only lasted about 3 hours. Then started to surge again (who can remember why) and now, finally…..the week ended on Friday the 25th showing some relief again. Why the roller coaster? Lets see………Iran is building nukes, oil is out of control, Fannie/Freddie are rumored to be crashing, jobless claims are up to $406,000, all the major banks (WAMU, CITI, WACHOVIA, JP MORGAN) reported losses in the first 2 quarters, almost all the home builders cited major losses in revenue, Ford Motor reported an 8.7 million loss, UBS is in a lawsuit now with Ny State Attorney General, Wachovia announced over 6,000 layoffs nationwide, and Obama could win the white house…….Wow. I am out of breath. SO MUCH IS HAPPENING! My motto is ‘no time like the present’. Live in the moment. Just do it.



A shocking story before I say 'adios'. I had a prospective client call me this week. Bless his heart. First time homebuyer. In his email, he actually asked me for information about a 'liar loan' that a doctor colleague told him about. He is a new doctor/resident. Not making much money. I guess he has been studying too hard to watch the news (or living under a rock) to realize that the 'liar ' loans that Americans have gotten used to, is actually why we are in this mess. NEXT WEEK: Details about the bill that was passed to rescue homeownership – including a raise in the conforming limit?

July 10, 2008

Well, FINALLY we have seen some easing of rates. Why? For starters, there is much global unrest at the announcement of Iran launching those missles. Is it hoopla or show? No one knows. Oil is over $140/barrel and climbing, Indy Mac Bank (one of the top 5 Jumbo and Alt A Lenders ) closed its doors this week, and Freddie Mac’s stock dropped to $6 from $10 this week. There is uncertainty and unrest on the horizon…..and the bond market loves that! It means that investors are nervous about keeping their investments in the volatile stock market, and seek the safe haven of bonds. As the demand for bonds increases, the price increases, and the yield (rate) decreases. Lets just enjoy this while we can. After almost 3 straight weeks of an increasing market, I am ready for these lower rates!

Some quotes that inspired me this week: ‘Give yourself permission to succeed’ – Stephen Davis, Lifestyles Unlimited, Inc.‘Always give without remembering, and always receive without forgetting’ –Brian Tracy‘Integrity is the most valuable and respected quality of leadership. Always keep your word’ – Brian Tracy