 |
| 30 Yr Fix |
6.37% |
0.02% |
| 15 Yr Fix |
5.91% |
-0.01% |
| 1 Yr ARM |
5.17% |
0.00% |
| 5/1 ARM |
5.82% |
0.04% |
| 30 Yr Tres |
4.47% |
-0.05% |
| Fed Prime |
5.00% |
-0.25% |
|
|
|
|
 |
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GSE Attempts To Help Mortgage Market Squashed
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Investors in the two government sponsored enterprises (GSEs)
Freddie Mac and Fannie Mae got their hopes up early in the week based on speculations
that federal regulators - specifically the Office of Federal Housing Enterprise
Oversight (OFHEO) - might allow the two mortgage giants to buy more
home loans in an effort to shore up what has become a catastrophic
residential credit market.
Stocks in both GSE's climbed Monday and Tuesday on unconfirmed rumors that
Fannie Mae had requested that restrictions on its portfolios
be lifted. Senators Christopher Dodd and Charles Schumer also called on federal
regulators to ease restrictions on both GSE portfolios.
Ever since Freddie and Fannie ran into trouble with federal regulators, the
Securities and Exchange Commission (SEC) and the New York Stock Exchange over
their accounting practices three years ago there have been calls from Republican
members of Congress, the Administration, and two different Federal Reserve chairmen
to limit the multi-trillion dollar residential loan portfolios owned by the
two GSEs. Essentially those opposed to Freddie and Fannie feel that (a) they
have not necessarily acted as effective stewards and (b) they have an unfair
advantage over their private market competitors. As far back as 2005
President Bush spoke out against the large portfolios maintained by the two
firms.
Still, the current situation is extraordinary as we have watched
probably well over a dozen mortgage companies either bite the dust or severely
restrict their lending. Two Bear Stearns hedge funds ran into trouble last month
and one folded and there is new word that a Goldman Sachs fund may also be in
trouble. The severe drop on Wall Street Thursday was started by word from France
that one of its main players, BNP Paribas, admitted it did not know what its
exposure might be to the American subprime market and therefore closed trading
in three of its funds because it had no idea how to assess their value.
Anecdotal information about the residential credit markets is not reassuring;
we are hearing that money simply is not there to fund loans that have been in
the pipeline unless they are pure vanilla loans with an extra scoop of ala mode.
After the markets closed on Thursday Countrywide Mortgage, one of the nation's
largest lenders, admitted it might not be in as good a shape as it had claimed
earlier in the week.
OFHEO has remained quiet on suggestions about GSE expansion. Its director,
James Lockhart has long opposed anything but a reduction in Freddie and Fannie's
portfolios. And in a quite remarkable press conference on Thursday, President
Bush stated flatly that both corporations need to be reformed and streamlined
before they're allowed to buy more loans and that the free market is better
equipped to handle the situation.
Thursday the European Central Bank (ECB) and Bank of Canada
both stepped in to assuage fears of a credit crunch that are roiling the international
markets. ECB loaned 95 billion euros (the equivalent of $131 billion USD) to
49 banks and the Bank of Canada said it would "support the stability of the
Canadian financial system and the continued functioning of financial markets.
The Bank is closely monitoring developments, and will deal with issues as they
arise." The ECB one-day quick tender exceeded the record 70 billion euros it
provided in the wake of 9/11. The ECB injected an additional 61.05 billion euros
into the system on Friday, which appeared to steady panicky markets.
The Federal Reserve also stepped up both Thursday and Friday, pumping billions
into the system. The Fed said it stood ready to provide emergency funds to banks
and that it would do whatever was necessary to keep markets from what Reuters
called "seizing up."
Reuters said that such statements from the Fed are unusual,
with the last having come after the September 11, 2001, terror attacks, and
reflect the seriousness that policy-makers view the current disorder in the
markets.
The press service said that central banks worldwide have injected at least
$323.3 billion into credit markets in the past 48 hours.
In an editorial on Friday The New York Times endorsed an effort to allow Freddie
and Fannie to infuse money into the mortgage market but stressed that they should
be required to use that enhanced capacity to help homeowners rather than lenders.
The Times said that the GSEs should buy loans only from lenders who commit to
using the fresh capital to refinance borrowers who are in trouble and to pressure
lenders to do more to restructure existing loans by extending the term of the
low teaser rates that originally lured borrowers or to raising interest loan
rates on adjustable rate loans in digestible steps rather than all at once.
The editorial stated that "Many strapped borrowers stuck in
subprime loans, with adjustable rates that reset sharply upward, could have
qualified for higher quality loans to begin with. Instead they were steered
into the subprime variety by brokers who earned bigger fees by making dodgier
mortgages. Now that the lenders are suddenly in trouble and credit standards
have been tightened, those borrowers cannot refinance into higher quality, more
affordable loans. They clearly deserve help to keep their homes.
"In other instances, borrowers who had weak credit a few years ago and
so had no choice but to take out subprime loans, now have track records of good
payments. They, too, should be allowed to refinance into loans that would let
them keep their homes."
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Comments (16)
| Here we are about 7 months later. Fingers started out pointing in just about every direction except where the responsibilty lay. Now that the smoke is beginning to clear, just about everyone seems to agree that the major portion of the blame is split between Mr. Greenspan's Fed and the credit rating agencies, including Standard and Poors. They provided the bait that led greedy borrowers down the primrose path. The shame of it is that instead of the greedy investors, borrowers and credit rating agencies taking a hit over this mess, the government instead chooses to bail out the very people that caused the problem and allows the Fed to depart from its mandate of low inflation and maximum employment by again lowering interest rates in order to prop up the stock market. Where the hell is the Justice department in all of this? |
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| Above Posted By:
TrueRates
| Tue, 29 Apr 2008 16:00:44 EST |
| The problem does not rest with LO's or borrowers. The problem was initiated by the Fed when it dropped interest rates very low, trying to "fight inflation". That opened the door to the subprime sector. Then Standard & Poors purchase model, that was the model for secondary market investors, was not stringent enough to block out bad paper and the investors bought up everything with high interest rates. Put the responsibility where it belongs - with Mr. Greenspan's Fed. |
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| Above Posted By:
TrueRates
| Mon, 10 Sep 2007 14:44:08 EST |
| Justin, it appears that everyone in the real estate industry and the lending institutions are shirking responsibility. Two years ago, I predicted a meltdown on the subprime lending. Therefore, I say shame on the real estate agents that pushed to sell overpriced properties to people that agents were most likely aware that they could not afford. And shame on the loan officers that acquiesced. In my view, everyone involved is guilty of fraud. |
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| Above Posted By:
jose
| Wed, 22 Aug 2007 22:36:11 EST |
| My husband and I are in the middle of this crap. I agree we take full responsiblity from the beginning we were eager to purchase a home and I have to say it was the LO he did not get us the best package possible. After realizing this I decide to go into the business to help folks like ourselves so that they won't end up in a ARM and have no way to refi because of slow payments. The bottom line is it was LO as well as us for the mess that we are in.
You live and you learn. |
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| Above Posted By:
Carolyn
| Wed, 22 Aug 2007 10:34:31 EST |
| Don't blame the underwriters. I was the head underwriter for a large builder owned mortgage company, we had to justify turning down a loan, and were usually told to sign it anyway. So many people think we can just deny a loan..during the last 5 years you could get fired for pending for more info or turning down a request. You need to place the blame a bit higher up on the ladder than us! |
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| Above Posted By:
underwriter Diane
| Mon, 20 Aug 2007 11:02:34 EST |
| The bottom line is that borrowers got greedy and tried to buy more of a home than they could afford. |
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| Above Posted By:
Justin
| Mon, 20 Aug 2007 10:49:54 EST |
| Hey Jose... what about shame on the BORROWER for signing on the bottom line for that mortgage of $600k. No matter what the loan product, someone signed. How about some real personal responsibility here instead of blamming others. The borrowers who got themselves into these loans are just as much to blame as anyone. Now they're crying foul when they can't make their payments! They weren't upset when they chose that 4% ARM instead of going w/ the 6% fixed. |
|
| Above Posted By:
Justin
| Mon, 20 Aug 2007 10:47:18 EST |
| Those individuals that were enticed into purchasing ridiculously priced properties simply because the money was available now want to sell for the same or higher price to avoid foreclosure. |
|
| Above Posted By:
jose
| Fri, 17 Aug 2007 22:05:50 EST |
| It is common sence that if borrower works at jack in the box that the borrower can not afford a $600,000.00 mortgage. Shame on LO and underwriters for pushing stated income loans through just to close a loan when the LO, broker and underwriter all know they can not afford the mortgage! |
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| Above Posted By:
Jennifer
| Thu, 16 Aug 2007 13:26:18 EST |
| To protect the interest of investors, lenders, and borrowers the mortgage industry needs a federal order to ban all Alt-A foreclosures and require the lender to modify the loans to conforming standards, (e.g. write off accumulated negative amortization and penalties, restart the loans at a 5% fixed rate over 30 years, and authorize Fannie and Freddie to purchase the modifed loans). The Alt-A lenders are bankrupt and there's no gain in sinking homeownership. |
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| Above Posted By:
Don Sharp
| Thu, 16 Aug 2007 06:45:38 EST |
| I also agree with Steve F, but.......as a Loan Officer, I have had to refinance many borrowers out of subprime products, when it was clear that they qualified for agencies products to begin with. So, even though the lender approved the loan, the loan officer needs to take responsibility if they did not put the borrower in the right product to begin with. It is our responsibility to do what is in the best interest of the client!!! Those who don't need to get out of the business. |
|
| Above Posted By:
Rebecca
| Sun, 12 Aug 2007 12:51:22 EST |
| What happens when millions can't sell their home or buy a new one? Panic. People wont buy new toasters or cars. Freddie and Fannie should be allowed to open their flood gates. Their loan limits allow for mansions in rural and studios in costal america. Indexing based on median house prices would be easy. Also do no cost refis for subprime borrowers who have acceptable payment histories and are now facing huge jumps in payments. This is a liquidity crisis. Without liquidity, the house is on fire. |
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| Above Posted By:
Rob the Real Estate Investor
| Sat, 11 Aug 2007 11:21:48 EST |
| Steve F
You hit the nail on the head ! |
|
| Above Posted By:
Dean
| Sat, 11 Aug 2007 10:41:28 EST |
| Bush is right on this one! Let the private markets fix their own problems. Individuals, Banks and Investors must learn the hard way that they live in a free market economy.
You just don't borrow or lend money without understanding the terms of the loan and the ability of it to be paid back over time. Individuals are lucky that the country allows for bankruptcy so they can start back at $0 and not -$500,000. Banks and Investors can also go back to $0 and start over.
|
|
| Above Posted By:
Freemarket Dave
| Sat, 11 Aug 2007 08:32:09 EST |
| I really like the addition of the tag cloud feature...it really helps to organize similar content/articles. |
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| Above Posted By:
John
| Fri, 10 Aug 2007 15:15:47 EST |
| I'm amazed at the flack being thrown at LO's and mortgage brokers regarding the fallout of the mortgage biz. You know that if the programs these lenders were offering never existed, this market crunch wouldn't exist. Clients that meet the criteria for the lender's program offering are underwritten by the lenders, not the LO's. IF the lo's were falsifying docs, then yes- guilt lies there. IF they submitted correct docs, accurate appraisals, the lenders approved them for the loan..... |
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| Above Posted By:
Steve F Loan Officer
| Fri, 10 Aug 2007 14:11:02 EST |
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