Bank of America’s Job Cuts Could Get Ugly: Report : HousingWire || financial news for the mortgage market.

Wow.  30,000 jobs from a bank merger.   That’s not a pretty number…..

Tom

Post from: Straight Talk About Mortgages and Real Estate

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Bank of America’s Job Cuts Could Get Ugly: Report : HousingWire || financial news for the mortgage market

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Rates took a nice drop downward today.   Mainly because of the speculative story that got leaked about how the Treasury is going to lower rates.   For more information on that, read 4.5% Mortgage Rates and Will it really help?

Recommendations - as the volatility of the market continues and increases, the risk that this could backfire is getting higher and higher.   Therefore, I’m recommending that you lock all loans…..

Stay tuned!

Tom Vanderwell

Post from: Straight Talk About Mortgages and Real Estate

If you are reading this anywhere other than your RSS Feed or on my site, please contact me at tvanderwell@straighttalkaboutmortgages.com.

Mortgage Market Update for 12-4-2008

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……Which, of course, leaves plenty of questions unanswered. But it appears that the plan under consideration, if consistent with the lobbying efforts put forth by the NAR and others, would only apply to purchase transactions, not refis. (emphasis added by me)

Analysts at one large trading desk — we can’t say who, given that their note was not a formal research report — guesstimated late Wednesday that the volume of loans eligible for origination under the program could be in the range of $500 billion or so, given estimated purchase volume for next year. (Which is, as astute readers have likely noted, already the size of the announced Fed program.)

But a larger problem here is this: a 4.5 percent primary market rate essentially implies a current coupon of 4 percent, barring some other intervention mechanism. Industry color popping around after market close on Wednesday evening suggested that such a coupon would mean that most of the traditional buyer base for agency MBS would likely head elsewhere — leaving only the Treasury, and possibly the Fed, as the sole buyers of bonds under this sort of program. (emphasis added by me)

Treasury Weighs 4.5 Percent Mortgages, But Who Will Buy? : HousingWire || financial news for the mortgage market.

Okay, Tom here again.   A couple of thoughts:

1. Click on the link and read Paul’s entire article.   There are a lot more questions than answers.
2. If he’s right (and Paul is usually right) and this pushes other investors/buyers elsewhere, where would they go?
3. If the Treasury and the Fed are the only buyers of bonds under this program, how are they going to come up with the money to buy them?
4. If they indeed are the only buyers, then are we effectively nationalizing the mortgage industry?
5. Will a rate drop from 5.5% to 4.5% be enough to persuade people to go out and borrow more money and buy a new home?   My gut feeling is that some of people who are on the “fence” will consider it but not enough to make a substantial difference in home sales.

Stay tuned…..

Tom Vanderwell

Post from: Straight Talk About Mortgages and Real Estate

If you are reading this anywhere other than your RSS Feed or on my site, please contact me at tvanderwell@straighttalkaboutmortgages.com.

Treasury Weighs 4.5 Percent Mortgages, But Who Will Buy? : HousingWire || financial news for the mortgage market

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We’ve already detailed how Goldman is expected to pay bonuses in excess of the $10 billion equity injection provided by the Treasury. Now, according to Alternet, of the $125B paid to the largest 9 recipients of the bailout to date, only $17B is projected to remain at the institutions:

EconomPic Data: How Much of the Bailout Money Will Make it into the System?

Okay, this is not a good picture.   We’ve got $125 Billion of Federal money that has gone to the big 9 banks and they in turn are keeping $108 Billion of it to meet payroll?

How is that helping any economy other than the banker’s wallets?

Tom Vanderwell

Post from: Straight Talk About Mortgages and Real Estate

If you are reading this anywhere other than your RSS Feed or on my site, please contact me at tvanderwell@straighttalkaboutmortgages.com.

EconomPic Data: How Much of the Bailout Money Will Make it into the System?

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The plan would employ Fannie Mae to offer mortgages with rates as low as 4.5%, roughly 1% lower than current rates.

The measure is under consideration as part of the Treasury Department’s continued effort to limit foreclosures, which has been at the core of the financial crisis. The plan would seek to revitalize the financial market without bailing out homeowners and lenders, the Journal reported.

As part of the proposal under consideration, Treasury would buy mortgage securities backed by Fannie Mae and Freddie Mac, in addition to those guaranteed by the Federal Housing Administration.

Fannie Mae and Freddie Mac guarantee a significant chunk of all new mortgages in the United States.

Treasury may set mortgage rates at 4.5% to boost sales - MarketWatch.

Okay, not to rain on everyone’s parade, but let’s take a logical look at the numbers and the statistics behind it.

1. What’s the only way possible that I’m aware of to lower mortgage rates?  By raising the price of mortgage backed securities which lowers the rates on them.   Lower rates on mortgage backed securities equals lower mortgage rates.
2. How do you increase the price of mortgage backed securities?  The only way that happens is by increasing the demand for them.
3. How do you increase the demand for them?  Have the government step in and buy a HUGE (I’m talking many many many zeroes!) amount of mortgage backed securities off of Fannie and Freddie.
4. How is the US government going to come up with that money?   All joking about printing presses aside, in reality, they are going to have to borrow the money.
5. How do they borrow the money?   By issuing a LOT of US Treasury bonds to finance their purchase of mortgage backed securities.

So, what happens with the price of US Treasuries if suddenly there’s another $1 Trillion on the market?

• Demand stays the same.
• Supply goes way up because the government is flooding the market with more debt.
• Price goes down because the supply demand balance is tilted out of adjustment.
• Rates go up.

I was talking to another blogger this afternoon and he said it quite well.   We have a supply problem.   There is simply too much debt floating out there to work the way that Hank and Bernie want it to.

So far, the market has shown that they would rather earn less (frankly close to zero) and invest in US Treasuries than they would invest in mortgage backed securities.  Given the history of Fannie and Freddie recently (how many billions did they lose in the 3rd quarter?) I’m not sure anyone can blame them.  Can you?

So, we’ll have to see how the details pan out, but I’m not optimistic that what the plan is proposing will actually work.  It might actually backfire and due to the increases in government borrowings have a reverse effect and keep mortgage rates higher.

Stay tuned, it’s going to be an interesting ride!

Tom Vanderwell

Post from: Straight Talk About Mortgages and Real Estate

If you are reading this anywhere other than your RSS Feed or on my site, please contact me at tvanderwell@straighttalkaboutmortgages.com.

Treasury may set mortgage rates at 4.5% to boost sales - MarketWatch

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Business contacts downbeat in latest Fed report - MarketWatch.

There’s no surprise in this report, but it does reinforce what’s happening in the economy.

More later.

Tom Vanderwell

Post from: Straight Talk About Mortgages and Real Estate

If you are reading this anywhere other than your RSS Feed or on my site, please contact me at tvanderwell@straighttalkaboutmortgages.com.

Business contacts downbeat in latest Fed report - Beige Book

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For the 78th consecutive day, gas prices fell nationwide yesterday.  At $1.81 per gallon, the average price at the pump is less than half what it was at its peak in July.

And although gas prices vary by locale, the cost of a fill-up is worthy of national news.

The main reason why national gas prices matter is because of something called the Wealth Effect — people’s tendency to spend more money when they have a perceived feeling of being worth more.

Low gas prices can amplify the Wealth Effect, leading to higher levels of consumer spending nationwide — the primary driver of the U.S. economy.

But more important than the Wealth Effect is the reverse Wealth Effect.  That’s when consumers have a perceived feeling of being worth less and their spending reflects it.  This past summer is a terrific example of it. 

Soaring gas prices, Wall Street troubles, and negative campaigning constantly reminded Americans of what was wrong with the economy.  It follows, therefore, that retail sales figures plunged in September and October.  Once the election passed, however, and gas prices fell, a gentle optimism returned.

Not surprisingly, consumer confidence rose in November.

All of this matters to real estate because as Americans regain their confidence and feel more “wealthy”, they will be more likely to make “move up” purchase, buy new home appliances, and take other actions that propel the economy forward. 

Oh, and mortgage rates trolling at 3-year lows certainly helps, too.

(Image courtesy: GasBuddy.com)

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Reactions and Recommendations:

Reactions - volatility continues to plague the markets and the overall economic news (like I’ve discussed earlier) remains quite negative.   The stock market seems to be doing an every other day bi-polar switching between negative and positive moods and the results are showing.   Some of the internal signals are showing that the “shine” is coming off of Paulson’s effort to buy mortgages and keep mortgage rates low.

Recommendations - due to the volatility and the ongoing stress in the financial markets, I’m recommending that you lock all loans.

I’ll keep in touch, let me know if I can be of help.

Tom Vanderwell

Post from: Straight Talk About Mortgages and Real Estate

If you are reading this anywhere other than your RSS Feed or on my site, please contact me at tvanderwell@straighttalkaboutmortgages.com.

Mortgage Market Update for 12-3-2008

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Remember, in many cases (and I believe this is one of them) it’s not so much exactly what the number of jobs lost is.  The important thing for market movements is whether the number of jobs lost is more or less than expected.

Stay tuned, but I expect this will put downward pressure on the stock market and upward pressure on mortgage rates (more on why coming later).

Tom Vanderwell

Post from: Straight Talk About Mortgages and Real Estate

If you are reading this anywhere other than your RSS Feed or on my site, please contact me at tvanderwell@straighttalkaboutmortgages.com.

ADP Jobs Report

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