The Bail out of the financial markets has failed to be passed by Congress. What does this mean?
I wish I had that answer for you.... But rest assured that it will not hurt residential lending. Yes, we have less product to offer our clients now than we did a year or two ago, but most of what we have lost was the riskier loans. The True NO-Doc loans are gone. There are significant restrictions on Stated Income loans, and this is going to sound silly: YOU NEED A JOB to get a mortgage!
The biggest fear of the bailout failing would be potential recession, Job growth could stall and jobs could be lost. The bailout was to add liquidity into the markets. Banks stopped lending to other banks. Corporate credit lines are at risk. It got so bad a week or so ago that fund managers were only putting cash into short term T-bills. (To the point that the 3 month bill had a rate so low that Uncle Sam was almost borrowing the money for free). There is no trust in banks, which is a huge problem. Add to that the fear of credit lines drying up and it could bring business to a screeching halt.
Personally I have mixed feelings on the subject. On one hand it turns my stomach to see our money being used to reward someone for bad behavior. But I also do not want to see a deep recession.
Keep in mind that the government has always pushed to have programs available for people that would not qualify for loans traditionally. So in a way you can point a finger at the government for pushing for certain program types. You can also point an army full of fingers at the boom market. No one ever thought it was possible for Real Estate values to decline. So why would a mortgage ever go bad? That was the mentality of the Ratings industry when they rated low credit score No-Doc the same as a 20% fully verified loan with a high credit score. This allowed banks to pool all mortgages together and sell them as a pool of loans. Investors did not know what was in these pools and were afraid of defaults. That's how "Mortgage" became a bad word.
On a positive note considering the record 777 point drop (Not a lucky number at all) today:
•· The fall in stocks has helped the credit markets, and Mortgage rates did NOT go up
•· Uncle Sam b ailed out Fannie and Freddie adding some credibility to mortgages again
•· If we do end up in a recession (I hope not!) it WILL bring interest rates down. The biggest enemy of a long term interest rate is inflation, so Recession would be a friend of rates.
Other than the market digesting what is happening in the stock market and what did not happen in Washington today the biggest news of the week will be Fridays Employment report. The market already has a pretty weak number priced in, with a loss of 100,000 jobs and a jobless rate of 6.1%. If there is a significant difference in this number we will see movement in the markets. A significantly stronger number will bring rates up and possibly a weaker number will move rates lower...
This is uncharted territory, and there aren't many answers out there. I hope this helps explain some of what is happening today.
Have a great week.
Rob
Robert Rauf
Real Estate Mortgage network
(732)740-0175 Cell
(732) 223-1630 x102 Office
It has been a bumpy day. But not a bad one for Mortgages. The market is still licking its wounds and will probably spend the rest of the week deciding on what is going to happen next.
Thanks for putting things in perspective. Thanks for writing. Bonnie
I figure that, by the time they are done, they will have something banged out. They usually do lots of posturing both sides then end up with something.
Thanks for the blog, Rob. Your headline of "777" caught my eye, because I thought the same thing about the market today... NOT a lucky number at all. We need some relief to stop the bleeding. Hope we find it.
Better 777 than 666 - now that would have been a bad omen!
I'm all for personal responsibility so seeing any sort of bailout just seems like a cop out and against the American way of a free market society. BUT, it does look like something needs to be done, unfortunately because I really do grapple with this concept. I'm sure they'll reconvene and re-package it another way. Better not to rush it and make it better.
Silly concept: Needing a job to get a mortgage!
Such is the world we live in...no one ever got a job from a poor person! I hate that reality, and I would gladly take a miracle. Maybe we will learn from this painful lesson...historically, we aren't very good learners I'm afraid.
Lisa, I'm with you on this one!
I am breathing a HUGE sigh of relief! I was starting to wonder about our politicians, who were acting like a permissive parent raising a spoiled child. I will post a couple of blogs later on this evening about some of my views on this. There are some great things going on which the media is not picking up on. Stay tuned!
Thanks Robert for this post! The news may seem dismal, but it really isn't. We now have to look where we should have looked in the first place.
Robert,
Thanks. This is a very encouraging post. With all of the "Chicken Little" reports we've been getting, it's great to hear a little sanity. :)
Steve
Robert,
I just got my AR daily report, and you are the "Member Featured" for today!!!! Super congratulations!! Very deserving. :)
Steve
Mirela, I am all for the Free Markets, NOT for Government Intervention. It is so against my core belief as a Republican (Small Government!). But I guess it is needed if there is no other option. The question is - what are the other options? Of course, there is always foreign investment, but we don't need more foreigners buying up America. Another option is our own private sector money. I believe that if things get cheap enough, that private money will come out.
Also, I wonder if the 700 billion would be enough - or if we'd be back in the same place six months from now and needing more money. Would it just be patching a leak when something stronger is needed? I'd rather go in strong and full force once than dribble over time. Kind of like the surge with Iraq - if we had gone in with more troops at the beginning...
The Republican part of me wants the free market to shake itself out. The Realtor in me wants to see the bailout because MAYBE things will get better. But how much better and for how long before they just need more money? MORE MONEY, MORE MONEY, MORE MONEY. Where is it all going to come from and how long can we exist this way?? Your example of the overpermissive parents and the spolied child is a great analogy.
And I'm totally with Rob on feeling sick over bailing out people/institutions that have made poor decisions. Where is the responsibility???
Wow, Hey, Just saw Steve's comment after I already hit 'send' and you are featured in the Member Spotlight! Congrats Buddy!!!