There’s always something to howl about.

The Mortgage Dance? EZ: Just Follow The Bouncing Ball.

And the beat goes on…  but sometimes it helps to have that little bouncing ball show us exactly what lyric we are singing this week.  All together now:

Today the Fed suprised no one by opening the discount window to ailing siblings: Fannie Mae and Freddie Mac.  Together they hold more than half of all mortgages in the US and the guarantee that they would not fail has been implied for some time.  The Fed also intimated there would be no other bail outs in the foreseeable future.  Who is walking the thin line?  WaMu, Wachovia, Downey, Indy Mac (oops, they were written out of the chorus last week).  Now it looks as if the Fed has reworked a few more lines and their song to the Wall Street firms goes a little something like this: if you can not fix your problem with the ability to borrow at 2.25%, your problem is not fixable.

This does not bode well for our short list.  Downey is more of a regional and will likely go down under its own weight of Losses and Lawsuits (the real “L” words).  Previous posts right here on BHB have fixed WaMu as the consensus “next big one” to fall.  Wachovia, in my opinion, is more of a question mark.  Straight-laced, tea-loving bank goes to a frat party where “everyone who is anyone” is drinking and the peer pressure just becomes too much.  This is a hangover for which they are ill prepared.

What does this mean for real estate and the mortgages that drive its cycles?  Here’s one thought: if you are a specialist in homes that do not play the Fannie/Freddie tune, you may want to create some more income streams and fast.  Any regional that has not already eviscerated it’s “improvisational jazz” lending will find themselves looking at a Wall Street that no longer believes anyone is above failing.  If recent history has taught us anything it is this: the big firms currently involved in lending are either asleep at the wheel or lying outright.  We watched Counrywide lie about their financials right up until the end.  We watched WaMu take hits twice their predictions.  Even Wachovia, a stalwart bank, was “surprised” by losses more than double what they had predicted for Wall Street.  Not sure why anyone believes anything these firms say now.

I believe this all goes back to a problem that is not discussed in the media (whether for lack of a sound bite or just ignorance is anyone’s guess) and never given the light of day by these firms themselves: the accounting debacle tied to neg-ams.  Want to know who is going down next or where “surprise” losses will most likely come into play?  Look to the firms that made a killin’ putting clients into neg-ams.  (And before some of you start commenting on how neg-ams are just a tool and can be a good loan to boot – you know who you are – let me say “I know.”  Loaded guns are just a tool too.  Cars are just a tool.  I am in favor of both.  But if I stand at the door handing out keys and guns to everyone as they leave the party… let’s just say the onus of responsibility comes back to me.)

I guess it is not so difficult to follow the bouncing ball afterall.  I think I’ll go to bed tonight and dream about how attractive Fannie & Freddie have become lately.  They just may be the only two left on the dance floor.