So, it’s Friday again and what has this week been like for the mortgage world? Well, it’s certainly not been boring, that’s for sure! We’re going to talk about six different things in today’s Mortgage Market Week in Review:
Freddie Mac – They started the week’s major news by announcing on Tuesday that they had lost a LOT more money than the market had expected in the last quarter, like $821,000,000 in 90 days. That works out to approximately $380,000 per hour in losses. The markets started worrying about the likely that the government will actually have to bailout Fannie and Freddie. The credit markets get nervous (or more nervous depending on your viewpoint).
The Fed – on Tuesday it would appear at first glance that what they did was a big fat nothing. I’ve done a fair amount of reading and studying of Bernanke and his views and I think I’d have another take on it. What the Fed said on Tuesday was (my paraphrase 
“The economy has some risks on both sides, the risk of recession and the risk of inflation, we’ve made the moves we’ve needed to make, we will continue to monitor things to make sure that the outcome we’re planning on happens, we think it might be a bumpy landing, but we’re confident we’ll be fine.” So rather than a “do nothing” statement, it was more of a “Things will come out okay, just be patient” statement. Does that make sense?
AIG – Not to be outdone by Freddie, AIG announced that during the second quarter, they lost $5.36 billion (that’s $5,360,000,000 or $2,481,000 per hour). Their losses were in collateralized debt obligations (aka CDO’s) that were mainly fancy packages of mortgage debt. Hmmm, that’s a pretty big number.
Unemployment Claims – Initial claims for the week came it at 455,000, the highest since 2002. That’s not a good number.
Pending House Sales – depending on whether you listen to the mainstream media or some of the analysts who look at the numbers behind the numbers, the report is either: 1) A sign that the housing market is picking up (because it was up from May’s report) or 2) A seasonal variation that should be discounted because of two facts: a) The numbers are way down from last year and b) Many (up to 40% of them depending on the markets) are either short sales or foreclosures that won’t actually get to closing due to many REO issues. I’m not going to get into them in too big of details but let’s just say that I believe the seasonality and the short sale issues should lead one not to put too much weight on this report.
Fannie Mae – in a case of “it just keeps getting better,” Fannie announced their losses for the 2nd quarter this morning. $2,300,000,000 has a lot of zeroes in it. In case you are wondering, that works out to $1,064,000 per hour.
So where does that leave us? A couple of thoughts:
1. With a growing sense of unease that the mortgage and credit worlds are going to get tighter and more expensive as time goes on.
2. With a sense that the mortgage world isn’t done with the problems, not by a long shot.
3. But with the belief that, as one of my colleagues said, “This thing is going to land some day, and we might be battered and bruised a bit, but we’ll land safely.”
I’ll continue to keep you informed, remember, that even if sales are down 30%, that means that 70% of the market is still moving.
Tom Vanderwell straighttalkaboutmortgages@gmail.com
Preston says:
The Freddie MAc and Fannie Mae money lost is crazy…. Without government intervention they should have gone under. If they did go under, think of what interest rates would be?
August 8, 2008 — 1:17 pm
Tom Vanderwell says:
Preston,
Without Fannie and Freddie, it truly would be a nightmare scenario (and you think it’s bad now?) That’s why we don’t need to worry about them going under because they are truly too big to fail.
That’s also why I believe we need to start thinking and talking about what the mortgage world is going to look like after this because we need to implement a 10 year plan to get us away from government involvement in the mortgage world and make it all truly private enterprise. No Quasi governmental (like it used to be) no more governmental (like it soon will be), but truly private.
Tom
August 8, 2008 — 3:47 pm
Sean Purcell says:
Tom,
With you on less government involvement in real estate and mortgages but I continue to see a RE world that is half full. Fannie and Freddie lost money. Everyone involved in mortgages is taking a loss right now. That is not a surprise. It is nice to see, based on your report, that Fannie and Freddie continue to do a bang-up job as evidenced by their losses being less than the private institutions that got into some wild stuff. Looks like Fannie and Freddie steered a pretty sound course and will continue to do fine. No need for any bail-outs yet (despite Preston’s incorrect statement to the contrary).
Congress certainly thinks Fannie and Freddie are going to be fine. They based the only part of the housing bill recently passed that has any chance of making a difference (the low-income provision) on profits expected from Fannie and Freddie going forward.
I can’t say I am surprised at which side you came down on with regard to the housing report. These things are lagging indicators though and the interpretation is certainly open. My experience here on the gound is that the market is picking up. Both RE and mortgage activity has increased for me and the agents I deal with on a regular basis. Whether it is mostly REOs or not that are selling is somewhat beside the point. What matters is that buyers are realizing we are near the bottom and rates are very attractive. Most importantly, I hope buyers are realizing that rates moving up (which will happen sooner or later) are much more devestating to their home buying plans than prices moving up.
All in all, this has been a pretty positive month for our industry and we usually pick up in the Fall. Might just have a relatively happy ending to an admittedly VERY tough year.
August 9, 2008 — 10:23 am
Tom Vanderwell says:
Sean,
“It is nice to see, based on your report, that Fannie and Freddie continue to do a bang-up job as evidenced by their losses being less than the private institutions that got into some wild stuff.”
Good point – I hadn’t thought of looking at the numbers that way, but you’re right, AIG lost twice what Fannie and Freddie did combined.
“profits expected from Fannie and Freddie going forward.” I certainly agree with you on that one. Fannie and Freddie will be okay long term because the market will turn around.
“My experience here on the gound is that the market is picking up.”
In talking with people all over the country, Hunter, Teri, Michelle, Danilo, Bawldguy and others, I can attest to the fact that real estate truly is local. The market I’m in is truly the toughest market I’ve seen in the 20 years I’ve been in business. (One part of it has a 3 year inventory of homes for sale in the “main price range” in the market. I know there are other bad markets as well. I try to purposely take a “balanced” approach and look at what my market looks like (so I don’t get bunched with Lawrence Yun) and the national picture. Does that make sense?
In regards to the pending report, my business is actually up about 36% from last year, and things are going quite well for me. Statistically, I just don’t believe that report holds much weight. That’s all.
I’m all for the relatively happy ending and I’m working on some ideas toward making it that way for as many people as possible.
Thanks for the insights, I appreciate them and I appreciate and enjoy the dialogue.
Tom
August 9, 2008 — 10:46 am
Sean Purcell says:
Tom,
I try to purposely take a “balanced” approach and look at what my market looks like (so I don’t get bunched with Lawrence Yun) and the national picture. Does that make sense
Yes and especially yes. I appreciate the approach you use and feel for your local economics. My tire-kickin’ experience is more limited to Southern California. One bright side: San Diego is usually a leading indicator for national real estate. Let’s hope what I am seeing here continues and expands.
August 9, 2008 — 10:58 am
Tom Vanderwell says:
If SanDiego is a leading indicator, then West Michigan is probably a lagging indicator. I went to a seminar back in January of 07 (before all of this) and the economist said that Michigan wasn’t going through a cyclical recession (yes he was using the R word already then) it’s going through a structural recession. That means Michigan, Ohio and other auto states aren’t going to come out of this until we figure out another way to make a living…..
I hope that what you’re seeing continues!
Tom
August 9, 2008 — 11:05 am
Sean Purcell says:
Tom,
I’m trying to place it now, but yesterday I read something that mentioned the 10 fastest dying cities, as measured by population decrease, economic downturn, unemployment and so on. It was amazing how many centered in the auto states area.
We went through that here in San Diego in the 80s when defense spending dried up and we were a one-trick pony. Lots of knocks and bruises but eventually the area diversified and improved into a very robust economy. I guess it’s true: that which does not kill us makes us stonger. I sure hope you guys pull out of it soon.
August 9, 2008 — 11:19 am
Vance Shutes says:
Tom,
>”I’ll continue to keep you informed, remember, that even if sales are down 30%, that means that 70% of the market is still moving.”
I wish that our national media had such an outlook on a half-full glass. Refreshing! Especially in light of my comments previously at https://www.bloodhoundrealty.com/BloodhoundBlog/?p=3777
August 9, 2008 — 1:21 pm