I’ve taken the liberty of posting my “Mortgage Market Week in Review” here…..

by Tom Vanderwell

Mortgage Officer

Author website

The Week We Woke Up

I’m going to deviate from the normal format this week, because I believe that this week has deviated from the normal that we’ve been experiencing lately.   I’m calling it the Week We Woke Up.

What did we wake up to?  A couple of things:

• The fact that the debate on whether we’re going to have to nationalize some of the banks/financial institutions is pretty much a debate over semantics.   The announcement that the government now owns 36% of Citibank and that we had to spend some additional billions (how many has yet to be determined) to save AIG for the third time effectively said that we are now in a situation where the government does own some of the banking industry and the debate should now be about the how and not the whether or not.   This mess sent shock waves through the financial markets and virtually every bank saw their stock prices get “adjusted” accordingly.  There was a time this week that Citibank was trading for less than the cost of a Jr. Bacon Cheeseburger at Wendys.
• The reality of GM’s scenario became a lot clearer and not in a way that was going to make the economy any healthier.  There’s a phrase in business accounting called, “A Going Concern.”   What does that mean?  Essentially it means that a business is generating enough income and has enough cash to continue in business.  Well, GM not only had some bad news in terms of sales, but they admitted that their auditors don’t believe that they can remain in business. That’s a pretty strong indication that GM’s condition is a lot worse than what we thought a couple of months ago.  What does the prospect of a GM bankruptcy mean?  Best case scenario – renegotiated contracts with the UAW and bond holders, substantial job losses and dealership closures.   Worst case scenario – total liquidation of GM and absolutely staggering job losses that will make what we’ve seen so far look like nothing.  GM’s stock was trading at 75 year lows.
• Underwater housing – The reality is that over 20% of thepeople in the US who have mortgages on their house owe as much or more than what it’s worth. When the government institutes a program to save homowners from foreclosure that allows lenders to refinance over 100% of value, it sends a message that house prices and the drop in them is a big problem.
• Fannie and Freddie’s new refi plan – Two weeks ago, the government said they were coming out with a new plan that would help people refinance their homes even though property values have fallen.  They said they’d come out with it on Wednesday.   On Wednesday, they came out with 2 paragraphs about the plan.   On Thursday, Freddie Mac came out with more details.  I’ve written more about it, but I think it’s going to give some people the opportunity to save some money.    However, I’ve had a couple of people ask me, “aren’t these type of high loan to value no income verification loans the ones that got us in trouble in the first place?”   Yes, they are, but here’s the way that I look at it:   Fannie and Freddie have the opportunity to exchange a number of mortgages with interest rates in say the 6.5% range with interest rates in the 5.25% range and lower payments and the hope is that those lower payments will make it easier for those clients to hopefully avoid foreclosure problems.
• Jobs – We woke up to the realization that February, a short month, was a long month for a LOT of people. We’re now up to 4.1 million jobs lost in this recession.
• The stock market went into a major sell off this week.   A few minor rallies, but we’ve essentially lost 12 years in the market, and 6% just in the last week.

March 7, 2009

What it all means….

I think that there are three main themes to this past week and all of them revolve around the “Week We Woke Up” scenario:

• We need to do something major about the banking industry and it isn’t going to be pretty and it isn’t going to be pain free.
• We need to do something about GM and it isn’t going to be pretty and it isn’t going to be pain free.  (I know, I’m repeating myself).
• The current (and previous) batch of stopgap measures that have been aimed at slowing the fall of house prices, increasing the amount of credit being loaned, helping banks get healthy and other assorted TARP maneuvers aren’t working and won’t help unless we have a systemic plan to fix the economy.

I think it’s an understatement to say that we’re going to look back 3 months, 6 months and a year from now and see the first week of March as a turning point.   A turning point as in the bottom?   Nope, I wish.   A turning point as in the consumers are saying, “This is bigger than we thought, different than we thought and is going to require more long term fundamental changes to the way our society operates, consumers plan their retirements and how people think about real estate and the stock markets.”

I’ll continue to keep you informed, if you know anyone  who would like a copy of this e-mailed to them weekly,  have them sign up at Straight Talk About Mortgages

As always, let me know what you think. Thanks!