Stetson Lowe - UTAH MORTGAGE BLOG

The Lowe Down - by Stetson Lowe

Tonight as I sit here and unwind from yet another hectic day in the office I felt impressed to get out the laptop and share some insider mortgage insite.  There is so much going around out there about the mortgage industry and today's economy but I am going to hit you plain and as simple as I can, and I will not patty cake you.

I had a very candid conversation today with an executive from a national bank.  One of the biggest in the US today.  It was interesting to hear his point of view and to see what we agreed on and to see what we admittedly disagreed on as well.  One of the most interesting facts he brought to my attention today was in regards to the Fed's "setting the rate" so to speak in the bond market.

This is something that the government did in the student loan sector of the banking world some time ago and it has all but alienated all of the lenders from that industry so that now the government is the only player in the game.  They are standing there holding the bag on almost all student debt today which makes the industry far less competitive and all but impossible to navigate for borrowers.  You see it is not worth it for private investors and banks to play along with the government in a game that is rigged.  One where it is hard to turn a profit and the red tape and bureaucracy force the lenders to spend more then they earn just to stay compliant.

This fiscal policy has failed miserably and yet the talking heads in DC seem to think that this same policy should be adopted in the mortgage industry as well.  Yeah that usually works, if at first a policy doesn't succeed do it again in another industry?? Whatever...

Back to the Feds setting the rate.  This is where they are basically buying coupons (bonds) at a certain rate no matter what the market is dictating that day or no matter what supply and demand are bearing.  Essentially falsely inflating or deflating the rates for that day in an attempt to "set a target rate".  It has been proven that our market is much more effectivein setting its own rates from day to day and from week to week then the government falsely trying to replace supply and demand.  I'll take free and open markets any day of the week for a healthy economy.  I am not saying that there is not a need for the government to sure up a badly damaged credit market, I just think they may be going about it the wrong way.

What I am seeing in the wholesale and retail markets is Banks so unsure what the feds next move is that they are loosing interest in the game all together.  I believe that it was Chase that all but completely pulled out of the mortgage business at the end of January.  They are "over it" so tospeak in all the games and tricks that the government is trying to pull.  Basically saying "we are out" let us know when things get back to normal and then maybe if we feel like it we may jump back in at that point.  Until then we can more then replace our mortgage income by buying up troubled banks for pennies on the dollar and then selling off their assets piece by piece making billions of dollars, oh and by the way we will take a multi billion dollar line of credit from the government to help us do this if they are stupid enough to give it to us.

We now have 28 major players left in the Mortgage Market.  Just over 2 years ago there were over 200 lending institutions, private equity firms, insurance companies and more fighting over these bundles of loans....fast forward to today there are 28.  Less demand means over abundance of supply, couple this with Fannie and Freddie changing their guidelines almost every single month and mortgage insurance companies announcing at the drop of a hat that they will no longer insure mortgages with this credit score or that loan to value and you have what we are facing today, banks that are so gun shy that they are going to get stuck with loans that are unsellable on the secondary market, uninsurable thereby making them unsellable, or with rates that are far to low to attract any buyers in a market that has had less and less interest domestically and internationally.

I hope that this has shed some light on what is really going on in the mortgage market today.  Why yields are at or below all time lows yet the yield spreads are as large as they have been in a decade. And why underwriting times are longer and longer and why you hear it is harder to get approved today for a loan then even 2-3 months ago.

2003 was the largest mortgage origination year ever with over 4 trillion dollars in mortgages originated during that year alone.  It is predicted that if rates stay low there will be a demand for 15 trillion dollars in mortgages to be originated between refinances and purchases this year (2009) in the US.  That is 4 times the all time record and with only 1/10th of the banks actually funding loans compared to 2003.  The numbers don't add up and something has got to give or we will see 4-5 month turn times to close a loan...it feels like a train wreck waiting to happen.

If I were the one setting policies I would see how we could make the mortgage market more attractive to investors with incentives, warranties and tax cuts.  I certainly would not be competing with or falsely setting a market to the detriment of that market.  Hey but that's just me.

The key to obtaining financing this year is going to be working with someone that will help you navigate through these treturous waters that are the mortgage industry today.  I am here to help, so give me a call 801-318-4996 or email me at stetsonlowe@gmail.com and we can get the ball rolling right away.

Dedicated to giving you the inside scoop.

Stetson Lowe - The Mortgage Insider - www.utahloantips.com

THE GREAT BAILOUT OF 2008

In this tumultuous year of 2008 that will undoubtedly go down in history as one of unprecedented government intervention in the private banking and business sector, Sunday September 7th may very well be the day they talk about in economics classes maybe even high school history classes. 

September 7, 2008 was the day I predicted would come in a blog post back on July 7, 2008(read it for yourself if you don't believe me).  It was on that day even in the midst of Henry Paulson the United States Treasury Secretary stating that Fannie Mae and Freddie Mac were well funded and had adequate liquidity and that the US Government would not need to step in or take action, it was on that day that I predicted that in fact there would be a Big Huge Government bailout as I called it.  Well as it turns out I was right on about one thing, that there would be a government bailout, but I have to admit that even I may have underestimated just how Huge this bailout would be.

September 7, 2008 Paulson announced the Governments plan to take over Mortgage Colossal Fannie Mae and Freddie Mac.  This is NOT just a plan to lend these Government Sponsored Entities more money at discounted rates which the FED had announced (1 week after my prediction) would be the case if it became necessary.  This is a full fledged take over of the companies, the kind where the government walks in to the CEO's offices and says thank you but your services are no longer needed please kindly show yourself to the door we'll take it from here.

Many are outraged that the CEO's are being kindly shown the door when they feel that both have been involved in some of the biggest accounting scams in modern day history.  Accounting errors to the tune of around 6 billion dollars.  Just to give you an Idea of how massive an error that is I will compare it to a little company we all remember called ENRON.  The CEO of that company and accounting overstated earnings to the tune of $550,000,000, compare that with the $6,000,000,000 in earnings restatements that came after a government probe of the Fannie and Freddie.  We all know what happened to the Enron executives still in prison and dead.  What has happened to the Fannie and Freddie execs that were padding their earnings in a way that would have made the Enron execs proud?  From what I have heard so far they took early retirement and are probably sipping on pina coladas somewhere in  the Cayman Islands.  Oh it was not without punishment, one of the CEO's a former adviser under president Clinton was fined 24 million for his wrong doings. 15 million of that fine came in forfeiting stock options he still held which enabled him to buy stock at $71 per share.  When the order was made the stock was at $9 a share, Ooohhh you guys really showed him forcing him to give up $15,000,000 in options that you couldn't have forced him to exercise at gun point.  Abetter thing to do would have been to make him exercise those options and buy that stock at $71 per share don't you think?

Sorry about getting off on that tangent, I don't have a lot of patience for the individuals who are ultimately responsible for the whole mess that our industry, our market and our country are in right now that is directly affecting my own family and those of millions more.

The Take Over and What it Will Mean To Us

It was necessary lets just get that out of the way right now, it was necessary to ensure the stability of our lending market going forward.  Do I like it?  Absolutely not!  When was the last time that the government ran any for profit business and did a better job then the private sector?  Granted anyone could have done a better job then the scandalous bonus seeking greed filled execs that have been there over the last 8 years, but prior to that Fannie Mae and Freddie Mac and provided an absolutely necessary and vital role in our US Housing Market and thereby in our Economy as a whole, and they have done it pretty well.  What I would like to see is for there to be some accountability, some punishment handed down to the preferred share holders of Fannie and Freddie, a literal wake up slap for those that have continued to invest in these companies over the last 4 years that they have been under continued investigation and shown that they were at fault for some serious wrong doing.  As it stands right now the stock holders are not going to be wiped out.  Which means that they are not helping to offset the amount of money that the US Government and we as the tax payers are going to invest to stabilize and rebuild these firms. 

How Much Is This Going To Cost?

I laugh now as I think back to when the credit crisis first began and there were analysts who went out on a limb and said they thought the crisis might cost US Banks upwards of 200 billion.  We flew past that number in about 4 months and the limb those analysts went out on must have snapped like a twig under the weight of that mis guided estimate.  Oh what the banks would give now to have the bleeding stop at 200 billion.  Some of the latest reports are that we are nearing the Big T 1 Trillion for US Bank.  Fannie and Freddie alone could exceed that number and could be as high as 1.2 Trillion that the US Gov will need to pump into these deflated and defeated lenders over the next few months and years.  I would only hope that the government will turn them back over to the private sector as quickly as possible, it doesn't need to be a complete charity act the Fed's should make a profit on the deal where possible but I would implore them to sell them back to the private sector as quick as they can.  Give Mitt Romney a call as well, he would be up to the task of reshaping and reforming these companies and he happens to have 4 years on his hands before he will get the Nod from the GOP for president. 

Your comments are welcomed.

Keeping you informed,

The Mortgage Insider - Stetson Lowe - UtahLoanTips.com

I dont agree 100% with all of the views expressed in the video below but I do believe there are some valid points made and therefore have chosen to add it to my blog. Enjoy.