Had a great conversation with a guru in the world of mortgage lending. This individual is a hawk within our mortgage industry.
We discussed a number of things that today that related to the mortgage industry. When I asked about the recent implosion about the mortgage industry he brought up some interesting dialogue. A few incredibly interesting points. First, the point that I knew....
1) THE REAL ESTATE AND MORTGAGE INDUSTRY HAS BEEN THE LEAD EACH AND EVERY ECONOMY OUT OF IT'S RECESSION. Every recession ended with a real estate boom. Sometimes it's been both the real estate boom or it could have begun with just a mortgage refinance boom. But from December until now, we've enjoyed a refinance boom. However, for the last 2-3 weeks the bond prices have dropped by the most insanely fast pace that I've seen in my 15+ years in lending. A virtual free fall in bond prices.
2) OBAMA'S SPEECH LAST WEEK - THE GURU POINTED OUT THAT WHEN OBAMA SPOKE TO Russia and China over the last two weeks, he stated "the United State's Economy will rebound and make strong because both China and Russia continues to buy the long term debt of the United States." There was a self-aggrandazing attitude and arrogance coupled with a "given expectation" that they would continue to buy our debt. Needless to say, the Chinese audience was laughing at him at this remark. For the Chinese, humility is king. The Russian government wasn't interested in their role either. As a result,
3) FANNIE MAE JUST ANNOUNCED YESTERDAY THAT both Russia and China have sharply decreased the amount of debt from the United States that they had been buying. It was a marked and sharp decrease effectively immediately after the speeches last week.
4) THE CREDIT RATING OF THE UNITED STATES HAS BEEN SO HIGHLY RATED. If our credit rating drops, then we drop from a first tier country to a 2nd teir or third world country status. We have never been that....ever! And we can affectively kiss whatever remaining status we have in the world goodbye. The bottom line is that our debt is no longer a preferred by international and overseas investment community. That means that they believe that the United States of America will default on it's debt. Sooooooooooo.... what does that mean in common english please?
OTHER COUNTRIES DON'T WANT BUY OUR DEBT!
Bond prices drop as a result and rates go up when bonds aren't being purchased. Needless to say, life just ain't that good when we're in the midst of a recession and cockiness of our leadership drives off investors. With no investors, the United States is really exposed.
I'm not preaching panic here, but I am concerned that our leadership can't rely on the government (you and I) to continue to buy our own debt at the pace they were. They, too, just announced a slow down in purchasing our debt. It might not be pleasant to talk about but we need that bastian of hope.
After all....it's going to be real estate that leads us out of this recessoin.
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