So what if bear Stearn was purchased by JP Morgan Chase! Most real estate agents will ask me "What does this have to do with real estate?" My answer? "Everything!" Things are changing at the speed of light in the banking and investment world. As of a half an hour ago JP Morgan Chase announced it had agreed to purchase Bear Stearns for a stock swap trade based upon Bear Sterns close on the stock market Friday at $2 a share! Upon reading many news sources consensus was that the Federal Reserve had placed pressure on the deal to come to an agreement prior to the foreign stock markets opening on Monday. Bear Stearns is the 5th largest investment bank and was heavily vested in mortgage backed securities that started to correct last year and Bear Sterns had to close two hedge funds that were very big into sub-prime investments.
So Friday the market was buoyed by a Federal Reserve intervention with JP Morgan Chase acting as a go between on the surface, but in actuality was probably meant to keep confidence in the market. So the Bank too big to fail was simply acquired.
In real estate we have to stop and ask ourselves what impact will this have on future lending? Will credit tighten further? Will it be harder to get a loan, and sell a loan? Or will loans be only for those with large down payments and superb credit in effect locking all others out of the market that would like to buy a home. In thepast if a bank, or mortgages investment company may decide to sell a loan to another bank and make a profit on the sale, and at the same time free up capitol. The bank may want to hold the loan for the entire term and collect the interest due on the loans for 30 years. Now, fear has gripped the market. Risky sub-prime and Alt A Jumbo no or low document loans have stopped paying or are delinquent in paying and now everyone is questioning the value of the loans them-self! Are they worth buying? Are they worth owning? How much fraud and bad paper is out there?
In the higher level Bear Stearns Hedge Funds had been major players in accumulating these notes in very large numbers. Everything was fine until these Hedge Funds became undone last summer..and brought our attention to the term sub-prime. This preceeded Countrywide's troubles (and most likely a Federal Reserve intervention with Bank of America!)
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Things are happening so fast and furious now, it's hard to keep up with it all. That's what I like about AR. If I miss it, chances are someone else caught it. One stop shopping.