Just Like the boy whocreid wolf, banks and investmetn firms are crying "Baiolout!" and they are crying loudly. The Fed is listening, and instead of asking "Why jump?," whne the banks tell them to do so, is saying, "HOW HIGH?" the truth is this jump call, isn' tjust being made by Fannie Mae. It's "kissin' cousin"
Freddie Mac who seems no less bent on getting some of that "free" Treasury money. Yep, the Fed, which is not a government entity, but a private banking corporation is behaving like United Airlines, and Bear Stearns Who now have their platinum parachute firmly and warmly wrapped around them. Chuck Grassley (R) IA said on the news today that the fear he had was moral hazard. With all of the chanting about chnage in politics today, what we are seeing is change... in our financial markets and structures that is causing changes in the real estate markets. The public is being affected that Sellers aren't getting what they hope for when they sell, and buyers are able to get a bargain, but qualifying for the loan is harder these days. who is reasponsible for a lot of these issues?
Countrywide home Loans, and its sub prime subsidiaries Long Beach Mortgage and New Centruy Mortgage (now defunct) added their own fuel to the frie that is now swirling over the taxpayers' heads. banks buy and sell each others' mortgages "all the time," trading on discount and collection rates. In this way, they leverage their profits, and supposedly earn more profits for their investors. By eliminating riskier loans bby selling them off to other banks, the leverage game continues to promulgate more profits for the banks. G. Edward grimes talks abou thisx in his great book, The Creature From Jekyll Island. He shows how the banks are making loans with 1% leverage, and then reloaning the same money ten times over, with the net effect being that the leveraging is increased, along with the risk.
Citi also participated in the, as did WaMu, who today gave its CEO Killinger the boot, with a $25MM pay package in severance. This news is disturbing, because it means that we as investors, or taxpayers, or employees of a company are willing to reward bad behavior. Think about it, if you fouled up your job royally, as so many bank presidents and CEOs have done, would you be rewarded with a huge pay package? NO! in fact, the doorknob would break your tailbone, as it got slammed into you. yet, we give enormous severance packages for a "nice try." Bank of America rewarded Countrywide's failures...by buying them!
Other banks are in the mix, too, but to a lesser extent. US Bank, Wells Fargo, and many others, along with their servicers all participated in the run-up o fht e market, and hoped to prolong it for as much time as possible. Now, the dirigible has crashed, and the Hindeburg is on fire. Unfortunately, we, the taxpayers will be demanded to foot the bill.
WHAT IS THE CURE?
in my opinion, the market is doing its best to correct itself. What needs to happen is that Fannie and Freddie need to eb allowed to sink or swim on thier own merits. if the Fed wants to bail them out, let them do it with someone else's money, and leave the taxpayer out of this snarl.
Small businesses succeed and fail on their own merits. let the mortgage giants do the same thing. Let the investors take the slap for their greed, and the we can return the market to normal quicker. Another thing this woul dmake possible is more rapid modification of lloans going into default, which would allow homeowners to stay put, and have a roof over their head. If homeowners are having honest difficulty, due to job loss, death i the family, or other real hardships, they should be abl eto get a forbearance of their payments for 90 dyas, and then the loan interest previously collected whould be transferred back against the principal, and the loan value recalculated to prevailing rates, at a fixed interest rate.
Thiswould not bail everyone out, as the financial position of some people is so severely deteriorated that there isn't a good cure for their financial illness. still, this would stem some of the bleeding and help the mortgage capital markets return to normal organically. The current fix is just to throw more tax money at the problem. That creates only more imbalance in a family's finances.
I teach both buyers and sellers basics of financial management, as a condition of retaining my services. I promise to be up front with them, and private to the world. this saves running a credit report, and loweriing or affecting their scores. In the next month or two, I am going to be teaching people in seminars on the topics of: Housing searches, getting a better mortgage, fixing your own credit, eliminating credit issues, why credit is important when selling a home, and others.
I am always studying this stuff, and my revelations are that most people don't understand things in their true light in our current times. they still persist in doing what their parents did, or the neighbor did, etc. That won't work for anyone any more.
... Not if we want to keep from seeing this sort of thing again.
Let me know what you think.
Lou Farris, MBA
That Realtor guy (In Shorts)
Global Realty Marketing
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