The Mortgage Man

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Archive for January, 2009

Bad Bank, Good For Economy

The Federal Deposit Insurance Corporation (FDIC) announced last night that it will create a “Bad Bank” to purchase the toxic assets on the books of the nations banking institutions.  This was originally part of the TARP plan but it didn’t work out as planned.

The idea is that because of Mark-To-Market accounting, these toxic assets are killing banks and there is no real hope for financial recovery until Mark-To-Market is repealed or an outlet to dump these assets is created.  Ideally, the best scenario would be both.

The stock market is reacting favorably to the news as it is a sign that the government is making strides in the right direction.

Mortgage Bonds Trading At Historic Highs

Today the jobless claims report came out for December with a total of 524,000 jobs lost.  This was worse than projections of 500,000, but far better than rumors of nearly 700,000.  So far this morning, bond traders are reacting to the rumor and not the projection by selling mortgage bonds.

As mortgage rates continue to be unbelieveably low, the stock market is struggling.  Wal-Mart reported that due to one of the worst holiday shopping seasons on record, they will not meet expectations for the 4th quarter.  This continues to fuel uncertainty in the greater economy, and economic uncertainty drives investors to sell stocks and buy bonds.  Long term, this is good for mortgage rates and the real estate market.

Also, the FED announced yesterday that through the first 3 days of this week, they bought $10.2 billion in Fannie Mae, Freddie Mac and Ginne Mae mortgage backed securities, part of their overall plan to buy up over $500 billion in MBS’s between now and June.