The Mortgage Man

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Where Do You Keep Your Money Safe?

In these historical times in the financial markets, how do you know that your money is protected?

Everyday there is a new headline about some other “sky is falling” scenario.  It was only a week ago that history was made when the government stepped in and took over operations of Fannie Mae and Freddie Mac, but that is old news now.  This week it was the nations largest insurer AIG being given an $85 Billion loan from your tax dollars to help keep them out of bankruptcy.  But hidden in all of the negativity are shining pockets of positive news.

If you ever watch CNBC, you may know that Jim Cramer likes to say “there is always a bull market somewhere”, and he is right.  In the constant yin and yang of the financial markets, where there is a loser, there is also a winner somewhere, you just have to know what to look for and where to find it.  For instance, if you bought into gold earlier this week, you are no doubt celebrating as the gold market had the largest dollar gain in history this week.  Equally, as confidence fades in the stock market, investors must forge ahead and put their money somewhere, and guess what just started looking really good…..real estate.  Thats right, real estate.  The dirty word that people have been scouling at for months just became one of the best places to put your money.

Think about it, if you have $1 million in the stock market and you don’t know if you will wake up one day to find that your top holdings are out of business, your money may be better served in a tangible asset that you can see, touch, get a tax break, and live in (or rent out).  At a time when real estate is at historically low prices, you could be getting in at the very beginning of a new bull market.

I find it interesting what an affect the media has on the markets.  They seem to give you just enough information to instill a panic without regard to how people will react.  I know that the AIG issue is big news, but did you know that there are 1000’s of people without homes or jobs in Galveston, TX after Hurricane Ike virtually wiped the town off the map.  Chances are pretty good that you didn’t because no one in the news is saying a word about it.

So back to the topic at hand, is your money safe in the bank?  Yes, if it is less than $100,000 per depositor per institution.  Is it safe in stocks?  I guess it depends on the stock and your level of exposure.

Even if you take away my obvious bias towards real estate (because I am an active mortgage banker), do your own home work in your local market to see if I am right.  If you haven’t looked lately, you might be shocked at the deals available now.  I my area of the Florida Panhandle, there are gulf front condos that can be stolen for prices that compare to 4+ years ago.

Good luck to you, and tell me how things are in your local real estate market.


Why Is The Government Bailing Out Everyone?

In an unprecedented financial crisis it seems like the tax payer is the real loser.

Bear Sterns, Fannie Mae, Freddie Mac, Lehman Brothers, AIG…..what does all of this mean to you?  Why are some companies being bailed out while others are allowed to fall on their face?  It is a complex question being answered by your tax dollars, and the answers change from one day to the next.  Just 2 days ago, the official opinion of the Treasury was that there would be no bailout of AIG (the nation’s largest insurer).  Less than 48 hours later they are writing a check for $85 billion.  So how is it in the best interest of the country to bailout these corporate executives that made bad decisions?

For starters, every situation is different, and the government is not bailing out every company that steps up to the bread line.  Those that are allowed to fail without creating widespread devastation in the economy is, in my opinion, good for the over all health of the economy.  The ability to assume risk and fall flat on your face is actually what makes a free market economy work.  IndyMac Bank for example was a huge financial institution.  Yet, they were allowed to fail because there are dozens of other companies performing similar functions in the market, and therefore it is not the responsibility of the governemt to step in and help.  In that example, since most depositors were covered by FDIC insurance, there was little affect to the end consumers and account holders anyway.

The Fannie Mae and Freddie Mac takeover was different.  With over $5 Trillion in combined assets, the collapse of Fannie and or Freddie could have widespread implications in the credit markets and significantly hinder mortgage lending.  But, in the case of Fannie and Freddie, the government took over operations.  Their business was significantly less risky than the subprime lenders that have had so much trouble.  But because of their shear size, they have been affected by the current housing market.

AIG is a much different situation than any other that we have faced.  The significance of AIG is that more than 100,000 employees work for the company, and a collapse would affect so many sectors of the economy that it could create a ripple effect that is almost immeasurable.  The $85 Billion being provided to them by the FED is actually a short term loan, and the collateral for the loan is the entire $1 Trillion dollar asset portfolio of the company.  From a simple bottom line lending standpoint, it appears to be a no brainer, and for me to say that is really something.  I’m not in favor of the government bailing out anyone, but, an $85 Billion loan backed by $1 Trillion in assets that also saves over 100,000 jobs just makes sense.

Ultimately, we are in unchartered territory and no one knows what the long term affects will be.  But there is a light at the end of the tunnel.  For those who are even remotely in the market to buy a home, the events transpiring are creating unprecedented buying opportunities.  At the same time, for those in an adjustable rate mortgage, the market is ripe for a refinance with fixed rates as low as 5.25% (see for current pricing).  In every market, there are winners and losers.  Those who have the fortitude to seek out these buying opportunities will be in a position to build wealth like nothing we have seen in generations.

Fannie Mae And Freddie Mac Get Taken Over

Markets react to the government takeover of mortgage giants Fannie Mae and Freddie Mac.

I wrote a post last thursday about how the bond market was looking good to align yourself for a refinance.  Then, over the weekend, the government stepped in and took control over Fannie Mae and Freddie Mac, and what a difference it has made.  At the time of this post, mortgage bonds are trading nearly 70 basis points higher than the close on Friday, and the Friday numbers were already steller.

So the post Thursday that suggested it might be a good time to refinance has now become a battle cry.  If you have been waiting for the right time to refinance your home, it is time to get the application started and wait for the right day to lock your rate.  If this trend continues, we may very well see rates below 6% on a 30 year fixed this week.  This morning, rates are as low as 6.125%, and there will likely be an improvement on those later today based on current market conditions.  You can check current rates at

Monday July 14, 2008

Fannie and Freddie push the market higher?

Friday’s news about the uncertainty of the future of Fannie Mae and Freddie Mac led to a huge sell off in stock for the 2 mortgage giants.  Was it warranted, or just a fearful market overreacting?  That question will probably not be answered today.  But, the Treasury department stepping up to help out lends a little more stability to an uncertain market.

Treasury Secretary Henry Paulson and FED Chairman Ben Bernanke have given the green light to Fannie Mae and Freddie Mac to borrow money directly from the Central Bank at the federal discount rate of 2.25%.  This is significant because it has never happened in the past.  The federal funds discount window has been historically limited to banks and credit unions, but this option being made available to Fannie and Freddie is giving a little boost to the mortgage bond market and mortgage rates this morning.

It is not likely that this is a long term rebound in bond prices, but it is worth mentioning.  In addition, the Producer Price Index (PPI) and the Retail Sales Report are due out tomorrow and will dictate the direction of the market when they come out.

If you have a mortgage currently working, you might want to go ahead and lock your rate.  But, if your mortgage is a little farther out, wait and see what happens tomorrow to make a decision to lock or not.

Friday July 11, 2008

Volatility in stocks leads to a mild bond rally.

Bonds are flat at the time of this post, but they weren’t that way earlier.  We have been up and down and back to the middle today on a variety of financially related news.

Oil prices hit a new high this morning after an early spike of almost $5/barrel to push it over $147 for the first time.  This spike in oil caused a sell off in stocks, and a sell off in stocks went into the bond market creating a little upward movement this morning.

If you haven’t seen the news yet, Fannie Mae and Freddie Mac (the nations 2 largest secondary mortgage market guarantors, and holders of over 50% of the total $6 trillion in existing home mortgages) are hurting.  Secretary of Treasury Henry Paulson had some possitive things to say about them yesterday and how the government can help to fortify their position.  Then, the New York Times reported that the government is considering a contingency plan to take over Fannie Mae and Freddie Mac.  This, of course, is not good news for anybody, and traders were lining up to sell stock in both companies today leading to a 40% decline in value.

Now, the bond market feeds on bad news, so there was a rally based on all of the above mentioned negativity.  Then, the report about US exports came out with a lower than expected trade deficit, and much better than expected foreign consumption of US goods.  Apparently, the weak dollar makes exports to foreign countries more palatable, and our friends across the pond are buying more of our goods as a result.

All in all, I will stick with my recommendation from yesterday to lock your mortgage rate if you have a short term mortgage in processing.  We are still facing a significant upside resistance level at the 200 day moving average, and it is not likely that any gains that may be obtained would be worth sitting with baited breathe and calling your mortgage banker 4 times a day.  Go ahead and lock, then enjoy your weekend.