Current PULSE of the Market -
Apex Associates Mortgage comments
Money Costs Money.
Could almost end the letter right here. Considering the recent IndyMac F.D.I.C. bailout used up fifty percent of the reserves of the system on one bank, one must therefore, assume that increased costs of insurance are well underway. Simply put, the cost of money will continue to rise.
The government bailout of Freddie Mac and Fannie Mae, may mark the trend towards socialization. Can the auto and airlines be far behind? health care?
Our best case scenario, will have Citbank’s, newly hired former Fed Treasury chief, Robert Rubin, campaigning hard to suspend the impending banks obligations to mark to market the derivative market, which extension expires soon. A welcome dismissal of the onerous demands of Basel II Accord, requirements, could signify real progress in the banks ability to resolve their issues. Rubin’s inability to suspend this item, poses a whole new series of events for whichever president assumes office.
On the table, is to properly value some $800 Trillion in derivatives, which represents a humbling procedure which could bring many banks to their knees. Should Rubin be successful, we can be grateful for that news event to never see the light of day. When this author confronted the national marketing director of Goldman Sachs on the issue, he attested that their projections did include for those derivatives ultimately being valued and that their forecast points to @ 18 months before the real estate market sees a bottom.
Certainly, the number above is a perplexing and formidable task when further considering the number to be real money. Significant? Consider the world’s annual GDP at $40 trillion to gain perspective.
Should any readers be further curious I am happy to attend your rebuttals or contributions or explain further this complex underlying component of our banking system at a serious crossroad.
Bill Gross, today, also announced that Pimco ( World’s largest and most successful bond trader ) would be sitting out a hand, so to speak, by not participating in current treasury auctions. Essentially a boycott to Fed’s bailout policy of supporting bad loans, by printing money.
FHA has significant changes coming again soon. Whereas, about 18 months ago, a mortgage broker could get Fannie Mae or Freddie Mac approval on conventional home loans with low back end ratios, in many cases. For the last year or so, it has gone much higher with manager approval. Additionally, borrowers will not be able to use gift money to qualify.
How much can you afford? Simply total you actual (or new) monthly expenses (PITI + consumer debt) and divide by .31 to see how much monthly income you would need to qualify. The answer is basically twice as much as you needed a couple of years ago. Level two and three pricing jumps interest rates incrementally, when not fitting in the optimal parameters.
So downward pressure on home prices is pretty much inevitable and likely to compound as the underlying banks are facing serious liquidity issues due to their obligations to account for and factor risk (Increasing) and acceptable methods to payoff loans (Decreasing). Some banks are offering cash fees to close lines of credit, to reduce their exposure.
Government backed residential loans are still working fine up to the $729,750 limit. SBA commercial loans are still working but begs the question, for how long?.
Commercial real estate and consumer credit are the areas to feel the next biggest pinch. Cutbacks to the financial services industry and maxed out credit cards filling the void of previously utilized home equity lines of credit, will slow things down further and spread to the overall slowdown in the economy.
Private money available starting at 8% in most cases. Maximum Loan To Value getting more conservative.
A recession is when your neighbor is out of a work - a depression is when you are out of work.
Did you know your share of the National Debt is $ $61,742 – per person, based on government debt?
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