The Mortgage Guy Blog

If it makes for good press, you can bet your last dollar that politicians will jump on the band wagon. This is so even if what makes good press, is a disaster in disguise. Saving people’s homes from foreclosure is good press.

Having said this, does it come as a surprise that Hillary Clinton is joining the chorus for a socialistic mortgage bailout? If it does, it shouldn’t. The following is a 4 minute video of Clinton’s speech to Wall Street, brought to you by Marketwatch.

Hillary Clinton’s Financial Ineptitude Documented

Some of her statements are correct. For example, Wall Street’s role in the mortgage meltdown and that it will impact the broader economy. However, she goes downhill fast after that.

Here is where she is dead wrong with her most dangerous statements listed first.

• Her threat to introduce legislation to disallow mortgage backed securities investors from suing. This will undoubtedly destroy mortgage securitization which is the backbone of the industry. Who will buy mortgage securities knowing that the government can change financial contracts on a whim and without the investors having any legal recourse? Is this even Constitutional?
• The ninety day moratorium on foreclosures is nearly as dangerous. Perverting the foreclosure process will also prevent investors from buying mortgage paper. Further, by the their own admission, the bailout will only affect a very limited number homeowners. Yet she suggests a moratorium on ALL foreclosures.
• What is to stop other homeowners from suing for better rates on their mortgages? It is discriminatory to freeze or lower some payments and not the payments of all homeowners. Who decides who gets what and under what circumstances?
• She claims rate resets are responsible for the meltdown, yet it’s been pointed out that at least half of those in default today, are doing so on their initial low teaser rates. It’s also been pointed out that falling values play a significant role in the increase in defaults. When homeowners realize that they are massively upside down in value, they often choose to default on their loans.
• Her assertion that mortgage brokers have a significant role in the mortgage meltdown is also a flawed position as I point out in this previous post.

The video is proof that Hillary Clinton, like George Bush, Henry Paulson, Barney Frank and Chuck Schumer, et al, are severely ill equipped to correct the mortgage and real estate meltdown. This becomes more evident each and every time these people open their mouths.

They are simply politicizing the issue without providing real solutions. Remember, their number one goal in life isn’t to help American homeowners, but to get elected and maintain or increase their power.

The freeze will only make the problem worse. Don’t drink the kool aid and prepare for some very rough times ahead. Times made even rougher with do nothing, feel good and very damaging initiatives.

Tags: Current Events, Finance & Economy, Mortgages, Real Estate by The Mortgage Guy
No Comments »

It’s about time the powers that be recognize who is really to blame for the mortgage crisis. Andrew Cuomo, who by the way I am no fan of, is sending out Wall Street subpoenas.

Finally reality is setting in with the realization that a mere middleman in the mortgage process, simply cannot be the primary cause of the mortgage meltdown.

I’ve maintained that real bad guys are the risk management departments and credit ratings agencies. Seems like Cuomo agrees.

Marketwatch provides coverage of this newsworthy event.

The office of New York Attorney General Andrew Cuomo has sent subpoenas to request information from severalWall Street firms, including Merrill Lynch & Co. (MER) , Bear Stearns Cos. (BSC) and Deutsche Bank AG (DB) , The Wall Street Journal reported, citing people familiar with the matter.

Prosecutors in a broader investigation of the mortgage business are looking into how well the banks examined the quality of mortgages before packaging them into products sold to investors, the report said. The probe also focuses on how the debt was pooled into securities, including banks’ arrangements with credit-rating firms, the newspaper reported.

Ratings companies are also under pressure after asset-backed securities that were rated investment grade plunged in value as a result of the turmoil on credit and mortgage markets.

Banks and lenders often package pools of mortgages, create securities from them and sell them to other investors, rather than keeping them on the balance sheet.

A step in the right direction as it shows an understanding of what really happened to the mortgage backed securities market. As you know, without securitization, there is no mortgage industry.

The people charged with fixing the issue should be focusing on fixing the debt markets, like right now. If they do, we have a shot at limiting future economic damage caused by this mortgage and real estate meltdown. I know, I’m asking for too much.

Tags: Current Events, Finance & Economy, Mortgages, Real Estate by The Mortgage Guy
1 Comment »

The mortgage meltdown continues. Just when the financial markets started to settle down, we have news like this to consider. The Independent ran an article today titled Markets fear banks have $1 trillion in toxic debt.

Samir Shah at Landsbanki Securities said: “People thought most of the bad news had been priced in. It seems we’re entering a second phase of the credit squeeze. We’re going back to a place where liquidity is drying up and volatility is increasing.”

This is what we saw back in August of this year. Central Banks around the world were able to jaw bone us back into some semblance of stability. It seemed for awhile anyway that the worst was behind us.

Then Merrill Lynch and Citigroup had written down their losses on their mortgage holdings costing Stan O’Neal of Merrill and Charles Prince of Citigroup their jobs.

At Merrill, The write down was in excess of $7.9 billion and at Citigroup, the write down was an even larger $11 billion. The Merrill Lynch write down resulted in their largest quarterly loss ever.

Following the lead of these two U.S. financial giants, European investment banks are feeling the pain as well. The U.S. mortgage debacle is officially a global concern.

“Some banks have particularly weak disclosure, leading investors to fear what is beyond the veil,” Morgan Stanley’s van Steenis said.

UBS, Deutsche Bank, and Credit Suisse - Europe’s largest investment banks - all reported third-quarter earnings last week, but failed despite massive writedowns to allay fears that the worst is over, analysts say.

Now many are suspicious that not all of the bad mortgage exposure has been disclosed, leading to a lack of trust in the markets. Add this to a lack of liquidity among banks and price volatility among mortgage securities, and you have an ongoing crisis of immense magnitude.

Bill Gross, the chief investment officer of Pacific Investment Management, makes the following points about this financial debacle…

US mortgage delinquencies and defaults would rise in 2008. “There are $1 trillion worth of sub-primes, Alt-As [self-certified] and basically garbage loans,” he said, adding that he expects some $250bn in defaults. “We’ve only begun to see the pain from rising mortgage payments,”

What this means to the average home owner and buyer is that mortgage money will be much more difficult to obtain. It also means we can expect foreclosures in 2008 to dwarf those of 2007. This will result in ongoing real estate price declines which are already at historic levels.

The home equity that you have today, may not be there in 2008. Billions of dollars in wealth is evaporating before our eyes. Sooner or later, this will make the average consumer in the United States feel as poor as they really are.

One can speculate that this will lead to a pull back of consumer spending, spreading the real estate recession to the rest of our economy. In my opinion, this is why the Federal Reserve Bank is lowering interest rates.

If you are a home owner, now is the time to take care of your mortgage needs. The mortgage products you need may not be there in 2008. Furthermore, the expected price declines in real estate values will further negatively impact your ability to obtain favorable home financing.

Hold on tight, we are about to hit some more severe financial turbulence.

Tags: Current Events, Finance & Economy, Mortgages by The Mortgage Guy
No Comments »