Fed Chairman Ben Bernanke suggested a new idea to fix the troubled market for mortgages too large for Fannie Mae and Freddie Mac to buy: allow the companies to securitize jumbos, but have the federal government guarantee them. Fannie and Freddie currently can buy mortgages only up to $417,000 and so far Congress hasn't acted to lift that. As an alternative, Bernanke suggested that Congress could consider allowing the companies to buy mortgages of as much as $1 million from lenders, pay the government a fee for guaranteeing them, and then turn them into securities to be sold to investors. But is the Federal government willing to take on additional credit risk in addition to FHA, VA, etc?
The House Committee on Financial Services approved the mortgage reform legislation and anti-predatory lending practices by a vote of 45 to 19. H.R. 3915, the "The Mortgage Reform and Anti-Predatory Lending Act of 2007," will create a licensing system for residential mortgage loan originators, establish a minimum standard requiring that borrowers have a reasonable ability to repay a loan, and will attach a limited liability to secondary market securitizers. The legislation will also expand and enhance consumer protections for "high-cost loans," will include protections for renters of foreclosed homes, and will establish an Office of Housing Counseling through the Department of Housing and Urban Development. From here it moves on to the full House . . . .
- E-LOAN, which opened in 1997, laid off 500 employees (out of 950) worldwide. The lay-offs impacted their auto-lending group, programmers overseas, and a few other business lines.
- HSBC withdrew from the mortgage-backed security trading business in the United States. That is not a good thing.
- Trading in Barclays shares, Britain's third-biggest lender, was temporarily suspended from trading after the stock fell 6% in London.
- Edgewater Lending of Clackamas, Oregon announced the closure of their wholesale department but continued their two retail centers. The layoff involves 8 to 10 people.
- California wholesaler ResMae announced that they have ceased accepting locks.
- Indymac reported a net loss of $202.7 million ($2.77 per share) for the third quarter, compared with net earnings of $86.2 million ($1.19 per share) a year earlier.
Bernanke said that there is a host of economic problems which will cause business growth to slow noticeably in coming months. Finally, we actually have some top level government officials recognizing that we have some problems out there. Just as Bill Gross (Bond Guru for PIMCO FUNDS) has come out and stated that if the FED doesn't continue to lower rates over the next several months, the tidal wave will continue to build and we will be in a world of hurt. Not that we're not there already.
Oil Prices, Gas Prices, and Gold all continue to rise which will make consumers pull in their purse strings even more. Foreclosures, Credit Card delinquencies, and Defaults continue to rise. The Dollar continues to weaken. The strong labor /income market, along with the strong global market with demand for US Exports, have kept our economy alive. Builders continue to lower prices to compete and stay alive. Ultimately this hurts the homeowner around the corner. When will this end? When will it get better? No one knows, however, we do need a solution. Lower Rates will help, albeit temporarily.
We have seen some of the biggest institutions come out and waive the white flag. Wamu, Citibank, Morgan Stanley, Merrill Lynch, Goldman Saks, B of A, etc . . . More losses are to follow. Unfortunately, we have not seen the worse of this yet. Traders are starting to price-in another move in December, although we'll need more negative news on the economy before that happens.
Good news? Treasury yields continue to decline, and the 10-yr is down to 4.26% ahead of the three day weekend. (Mortgages, however, are unchanged, primarily because of continued nervousness about that sector, prepayment risk, and money manager's books being set heading into year-end.) We had the September US trade deficit, as expected, and the Import Price Index which rose 9.0% year-over-year! Later we'll see the preliminary University of Michigan Consumer Confidence number. What is the current thinking on another Fed cut in a month? Interest rate futures show a 90% chance that the Fed will lower the Fed Fund rate to 4.25 at the Dec. 11 meeting.
Quote of the Day: "It's never too late to be what you might have been."
~ George Eliot
Let us not forget that Monday is Veteran's Day. Take some time out of your day on Monday to remember those who served our country during time of war and those who gave their lives so that you and your loved ones didn't have to . . . .
