30-year mortgage rates hit their highest level in a year last week, pushing mortgage applications (both purchase money and refi’s) downward, breaking a 3-week uptrend for mortgage applications.
Let’s be clear: This is a negative occurrence, as fewer mortgage applications invariably means fewer mortgages granted and fewer properties sold. However, its merely a “blip” on the radar screen since a single week of activity does not indicate a pattern.
The important thing to watch is the trend. If mortgage applications continue to fall for several weeks or longer, that is a practical indicator that the housing recovery may have stalled somewhat.
In somewhat related news, Wachovia reported a multi-billion dollar loss in a recent fiscal quarter, and of course blamed it primarily on the housing crisis.
And President Bush and Congressional leaders have apparently come to an agreement on how to bail out Fannie Mae, Freddie Mac and millions of troubled home owners. Wonderful. The government runs to the rescue again – and in the process destroys its own fiscal viability. More about this later.
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I strongly suspect Fannie and Freddie NEED to be busted up and re-tooled. IMHBAO any bailout is going to be a band-aid on a gunshot wound.
…jp
“…the housing recovery may have stalled…” WHAT?? what housing recovery?
Nobody is telling the public the truth about how Fannie and Freddie actually operate. How are they funded? They do not originate loans. They BUY loans on the secondary market from loan originators, like banks. A bank makes a loan of $200,000 to a home buyer and charges origination fees, discount points, etc., then immediately sells that loan to Fannie or Freddie for $200,000. Now the bank has earned its fee and has its original $200K that it can loan out again. Where did Fannie/Freddie get the $200K to buy the loan? They BORROWED the $200K! What is the collateral (security) for the loan? The note itself is pledged as collateral for the loan to buy the note. That’s how a private corporation can build a portfolio of a TRILLION dollars in mortgages. It’s all based on debt for debt.
But wait! There’s more! If the collateral value goes down, it doesn’t matter while the note is performing. If the note defaults, it doesn’t matter while the collateral value stays strong. What happens if the collateral value goes down AND the note defaults? OOPS! That’s just what’s happening now. When the politicians are saying the GSE (Government Sponsored Entities — Freddie/Fannie) are well-capitalized, what they are REALLY saying is the GSE credit lines used for buying mortgages are still available (but for how much longer?). When the GSE cannot get credit to buy mortgages, because they cannot put a price on the collateral, that’s when the tax payers must step in and bail them out. Bernanke will print as much money as needed to cover the GSE’s bad debt. More inflation by dilution of the dollar.
The government needs to stop trying to rescue all of these companies at the taxpayers expense. If they are unable to maintain their own viability then maybe they should go under!