Warning! Warning! This Is Not A Drill…..
August 6th, 2008 Categories: Real Estate News
Hmmm……things are starting to get a little dicey.
Warning signs are fluttering all over the place.
Is inflation just around the corner? And what is happening in the world of mortgages?
The following 2 abbreviated articles have been taken from the August 1, 2008 This Week Magazine regarding Freddie Mac and Fannie Mae.
Article #1: Fannie and Freddie Make Mortgages More Expensive
The financial troubles of mortgage lenders Fannie Mae and Freddie Mac aren’t just a problem for the federal government, said Ron Lieber in The New York Times. They’re a problem for any home buyer shopping for a new loan.
The two organizations, now flirting with insolvency, have come to play a “crucial” role in the mortgage industry. They don’t just back mortgages. They also buy home loans from banks, bundle them into bonds, and sell bonds to investors. If banks can’t resell their mortgages to Fannie and Freddie, they’re likely to issue fewer and set more exacting financial requirements.
“The mortgage financing system hums along until Fannie and Freddie have trouble raising money to buy loans, or it costs them more to raise the money. And that’s what’s happening now.”
Article #2. Is the Worst Over for Banks?
To get a sense of the ragged state of the U.S. banking industry, said David Enrich of The Wall Street Journal, consider what now passes for good news.
When Citigroup, the largest U.S. bank, reported a $2.5 billion quarterly loss last week, analysts and investors actually, “were encouraged.” And when Bank of America, the second largest bank, reported this week that its second-quarter profits fell 44 percent from the same quarter last year, Wall Street greeted the announcement as a pleasant surprise.
The reason for the surprisingly upbeat reaction to the apparently horrible news is that analysts can see that banks are facing reality and “writing down their piles of bad assets.”
Unfortunately, it’s too soon to say the worst is over, said Eric Dash in The New York Times. A growing number of Bank of America’s credit card customers are falling behind on their payments, and defaults on construction loans are creeping upward. “The bank is also experiencing heavy losses from loans made to small-business customers.”
This recent measure of the price indexes for personal consumption expenditure issued by the Commerce Department shows that income and spending are decreasing significantly and prices, especially for food and fuel are accelerating. Disposable income has significantly decreased and wages have not kept pace with prices.
So red flags are fluttering and the Federal Reserve has a huge problem on it hands to get the economic ship upright.
Consumers are going to dig in and shortly there will be lots of questions asked (maybe never answered) by politicians regarding bio-fuels and the like.
It appears that no one gave thought to the impact on people, the economy and the increased cost and loss that many will suffer.
Your comments are welcomed.
