Another Tent City in Cali....Is Florida next?

http://www.latimes.com:80/news/local/orange/la-me-tents18mar18,1,7073495.story

Yet another reprecussion from the foreclose fallout in California. Can a situation like this be far off for other hot housing markets that are now facing escalating foreclosure rates?

Bear Stearns....A Story of Leverage

Bear Stearns this week has demonstrated clearly my earlier point about leverage and what it can do when it works against you. There will be a few more shoes to drop they will not be the last. What you have just witness is a $170 last year, and one of Wallstreets darlings, reduce to $2 a share in literally and instant.

Lenders and banks are not aware of their own sickness. It took Bear 24 hours from the CEO saying their balance sheet was fine to being insolvent. That is the nature of being leveraged to hill with debt you have lent out that you don't actually have. Fractional Reserve banking compounds bank returns, but in in reverse can snuff them out of existance literally overnight. It is a shame our banking system is built on this "ponzi scheme" but that is the nature of big business I guess. Try to understand that every bank that lends in America is structured this way and all of them lack the visibility to give adequate warning to impending doom on the horizon. Who is next? Keep your eye on the birdie.

FED Injects More Liquity (Round 2 or is it 3?...)

So here we go again, another attempt to prop up the collapsing credit system. Will it work? It is indeed a good thing that the FED is stepping in to take on Mortgage Backed Securities and provide liquidity to the market. However, something must be done to stop the sweeping tide of defaults that is causing the severe dislocation in the credit markets. Deleveraging in the credit system is more destructive than folks realize. The fact of the matter remains that in our "fractional reserve" banking system, where banks only hold 1/9th of what they are willing to securitize and lend out, means massive credit defaults will be magnified. Leverage is a double edge sword. During an expansion it will allow you to realize far larger gains with less capital, but in a contraction it will have the very same implications to the downside. In a nutshell it won't take much to erase a banks book value and make them insolvent.

It appears to me we are on the verge of seeing a very large bank (dare I say a Citigroup or Washington mutual) implode right out of existence. I believe it to be a certainty that before this pandemic of the credit markets runs its course there will be one more shoe to drop, and it will be the a very well known financial institutions total collapse. Stay tuned!!

Ron Paul vs Ben Bernanke on the Dollar and Inflation..

Listen to some of the key point made by congress man Ron Paul in relation to inflation, controlled recession, and deliberate debasing of the US Dollar.

"Conforming" vs "Non-Conforming"

In order to understand what conforming and non conforming means you must first have an understanding of the secondary mortgage market. The secondary markets provides liquidity to lenders to make loans by purchasing mortgages from originators thereby replenishing thier credit lines and giving the lenders the continued ability to originate new loans.


So what does it mean when you hear "conforming" and "non-conforming?" A "conforming" loan simply means it’s a loan that meets Fannie Mae and/or Freddie Mac guidelines. For instance, a "conforming" loan maximum limit currently is $417,000, anything larger than this limit is considered "non-conforming" or "jumbo." Another example would be borrowers who acquire loans exceeding 80% LTV (loan to value) are required to carry private mortgage insurance. The guidelines set forth by Fannie Mae and Freddie Mac in the Conforming market defines the risk that these secondary market investors are willing to take for their products. When you walk into a Washington Mutual, Wells Fargo, Bank of America or Chase and you see them advertise 30 or 15 year mortgage rate, those rates are Fannie and Freddie Conforming loan rates for a 30 year or 15 year fixed with an 80% LTV ratio and full documentation of income and assets. In short, a "conforming" loan is one that meets the requirement to be purchased by Fannie Mae or Freddie Mac on the secondary market.



FYI...LTV mean Loan to Value ratio or the ratio of the loan size versus the value of the home/collateral.

Bush Stimulus To The Rescue!

Could it be our noble leader has actually done something that may benefit the American people and their pursuit of the "American Dream?" Forget about the $600 to everyone and $1200 to married couples (which if my math serves me correctly is the samething) the revision to Fannie Mae and Freddie Mac loan limits to me is the among the most important parts of the stimulus package.

The economic stimulus package includes a very important change to our conforming loan market that may be the key to putting a bottom into this runaway stage coach. The package includes and upgrade to the conforming loan limits which will change the conforming loan limit from $417k to $700k. This may not mean much to the average homeowner but in terms of options to help struggling homeowners this is huge. The Jumbo non-conforming market is all but dead as with the Alt-A and subprime markets that catered to the newly included loan sizes and represent a serious hole in the Florida and national loan markets. If Fannie Mae and Freddie Mac can truly fill the void, in the markets in that loan bracket, some of the most underpressure upper middle class foreclosure may indeed be averted by these homeowners finally having an option. This will in turn lead to a decelaration in falling home prices and help us put in a bottom.

FED Rate Cut....Guilt By Association

Many people associate a FED interest rate cut with automatically lower interest rates in mortgages this is a misconception. The interest rates on conforming mortgage products are determined by the the underlying bonds and their yeilds. The best gauge the public has to really track the directionality of mortgage interest rates comes from the 10 year BOND yield.