Use Weiss ratings to check the stability of your bank. Subprime lenders who hold their mortgages inhouse, will go under. I’m taking my money out of World Savings Bank when my 4 month CD expires, because they have a B rating now, but very low liquidity and too many RE loans. There’s a reason they pay the highest CD rate in the country. They desperately need the money, and not only to fund more loans. I am suspicious of their ability to keep up with their payments. I took the bait for 4 months, but then I’m out.
Remember the S&L crisis? This will be much worse. It’s interesting, the CEO of Fannie Mae keeps talking about the oncoming glut of foreclosures, as people won’t be able to make payments when their ARMs adjust. Why is he so honest? What is his motive?
Anyway, pension funds, insurance companies, mutual funds, hedge funds, etc. are going to be in big trouble and I think they could go under. Make sure your money market doesn’t hold any GSE bonds. I sold my Fannie Mae stock in spring 04, when I started reading about their accounting scandals. At that time it was $75. I don’t understand why it wasn’t dumped by everyone. It’s now around $55, and probably overpriced.
Jim, I wish I understood this MBS stuff better. It’s a fascinating topic, but way over my head. But the risk of defaulting mortgage borrowers has been spread all over the world, and with the biggest housing bubble in history, and about 45% of all loans in the US last year with no downpayment, even I can tell the fallout will be huge.
By the way, we built our house very cheap, between October 2004 and September 2006, and it cost $140/sq ft, which included $50K paid to the builder, and excludes land costs. We paid the invoices ourselves, to the subs. We used small companies too small to have much overhead, i.e. without marketing and HR departments, and some illegals, and that kept the cost down a lot. My custom stained alder cabinets were $20K, half the price of Home Depot’s. The only way to build cheaper is to do it yourself. How can you build for $90/sq ft?
