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August 20, 2007 at 3:56 PM in reply to: Revenge of Nostradumbass: REO auction San Diego from WSJ. #78423August 20, 2007 at 3:56 PM in reply to: Revenge of Nostradumbass: REO auction San Diego from WSJ. #78549
davelj
Participant“A certain S&P 500 thread I know comes to mind.” Bwhahahaha… Hey, anyone know what PS is up to? How’s her site doing? I visited it once several months back but forgot what it’s called… Californiasomethingorother…
August 20, 2007 at 3:56 PM in reply to: Revenge of Nostradumbass: REO auction San Diego from WSJ. #78570davelj
Participant“A certain S&P 500 thread I know comes to mind.” Bwhahahaha… Hey, anyone know what PS is up to? How’s her site doing? I visited it once several months back but forgot what it’s called… Californiasomethingorother…
davelj
Participantpatientrenter,
you posted: “I don’t think the difference between the prices today of conforming and nonconforming mortgages is driven by differences in risk. It’s just an indicator of the value of the government guarantee tacked onto the mortgage security when it’s packaged and sold. If you can remove the charge for loan default risk, then of course the price of the loan goes down. This is just as true at $942K as at $417K.”
I would have completely agreed with that assessment 6 months ago and it probably still holds true to some degree today. Here’s the issue, however, as I see it going forward: the rates that the GSAs will be charging for all of these loans will be increasing regardless of how they decide to define a “conforming mortgage.” From a big picture standpoint, what I’m trying to get at is that, ultimately, somebody’s gotta pay when mortgages default, regardless of whether it’s MBS investors or taxpayers via a GSA bailout. Consequently, while it may help a little bit at the margin – because as you correctly point out, the charge for loan defaults is reduced (or perhaps “more dispersed” is a better way of putting it) – it doesn’t really address the REAL problem, which is affordability. If the difference in being able to afford a mortgage is 50 bps (lets just assume that’s the long-term “GSA advantage” for the moment), then one shouldn’t take out the loan. The real problem, at the end of the day, is prices must come down. Raising the conforming limit is a small bandage, in my opinion. But I could be wrong.
davelj
Participantpatientrenter,
you posted: “I don’t think the difference between the prices today of conforming and nonconforming mortgages is driven by differences in risk. It’s just an indicator of the value of the government guarantee tacked onto the mortgage security when it’s packaged and sold. If you can remove the charge for loan default risk, then of course the price of the loan goes down. This is just as true at $942K as at $417K.”
I would have completely agreed with that assessment 6 months ago and it probably still holds true to some degree today. Here’s the issue, however, as I see it going forward: the rates that the GSAs will be charging for all of these loans will be increasing regardless of how they decide to define a “conforming mortgage.” From a big picture standpoint, what I’m trying to get at is that, ultimately, somebody’s gotta pay when mortgages default, regardless of whether it’s MBS investors or taxpayers via a GSA bailout. Consequently, while it may help a little bit at the margin – because as you correctly point out, the charge for loan defaults is reduced (or perhaps “more dispersed” is a better way of putting it) – it doesn’t really address the REAL problem, which is affordability. If the difference in being able to afford a mortgage is 50 bps (lets just assume that’s the long-term “GSA advantage” for the moment), then one shouldn’t take out the loan. The real problem, at the end of the day, is prices must come down. Raising the conforming limit is a small bandage, in my opinion. But I could be wrong.
davelj
Participantpatientrenter,
you posted: “I don’t think the difference between the prices today of conforming and nonconforming mortgages is driven by differences in risk. It’s just an indicator of the value of the government guarantee tacked onto the mortgage security when it’s packaged and sold. If you can remove the charge for loan default risk, then of course the price of the loan goes down. This is just as true at $942K as at $417K.”
I would have completely agreed with that assessment 6 months ago and it probably still holds true to some degree today. Here’s the issue, however, as I see it going forward: the rates that the GSAs will be charging for all of these loans will be increasing regardless of how they decide to define a “conforming mortgage.” From a big picture standpoint, what I’m trying to get at is that, ultimately, somebody’s gotta pay when mortgages default, regardless of whether it’s MBS investors or taxpayers via a GSA bailout. Consequently, while it may help a little bit at the margin – because as you correctly point out, the charge for loan defaults is reduced (or perhaps “more dispersed” is a better way of putting it) – it doesn’t really address the REAL problem, which is affordability. If the difference in being able to afford a mortgage is 50 bps (lets just assume that’s the long-term “GSA advantage” for the moment), then one shouldn’t take out the loan. The real problem, at the end of the day, is prices must come down. Raising the conforming limit is a small bandage, in my opinion. But I could be wrong.
davelj
ParticipantLet’s see. $417K to $709K. A 70% increase in one fell swoop. Hmmmm. I don’t know but that seems like a pretty big stretch.
But let’s assume that he’s right (and he probably isn’t). Even then, that doesn’t help the non-Freddie/Fannie secondary market one bit. These folks don’t really care what the conforming limit is, per se, when pricing product; they care about how they think the loan is going to perform. Period. Some artificial distinction made between conforming and non-conforming is largely irrelevant.
Where raising the limit could help a little bit is that more product could be purchased by Fannie/Freddie. But both of these GSAs are really highly levered as it is. So there’s a limited amount of new product that they can hold on their balance sheets. At the end of the day, the real issue is with the secondary market away from Fannie/Freddie. If it doesn’t come back, then tinkering with the conforming loan amount, while marginally helpful to the housing market, is just rearranging the deck chairs.
Ultimately, people have to be able to afford their mortgages at a “true” market rate of interest. Tinkering around with the conforming limit doesn’t really address the issue.
davelj
ParticipantLet’s see. $417K to $709K. A 70% increase in one fell swoop. Hmmmm. I don’t know but that seems like a pretty big stretch.
But let’s assume that he’s right (and he probably isn’t). Even then, that doesn’t help the non-Freddie/Fannie secondary market one bit. These folks don’t really care what the conforming limit is, per se, when pricing product; they care about how they think the loan is going to perform. Period. Some artificial distinction made between conforming and non-conforming is largely irrelevant.
Where raising the limit could help a little bit is that more product could be purchased by Fannie/Freddie. But both of these GSAs are really highly levered as it is. So there’s a limited amount of new product that they can hold on their balance sheets. At the end of the day, the real issue is with the secondary market away from Fannie/Freddie. If it doesn’t come back, then tinkering with the conforming loan amount, while marginally helpful to the housing market, is just rearranging the deck chairs.
Ultimately, people have to be able to afford their mortgages at a “true” market rate of interest. Tinkering around with the conforming limit doesn’t really address the issue.
davelj
ParticipantLet’s see. $417K to $709K. A 70% increase in one fell swoop. Hmmmm. I don’t know but that seems like a pretty big stretch.
But let’s assume that he’s right (and he probably isn’t). Even then, that doesn’t help the non-Freddie/Fannie secondary market one bit. These folks don’t really care what the conforming limit is, per se, when pricing product; they care about how they think the loan is going to perform. Period. Some artificial distinction made between conforming and non-conforming is largely irrelevant.
Where raising the limit could help a little bit is that more product could be purchased by Fannie/Freddie. But both of these GSAs are really highly levered as it is. So there’s a limited amount of new product that they can hold on their balance sheets. At the end of the day, the real issue is with the secondary market away from Fannie/Freddie. If it doesn’t come back, then tinkering with the conforming loan amount, while marginally helpful to the housing market, is just rearranging the deck chairs.
Ultimately, people have to be able to afford their mortgages at a “true” market rate of interest. Tinkering around with the conforming limit doesn’t really address the issue.
davelj
ParticipantRegarding Chris’ comments…
Maybe I’m wrong, but I don’t think many people here actually want “financial armageddon.” Speaking for myself, I’d just like to see a recession, a cleansing of the system, so to speak. There have been some bad financial actors – Countrywide, WaMu, and lots of hedge funds – that NEED – I repeat NEED – to go out of business in order for our economy to function better in the future. This would lead to some financial pain and a recession, to be sure. But I don’t think anyone here – “think” being the operative word – is hoping for a depression. Maybe I’m wrong, but I think your assumption that people here want the world’s financial structures to collapse is incorrect. But, please, anyone feel free to correct me if I’m wrong.
A friend called me a couple of hours ago and told me what happened last night. Countrywide’s Mozilo, Sambol (President) and Sieracki (CFO) had a conference call last night with all eleven of their lenders and Janet Yellen, president of the San Francisco Fed. The asian markets were going apeshit and it looked like today was going to be a bloodbath. Yellen asked, “How can we help, outside of a Fed Funds rate cut?” The response was “lower the discount rate.” And so it was done. And here we are. I, along with many others, thought that maybe this Fed would be different, but clearly the Fed is still in the bailout business, plain and simple. Get used to it.
davelj
ParticipantRegarding Chris’ comments…
Maybe I’m wrong, but I don’t think many people here actually want “financial armageddon.” Speaking for myself, I’d just like to see a recession, a cleansing of the system, so to speak. There have been some bad financial actors – Countrywide, WaMu, and lots of hedge funds – that NEED – I repeat NEED – to go out of business in order for our economy to function better in the future. This would lead to some financial pain and a recession, to be sure. But I don’t think anyone here – “think” being the operative word – is hoping for a depression. Maybe I’m wrong, but I think your assumption that people here want the world’s financial structures to collapse is incorrect. But, please, anyone feel free to correct me if I’m wrong.
A friend called me a couple of hours ago and told me what happened last night. Countrywide’s Mozilo, Sambol (President) and Sieracki (CFO) had a conference call last night with all eleven of their lenders and Janet Yellen, president of the San Francisco Fed. The asian markets were going apeshit and it looked like today was going to be a bloodbath. Yellen asked, “How can we help, outside of a Fed Funds rate cut?” The response was “lower the discount rate.” And so it was done. And here we are. I, along with many others, thought that maybe this Fed would be different, but clearly the Fed is still in the bailout business, plain and simple. Get used to it.
davelj
ParticipantRegarding Chris’ comments…
Maybe I’m wrong, but I don’t think many people here actually want “financial armageddon.” Speaking for myself, I’d just like to see a recession, a cleansing of the system, so to speak. There have been some bad financial actors – Countrywide, WaMu, and lots of hedge funds – that NEED – I repeat NEED – to go out of business in order for our economy to function better in the future. This would lead to some financial pain and a recession, to be sure. But I don’t think anyone here – “think” being the operative word – is hoping for a depression. Maybe I’m wrong, but I think your assumption that people here want the world’s financial structures to collapse is incorrect. But, please, anyone feel free to correct me if I’m wrong.
A friend called me a couple of hours ago and told me what happened last night. Countrywide’s Mozilo, Sambol (President) and Sieracki (CFO) had a conference call last night with all eleven of their lenders and Janet Yellen, president of the San Francisco Fed. The asian markets were going apeshit and it looked like today was going to be a bloodbath. Yellen asked, “How can we help, outside of a Fed Funds rate cut?” The response was “lower the discount rate.” And so it was done. And here we are. I, along with many others, thought that maybe this Fed would be different, but clearly the Fed is still in the bailout business, plain and simple. Get used to it.
August 16, 2007 at 11:33 PM in reply to: Dow Closes below 13000 today. Down 167 points. NDQ -40, S&P -19.8 #76797davelj
ParticipantI think Billy Ray Valentine summed up the current state of affairs when he noted (substitute “risk assets” for “pork belly”):
“OK, pork belly prices have been dropping all morning. So everybody’s waiting for them to hit rock bottom so they can buy cheap. The people with pork belly contracts are thinking, ‘Hey, we’re losing all our money and Christmas is coming. I won’t be able to buy my son the GI Joe with the Kung Fu grip. And my wife won’t make love to me ’cause I ain’t got no money.’ They’re panickin’, screaming, ‘Sell, sell.’ They don’t want to lose all their money. They’re panickin’ right now. I can feel it.”
August 16, 2007 at 11:33 PM in reply to: Dow Closes below 13000 today. Down 167 points. NDQ -40, S&P -19.8 #76916davelj
ParticipantI think Billy Ray Valentine summed up the current state of affairs when he noted (substitute “risk assets” for “pork belly”):
“OK, pork belly prices have been dropping all morning. So everybody’s waiting for them to hit rock bottom so they can buy cheap. The people with pork belly contracts are thinking, ‘Hey, we’re losing all our money and Christmas is coming. I won’t be able to buy my son the GI Joe with the Kung Fu grip. And my wife won’t make love to me ’cause I ain’t got no money.’ They’re panickin’, screaming, ‘Sell, sell.’ They don’t want to lose all their money. They’re panickin’ right now. I can feel it.”
August 16, 2007 at 11:33 PM in reply to: Dow Closes below 13000 today. Down 167 points. NDQ -40, S&P -19.8 #76943davelj
ParticipantI think Billy Ray Valentine summed up the current state of affairs when he noted (substitute “risk assets” for “pork belly”):
“OK, pork belly prices have been dropping all morning. So everybody’s waiting for them to hit rock bottom so they can buy cheap. The people with pork belly contracts are thinking, ‘Hey, we’re losing all our money and Christmas is coming. I won’t be able to buy my son the GI Joe with the Kung Fu grip. And my wife won’t make love to me ’cause I ain’t got no money.’ They’re panickin’, screaming, ‘Sell, sell.’ They don’t want to lose all their money. They’re panickin’ right now. I can feel it.”
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