[TheBreeze]

I too have libertarian feelings. But you are dealing with 2 million families …

Where did you get this number? Are you sure the actual number isn’t something like 200,000 families and 1.8 million speculators?

[TheBreeze]

The posts made in the comments here agree with you, capeman:

http://calculatedrisk.blogspot.com/2007/08/countrywide-8-k-sec-filing-on-bofa.html

If I’m understanding everything correctly, although this convertible is not floorless, it still allows for a risk-free short of CFC for BofA?

[TheBreeze]

Thanks Dave. That’s kind of what I thought was happening although I wasn’t quite sure of all the details.

[TheBreeze]

According to this FAQ, the Fed will take performing subprime mortgages as collateral:

http://www.frbdiscountwindow.org/cfaq.cfm?hdrID=21&dtlID=90

So it looks like CFC can pledge their subprime mortgages so long as they are performing. Given that, does anyone have an explanation as for why they are offering such high rates on 1-year CDs when they can supposedly borrow from the Fed Discount Window at about the same rate?

[TheBreeze]

davelj,

Thanks for the correction. I wasn’t trying to mislead anyone. In my post I said ‘may’ lead them to bankruptcy, not ‘will’.

[TheBreeze]

Does she read this Blog?

[TheBreeze]

2700 in California alone:

http://www.countrywide.com/purchase/f_reo.asp

I believe Bank of America did some kind of convertible deal with Countrywide. However, read this piece to see why the convertible deal may have put Countrywide on a path to bankruptcy:

http://www.thestreet.com/comment/rewrite/985564.html?puc=_tscs

[TheBreeze]

Here’s a good overview of the capital requirement and the reserve requirement for banks:

http://en.wikipedia.org/wiki/Capital_requirement

http://en.wikipedia.org/wiki/Reserve_requirement

It’s my belief that if Countrwide were to sell all its REOs, that it would fall below these requirements and this is one reason that many banks refuse to lower prices on their REOs. However, if one of these banks fails completely, the Federal Government could come in and liquidate everything quickly. This could have a cascading effect in that all REOs on all bank balance sheets would have to be marked to the new market prices. If that happens … LOOK OUT BELOWWWWW!

Right now, REO prices are stable in the same way that two tectonic plates pushing against one another are stable. Eventually there’s going to be an earthquake though.

[TheBreeze]

WantToBuy,

One more thing. I disagree with everyone who is saying that you should go ahead and buy now. In my opinion, things are currently changing very quickly in the mortgage market place and it would be much better to buy in November than it is now. Prices may deteriorate markedly between now and then. Prices could also stay about the same, but I think the odds of prices going up between now and November are almost nil. You lose very little by waiting and may gain a lot.

[TheBreeze]

Actually, it looks like they are only paying 5.65%:

http://my.countrywide.com/

I would say they desperately need money if they are paying that high of a rate. Over at bankrate.com, the average rate is 4.85% for a 12-year CD. Interestingly, the next highest rate after Countrywide is 5.44% from Bank of Internet out of San Diego.

http://www.bankrate.com/brm/rate/high_ratehome.asp?params=US,416&product=15

According to bankrate.com, the Federal Discount Rate is 5.75%

http://www.bankrate.com/brm/ratewatch/leading-rates.asp

So Countrywide is willing to lock itself into a 5.65% rate for 12 months when they can get about the same rate from the Fed Discount Window. Plus, most everyone is expecting a rate decrease sometime next month. Countrywide must be in dire straits if they can’t even wait the couple of weeks or so before the Fed cuts rates.

Here’s my amateur financial analyst/economist view of what I think is happening to Countrywide:

Per federal regulations, banks must maintain a certain capital to loan ratio. If a bank goes below that ratio, I believe the Federal Reserve comes in and takes over. It is likely that Countrywide is perilously close to crossing that threshold. By paying such a high rate on CDs, Countrywide is saying they desperately need capital. My guess is that the commercial credit market and maybe even the Fed Discount window is closed to Countrywide. Their only hope of continuing as a going concern is to get in more deposits.

Countrywide also has the option of selling off their REOs. However, the REOs are likely “marked to market” at a value way above what they will sell for. If Countrywide begins to sell these homes, the remaining homes will get marked to market based on these fire sales and Countrywide’s balance sheet goes to hell.

http://www.countrywide.com/purchase/f_reo.asp

Basically, it looks like Countrywide is caught between a rock and a hard place.

[TheBreeze]

wanttobuy,

I look forward to mocking you on this message board late next year when your house has gown down 20% in value from the time you bought it. Just joshing. 🙂 Sort of.

[TheBreeze]

Do it. With a 0% down loan you’ve essentially got a no-risk option on the condo. If it goes down, walk away. If it somehow goes up, you can sell it and keep the profits. Plus, if you decide to walk away, you can stop paying the mortgage and it will probably take several months before the bank actually evicts you (free housing, just like in the Army!) There is also the possibility that the federal government will refinance you at a lower rate in the future. Not to mention that you get the wife off your back. I can’t see a lot of down side here.

Actually, you should talk to a lawyer before you buy to see if you would have any liability should you choose to walk away in a year or two. Good luck!

[TheBreeze]

From the article:

“The Bush administration has been pushing Congress to enact overhauls that would eliminate the required 3% down payment and raise the size of the loans the FHA can insure to as much as $417,000 from $362,790. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) said recently that FHA reform will be among his priorities when Congress returns from its August recess, and a bill is expected to head to the full House this fall.”

… and this POS calls himself a Republican? I wonder what goes on in his little pee-brain? Bush is a danger to capitalism, free markets, democracy, the United States, and the entire world.

[TheBreeze]

I think there are also some sites out there that allow you to do paper trading. These weren’t around when I first got started, so I haven’t used them, but I would think that would be a good way for a newbie to get started. You can try out your strategies without risking any real money.

[TheBreeze]

The DIA and SPY are two ETFs which track the Dow Jones Industrial Average and the S&P500, respectively. You can buy and sell those. You can also buy and sell options. This is much cheaper than buying and selling the DIA and SPY, but also much more risky. I currently have some DIA puts and was up 17% on Monday and then down 13% yesterday. My total options investment is only around $4,000 though.

Whatever you do, I recommend starting very small until you get used to how things trade. For example, the spreads on option contracts are typically big and they can go several days without trading. If the strike prices on the options you buy are closer to the current trading price of the underlying security, the market will generally be fairly liquid (although not always!).

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