BloodhoundBlog

There’s always something to howl about.

Author: Tom Vanderwell (page 5 of 8)

Mortgage Officer

November 12, 2008

Paulson Translated

by

Mortgage Officer

Author website

After listening to and reading the text from Paulson’s speech this morning, I had to sit down and translate it because there was so much he wasn’t saying and so much that he was saying that was just not “right.”   I hope that you’ll do two things:

  1. Take the time to read the entire thing.
  2. Make your opinions known – tell me if you think I’m all wet.  Talk to others about it, write your local paper, forward a copy of this to others, call your congressman.   Don’t just sit back and say, “I don’t like it.”

Here goes:

Paulson Translated – His original speech is in “normal” type, my comments are in bold.

Washington, DC — Good morning. I will provide an update on the state of the financial system, our economy, and our strategy for continued implementation of the financial rescue package. Keep in mind that this strategy is subject to change by tonight.

Current State of Global Financial System

The actions taken by Treasury, the Federal Reserve and the FDIC in October have clearly helped stabilize our financial system. Before we acted, we were at a tipping point. Credit markets were largely frozen, denying financial institutions, businesses and consumers access to vital funding and credit. He uses past tense verbs, but I’m not sure that isn’t still true. U.S. and European financial institutions were under extreme pressure, and investor confidence in our system was dangerously low.

We also acted quickly and in coordination with colleagues We told them who we were going to buy and we all slashed rates together around the world to stabilize the global financial system. Going into the Annual IMF/World Bank meetings in early October, I made clear that we would use the financial rescue package granted by Congress to purchase equity directly from financial institutions – the fastest and most productive means of using our new authorities to stabilize our financial system. Even though that really isn’t what the program was for. We launched our capital purchase program the following week when we announced that nine of the largest U.S. financial institutions, holding approximately 55 percent of Read more

November 7, 2008

Why I think the Jobs report won’t be helpful for mortgage rates….

by

Mortgage Officer

Author website

Okay, let’s face the fact that the jobs reports and the reports from Ford and General Motors that came out today were ugly.   Not just ugly, downright nasty.

In normal economic times, that sort of bad economic news would send people fleeing stocks and going into the bond market.   That would in turn send bonds and Treasuries up and the rates down.

But that didn’t happen.   Just looking at one indicator – the 10 year Treasuries, the yield went up by .09% today.   What’s up with that?

A couple of things are keeping mortgage rates higher than what the economic fundamentals would justify:

  1. The amount of money the government is spending on bailouts.  The Federal deficit is truly skyrocketing because of all of the bailouts, buyins, rescues, TARPS, etc. that are happening.  That money needs to be financed somewhere because we don’t have the money sitting in the “bank.   When the markets get flooded with additional loan demand, the “buyers” of the debt can demand a higher rate on their money.   That pushes rates up.
  2. The concern that foreigners are not going to be able to continue to buy our debt.   This is not an economic downturn that is only happening in the United States, it’s truly an international downturn.  If, due to concerns about the amount of US debt or due to economic downturns in other areas, foreigners either stop or slow down the amount of US debt that they buy, that will reduce demand and push rates higher.
  3. The Bank of England cut rates by 1.5% this week (in their version of the Fed Funds rate).   We can’t do that.   Why?   Because we’re already at 1.0%.   So the options that the Fed has going forward are more limited than we’d like to see them.

I truly believe that if this was a “normal” economic downturn, we’d see mortgage rates at least .75% lower than we have them.   I also believe that short of a major Federal “buyout” of mortgage backed securities (a topic for another post), we aren’t going to see rates substantially lower than we have them now.   I also believe that it’s going to Read more

November 1, 2008

Mortgage Market Week in Review

by

Mortgage Officer

Author website

I want to apologize for the delay in getting this out until Saturday.   Due to some technical difficulties and some new things I’m going to be implementing, Friday was spent working on computer issues.   Yeah, I know, a fun way to spend a Friday…..

So, here we are at the end of the week and what’s happened?  Well, a couple of things did manage to happen.  We’ll talk about the Fed, what they did, why it matters and why it doesn’t.   We’ll talk about earnings (or the lack of them), consumer spending (or the lack of it), inflation (or the lack of it), bailout backlash, and falling oil prices as well.   So, here goes:

The Fed, as  you know by now, lowered the Fed Funds rate by .5% to 1.0%.   A couple of statistics about that number:

1. As you  know, that isn’t directly linked to mortgage rates, so mortgage rates are not going to drop by .5% because of that move.

2. That is equal to the lowest rate the Fed has had rates this century (from June of 2003 to June of 2004).   If you’ve read anything about what’s happening in the financial world, you’ll know that the former Fed Chairman Greenspan has taken a lot of heat for keeping interest rates too low for too long.    Hmmm, and now we’re back to that same level.

3.  The rate they lowered to is 1.0%.   That means they have very little “ammo” left in their pouch if things deteriorate further.

4. Japan, in the 1990’s, had an interest rate of 0%.   That’s right, banks etc. could borrow money from the Central Bank of Japan (their Federal Reserve) for nothing.  How well did that work for Japan?   Short answer, not very well.

Why does what the Fed did matter?

1. Because in their statement, they essentially removed all mention of inflation being a risk.   For more details on what the Fed said, check out “The Fed Translated.”

2. Because it showed that they are very concerned about the economic conditions not only in our country but elsewhere.

3. Because it raises the question of whether we’re going to see a Read more

October 29, 2008

The Fed Translated….

by

Mortgage Officer

Author website

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.   That’s the lowest that it’s been since June of 2004.  If you recall, former Fed Chairman Greenspan is being blamed, in part, for causing the credit crisis by leaving interest rates too low for too long.   How low?  1%.  For how long?  From June of 2003 to June of 2004.

The pace of economic activity appears to have slowed markedly,  that’s a nice way of saying that the economic reports we’ll see for October are much worse than what they were for September owing importantly to a decline in consumer expenditures the consumer finally is realizing that they can’t do like the government and consistently spend more than they make. Business equipment spending and industrial production have weakened in recent months this isn’t just a housing problem any more, it’s spread much further, and slowing economic activity in many foreign economies our economic problems have spread all over the world is damping the prospects for U.S. exports when other countries are in bad economic straights, we can’t export our way out of a recession . Moreover, the intensification of financial market turmoil is I don’t think it’s a mistake that they use the present tense (is) rather than the past tense (has) – the turmoil is ongoing likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit Yes, I think I know what you’re thinking – aren’t all of these bailout programs supposed to get lenders lending and make credit easy again?  More on that later.

In light of the declines in the prices of energy  I saw $2.61 a gallon for gas this morning – but very few people are talking about why they have come down – because of lower demand due to slumping economic activity and other commodities and the weaker prospects for economic activity there’s a brilliant statement – weaker prospects?  Gee, I think my high school junior could see that! the Committee expects inflation Read more

October 24, 2008

Mortgage Market Week in Review

by

Mortgage Officer

Author website

Here we are on Friday again.  That means that it’s time to try to summarize what’s going on in the mortgage and finance world.   I’m going to talk about a couple of main things:  the economic fundamentals, some earnings reports and the “margin calls” that are going on in the equity markets.

The economic fundamentals that have come out in the last week or two have all been, shall we say, poor.   Not just in the United States, but England, Asia and other places, the economic reports all show pretty solid evidence that we are either in or heading into (depending on where you are) a recession and that it’s most likely not going to be a short recession but more likely the opposite – a long and painful one.   I’m not going to go into the details of the different reports because it would be too depressing.

Earnings Reports (or shall we say, loss reports?)   I’m going to do something a little different this time.   I’m going to give you the numbers and then later in the e-mail, I’ll tell you who they matched with.   Here’s the numbers:

-$81,000,000
-$700,000,000
-$23,900,000,000
+$4,370,000,000

(oh and these are all just for the most recent 90 days).

Here’s the choices for the companies who made them:

National City Bank
Microsoft
Fifth Third Bank
Wachovia
I’ll tell you a bit further down which one did which……

Now for a few thoughts about what’s going on in the equity markets and how that has an impact on the mortgage and real estate markets.   Here’s an overview of it:

1. The mortgage backed securities market is a highly leveraged market.

2. As approximately 5 to 7% (that’s right, it’s only 5 to 7% of all mortgages that are causing this problem) go bad, the value of the mortgage backed securities (also known as Collateralized Debt Obligations or CDO’s) fall dramatically.   Since they are highly leveraged, the investors have to come up with additional cash, typically lots of it.

3. That is, in an oversimplified nutshell, what is causing the significant sell offs in the stock market and the bond market at the Read more

October 17, 2008

Mortgage Market Week in Review

by

Mortgage Officer

Author website

Well, here we are and it’s time for another Mortgage Market Week in Review.   This week, we’re going to talk about consumer spending, consumer confidence, the new normal, where’s the bottom? and why interest rates have had a 1 percent up and half percent down swing since last week Wednesday.

Consumer Spending – Retail Sales came out and surprise!   They were down by 1.2%.  With all of the gloom and doom that is being preached in the mainstream media, is it any wonder that people are pulling back?   Nope.   But something that I think is missing from the discussions is a simple question.   Are (or were) people spending more than they were making?   I believe that a pretty convincing case can be made that our society was living on credit and spending more than they made for too long.   It appears that it’s starting to catch up with us.

Consumer Confidence – The same goes here.   The mainstream media is preaching gloom and doom and consumer confidence is down, way down.   Are there cases where the mainstream media are overdoing things?   Absolutely.   However, I was telling my wife the other night that I think being a mortgage guy watching the news about the economy is sort of like being a nurse (she is) watching her parent be a patient (she did this week – Mom is fine).   She said she can readily believe that.   The media is overdoing things, but frankly there are a lot of really ugly things going on.   I’m not going to go into them, but if you want to read up on them (and keep yourself up at night), let me know and I’ll point  you to some good sites on the web to read up on them.

The new fundamentals in mortgage rates. What in the world happened to mortgage rates?   Last Wednesday, they were at 5.875%, they climbed to a high of 6.875% and then dropped back to 6.375% by today.   A couple of thoughts:

1. As the government, not only ours but virtually all governments in the world, has gone on a huge borrowing spree, that has Read more

October 8, 2008

Mortgage Market Week in Review – on a Wednesday?

by

Mortgage Officer

Author website

Yeah, I know it’s only Wednesday, but when I looked at my schedule for the rest of the week, I realized that I wasn’t going to be in one place long enough or have the time to sit down and write this update, so I decided that I better do it today.    In addition to that, we’ve had plenty of news in the last couple of days.   So, here are some thoughts about the markets, the housing market, perception and reality.

The markets – I think that it’s safe to say that none of us have seen this type of stock market declines in our lives.   I wanted to bring up a couple of points about the markets:

1. It’s very important, when looking at long term investing, to keep a rational view of things.   If you aren’t going to need the money for 25 years, don’t make decisions based on fear and panic that is currently swirling around in the markets.  Look at the long term and make decisions for the long term.

2. Stop listening to the main stream media.   There are many things where they don’t know what they are talking about and they love to paint a darker and more scary picture because it helps ratings.   I was listening to a local AM radio talk show yesterday while driving between appointments and was struck by a couple of things:

a. Morning talk show hosts shouldn’t be giving out advice about FDIC insurance.   The facts as they were stating them were just plain wrong.

b. Someone who is 44 years old (they said so) called in and said that on Monday (one of the lowest points in the market in the last 5 years) he sold everything in his 401K plan and moved it to cash.   If I had the time, I would have called in and told them a thing or two.   I was shocked at how much fear is taking over for rational long term planning.

3. I’m 43 (yeah I know, I’m over the hill) and I want to answer the question a lot of people are Read more

October 3, 2008

Mortgage Market Week in Review

by

Mortgage Officer

Author website

Well, here we are on Friday again. Are you getting motion sickness from all of the news and rumors that are flying back and forth? Wow has it been another week to forget, hasn’t it?

Here are the topics we’re going to talk about today: The Bailout/Rescue Plan, some very weak economic reports, the credit markets and do bankers really trust each other?

First, there were several economic reports that came out. None of them were good. Here’s a rundown of them:

1. Jobs – the jobs report came out this morning and showed that 159,000 jobs were lost in September. While the number was lower than what the markets expected (they expected 200,000), it was a very weak report.

2. Factory orders came in down 4%. That’s not the direction we’d like them to go.

3. Car Sales fell off a cliff in September. Ford’s sales dropped 35%. Ouch.

4. A couple of reports on personal incomes, personal expenditures and the like came out and they weren’t good.

If these were the only issues that we had, we’d have our hands full and we’d see mortgage rates drop due to the increased weakness in the economy.

But that’s not all. The credit markets have taken a major hit in the last week. What’s happening with that? A couple of brief highlights:

1. Banks are very concerned about running out of money (capital). Wachovia (more on this later) and Washington Mutual have been “bought out” to keep them from going under. Other banks are concerned that the losses they are experiencing will not enable them to keep their capital ratios where they should be. Due to that, there is an increasing reluctance to lend to commercial customers and to lend to consumers. How bad is it? I’ve heard a variety of conflicting reports. What I can say from personal experience is that for people (consumers, not businesses) who have the following: 1) Some equity in the Read more

September 30, 2008

Tom’s Top Ten Reasons He Doesn’t Like the Bailout….

by

Mortgage Officer

Author website
  1. Because a government intervention the financial systems rarely works well.
  2. Because it fails to acknowledge the fundamental shift that is occurring in our society as we move from being “overleveraged” to using credit responsibly.
  3. Because Nancy Pelosi likes it.
  4. Because no one has been able to prove that by buying this garbage from the banks, it will do anything to actually help credit get done.
  5. Because Barney Frank likes it.
  6. Because JP Morgan and the FDIC were able to work out a very smooth transition when Washington Mutual closed down last week and it was done without any unusual interventions.
  7. Because the bailout refuses to consider that not all banks are equal.   Those who are most likely not going to make it would get the same government money as those who are perfectly healthy.    That’s just not right.
  8. Because Rep. Peter Hoekstra (R-Michigan) voted against it, and I have a lot of respect for Pete.
  9. Because the Main Stream Media is preaching an unbelievable amount of panic, distrust and fear and they are doing it with items that are not factual.
  10. Because the government hasn’t done a good job (because I don’t believe they can) in showing that there’s a connection between buying bad assets from the banks and helping Main St.
  11. Because Citigroup and the FDIC worked out a “take over” of Wachovia without any significant market disruptions and without any unusual bailout efforts.

Okay, so it was actually 11.   The point is, the bailout is not good for our country and not good for our economy.   Are banks going to fail?  Yep.   Do I hope that “my bank” isn’t one of them?  Yep.   But like Jeff Brown says, we know how the story ends up and we’ll all be fine.

Tom Vanderwell

September 29, 2008

An Update on the Bailout….

by

Mortgage Officer

Author website

and yes, after doing some more reading on it, I do still consider it a bailout.

I’m going to put a copy of a post that Yves at Naked Capitalism wrote in italics and then my comments will be interspersed in bold print and then I’ve got more thoughts at the end.

Hope this helps you understand it better.

Congressional Charade: Changes in Bailout Bill Cosmetic, and Everyone Knows That

For a quick, one-stop synopsis of the Mother of All Bailouts (as of this month), see this readable version at Clusterstock (we’ve become a recent convert to this site).

Reader and sometimes contributor Lune, who was once a Congressional staffer and still subscribes to the the inside-the-Beltway press, provided a wrap of their coverage of the bailout bill. It makes clear that everyone understands that turning Hank Paulson’s three pager into a 110 page draft made for a nice fig leaf but made virtually no substantive difference.

Gee, why doesn’t that surprise me.   They added 107 pages of rules and regulations and it’s basically just spelling out the same difference as before.

From Lune:

Well folks, we’re almost to a done deal (certainly closer than Thursday). The Hill papers are reporting that they’re getting closer in both the Senate and the House to the needed votes to pass the new bailout bill. Roll Call gives the most frank assessment of what happened over the weekend in an article entitled “Same Bailout, New Dynamic” (subtitle: Outrage Prompts Sales Effort).

All the late-night talks, last-minute demands and dramatic pronouncements aside, the fundamental structure of a $700 billion Wall Street rescue plan that Congress spent the weekend wrangling over has not changed significantly from the outline proposed by a bipartisan group of Senators and House Members last Thursday.

Did you hear that?:  It’s basically the same deal as last week Thursday, just spun differently.

“This is in essence the same,” said Sen. Bob Corker (R-Tenn.), who attended those talks.
. . .
Assuming enough House Republicans agree to vote for the package, it appeared that the House could vote as early as today, while the Senate might have to wait to take it up Wednesday after Rosh Read more

September 26, 2008

Mortgage Market Week in Review – to Bail or not to Bail?

by

Mortgage Officer

Author website

Yikes, every week it’s getting more and more challenging to lay out for you what’s going on in the markets.   Hopefully it will get easier, but I’m not really sure that it will for a while.  So what are we going to talk about this week?   This week it’s about the proposed bailout, the biggest bank failure in the history of our country, and a few thoughts from Dick DeVos (huh – trust me, it will fit in later).

The bailout – $700,000,000,000.00. That’s how much money the Treasury wants to have to bail out the troubled financial institutions.   What do they want to do?   Here it is in a nutshell:

  • They want to buy approximately 5% of the mortgage backed securities (presumably the worst ones) from the banks and investment institutions.
  • Why?  The theory is that if they take those loans off their books, that will free those institutions to start lending again (start loading up their books with better loans this time.)
  • Do we have any guarantee that it will work?   Nope, the only guarantee we have is the word of Treasury Secretary Paulson and Fed Chairman Bernanke, both of whom are very smart but both of whom have been wrong on numerous occasions as the credit crisis has spread.
  • Would the tax payer end up paying for the entire $700 Billion?  Long term, probably substantially less than that because, depending on how the portfolio gets managed, because these loans are backed up by assets (houses) and the value of those won’t go the way of Washington Mutual stock and become worthless.
  • Will banks immediately turn around and start lending more to others?   That’s a question that we don’t know the answer to.
  • I read an article this morning that said that the Central Banks might actually be making the problem worse.   How so?   They keep pumping more money into the system and that is making it easy for banks to borrow money from the Fed so they don’t have to borrow money from each other and that has put a squeeze on the normal credit markets.   Interesting Read more

September 24, 2008

You know, I was wondering….

by

Mortgage Officer

Author website

All of the talking heads and all of the politicians keep talking about how we aren’t just giving $700 Billion to Wall Street, we’re investing in mortgage backed securities that we’ll eventually be able to resell and earn a good portion of that $700 Billion back, heck we might even make a profit on it.

Let me lay out a couple of things that I know:

  1. Chairman Bernanke said that the $700 Billion number was determined in that they feel they need to buy 5% of the mortgages that are “out there.”
  2. They are going to buy the mortgages that no one is able to sell today because the price that they would have to sell them at would require that the seller immediately goes into bankruptcy.
  3. At this point (9:45 PM EST on Thursday), it appears that there is a very good chance that the amount that the Treasury will be paying for these assets is above “what they are worth.”  (It’s hard to know what they are really worth, but it sounds like the price the government will pay is way more than what they could get on the market right now).

Now let me attempt to make a conclusion from this:

  1. The Treasury is going to buy 5% of the mortgage market and I think that it’s a safe assumption they aren’t going to get the highest quality portion of the market.
  2. According to the Federal Reserve’s own report, (just taking that snapshot in time) delinquency ratios for residential mortgages at commercial banks were running approximately 4.2%.
  3. That means that there is a very good chance that the portion of the mortgage backed securities market that the Treasury is going to buy is the “garbage” that’s currently part of the delinquency ratios.
  4. So, if the 4.2% delinquent portion becomes 84% of the the pipeline that the Treasury buys and 80% of that portion becomes essentially worthless, that means that we’d, as tax payers, take on approximately $470,400,000,000 in additional debt that won’t be “paid off” any time soon by the sale of assets.

I’d love it if I was missing something here, but I have a feeling that Read more

September 22, 2008

The Vanderwell Proposal – “Project Rebuild Banking”

by

Mortgage Officer

Author website

Since Secretary Paulson put his proposal in three pages, I’m going to lay out my proposal in less space than that.   Here goes:

Point #1 – The Treasury is hereby authorized to spend up to $700 Billion to stabilize the banking and financial services sector in such manner as it sees fit.   There will be two main priorities in their decision making:  a) To increase the flow of credit in the banking and mortgage markets so that the healthy of the economy is improved, not hindered and b) To increase the likelihood that eventually the taxpayer will receive a profit rather than incur a loss.

Point #2 – Any institution that sells any “troubled” assets to the  Treasury shall sell them at a price that is established by joint decision of the Treasury, the institution, and a committee formed of 2 members of the Senate Banking Committee, the Vice President of the United States, and 2 members of the House Banking Committee and the chairman of the SEC.   The target price shall be no more than 45 cents on the dollar.   Under no situation will the purchase price be more than 50 cents on the dollar without the joint approval of the House and Senate Banking Committees, and no more than 65 cents on a dollar without approval by the full Congress.

Point #3 – Any institution that sells troubled assets to the Treasury shall immediately reduce their dividend to 20% of what it was (can be adjusted for inflation annually according to the CPI), and all officer level employees (from the CEO down 3 levels on the corporate hierarchy) will have their salary reduced to a maximum of 3 times the average salary that they pay their employees.   So if the average Bank of America employee makes $50,000 per year, the CEO’s salary will be no more than $150,000.

Point #4 – If the institution is currently servicing the debt, they will remain servicing the debt and will provide monthly reports to the Treasury on the status of the payment history, collection procedures and, if necessary, foreclosure efforts.

Point #5 – If a bank, like Read more

September 19, 2008

Mortgage Market Week in Review

by

Mortgage Officer

Author website

I’ve got to tell you, I’d love to be able to write one of my Friday updates and tell you about some good news or tell you, “You know, the week was very non-eventful and everything just flowed on quite smoothly.”      That certainly didn’t happen this week!    To attempt to bring/keep you up to speed on what’s going on in the mortgage market, I’m going to first attempt to tell you a bit about what has happened this week, then do a little question and answer session (I know, kind of scary when I answer my own questions!) and end up with some thoughts about what it means and how things look going from here.

So, what happened this week?   Well, frankly, the financial systems of the world almost had a total meltdown.   Let me explain.   There’s essentially two “main parts” to the financial markets.   There’s the equity side (the stock markets) and the debt side (bonds, loans, mortgages, Fed Funds, and all other types of borrowings).   The equity portion of the markets got hammered, but it wasn’t, with the exception of a few firms, a total meltdown.    On the debt side, it really was very close to a nuclear reactor meltdown.   I could go on and on with details of how the Fed Funds rate (supposed to be 2.0%) jumped to 6.0%.   I could tell you how some treasury bonds were selling for less than what they were worth (meaning someone who bought them was guaranteed to lose money.   I could tell you how there were auctions for certain financial instruments and no one showed up (AT ANY PRICE.)   I could tell you the details about how AIG got basically an $85,000,000,000 margin call and the only way they could avoid defaulting on it and bringing down the entire financial markets was by giving 80% of the firm to the government and paying over 12% interest on the money. AIG is basically paying credit card rates!   Let’s put it this way, I’ve had people ask me, “Was it really that bad out there?”   Short answer, yes, it really was that Read more

« Older posts Newer posts »

Inventing Real Estate 2.0

Welcome to BloodhoundBlog, the national real estate industry marketing and technology weblog written by, for and about real estate professionals. Better yet, welcome to the wired world of real estate. We are busily inventing Real Estate 2.0 – technology, marketing, service and salesmanship. Like all Bloodhounds, we are smart, frisky and fiercely independent. We've built a spot on the earth – beloved over all – where each one of us can be who we are, no matter who that might be. We are committed to an idea of excellence that will flush the bums, the con-men and the crybabies out of the real estate industry. If you yearn to have your failures excused, your moral lapses absolved or your boo-boos kissed, seek elsewhere. But if you are sick to death of mediocrity – welcome home. Read all about us, subscribe to our feed and steel yourself for the hunt. We work hard, we play hard, we learn everything we can – and we bow to no one.

Media Contacts