Tuesday, March 8, 2011

The Looming War on Mortgage Lending...

I am not sure how this is going to end, but if the past few months is any indication, it is going to end in a bad way.

Conservative lawmakers have been given a mandate to cut spending. That being said, it appears all budget items are on the table, including the privatization of Fannie Mae and Freddie Mac.

In order to make to make the shift from government controlled entities back to the private sector, the two GSE's will have to be made more attractive to Wall Street and investors. One way to do so is to eliminate the subsidies and insurance now provided by the government.

That sounds good on paper, but if an action such as this is acted upon, it could place a already cold real estate market into a deep freeze. The GSE's currently purchase loans from lenders and banks and then sell them off to investors globally. This allows the lenders to offer more loans to new borrowers, and so goes the mortgage lending cycle. If the GSE's are not there, and it is left to the marketplace to decide, there could be an interruption in the cycle. The end result could ultimately harm the borrower with higher interest rates, fees and tougher loan qualifications with nowhere else to turn.

Enter the real estate consortium of real estate agents, builders, banks, civil rights groups and other concerned citizens. The NAR, ABA, NAHB, NFHA and other civil rights and real estate trade organizations are planning to go to Washington and make sure their voices are heard and actions are taken contrary to the conservative law makers wishes.

This group has galvanized their separate but equal interests in the real estate industry into one potent machine aimed at accomplishing one goal - the continuation of government backed insurance on mortgage loans.

Why is this going to be a war ? Well, a lot of new conservatives have been hired by voters to curb government spending, and cutting the responsibility of backing mortgages is a way of cutting costs and saving money. But, the aforementioned real estate and civil rights organizations are a powerful lobbying corp, with deep pockets.

These two are heavy hitters - one with a mandate to give the taxpayers what they are looking for - savings; the other looking out for the public's interest by making sure housing continues to be affordable.

I am not real clear as to which side is right, because the devil is in the details. If one side wins, does that mean the other side deserves to lose ? I have a bad feeling no matter which side is victorious, it will not end well for taxpayers or borrowers in the future...

Tuesday, March 1, 2011

Why We Remain Financially At Risk...

You would think that after the TARP funds were distributed to all of the major banks, and then returned to tax payers shortly thereafter - that the U.S. would be somewhat solvent as far as lending institutions go...

Well, according to the economists at New York University's Stern School of Business - not so fast.

With the help of Nobel Prize winner Robert Engle, the university has developed it's own model on how to measure if a financial institution is systemically "risky".

There is a somewhat sophisticated mixture of financial benchmarks used in order to determine the risk level, but it basically shows that the largest lending institutions would possibly need the same infusion of cash and tax payer backed funds if the financial events of 2008 repeated itself any time in the near future.

But it is not fair to place all financial institutions in the same boat. Just like any other sector in business, some lenders just do things different than their competition. In this case, bigger can be better, if it's done correctly.

I do not know how the large institutions can become less risky, since risk is the game they play. But it appears that you can be in the risk game, and not be risky at all...

Want to know more ? Visit the site with the results, Vlab.Stern.edu and read the findings and other information concerning the riskiest financial institutions in the U.S today.

I would like to thank Bloomberg Businessweek magazine for presenting this article. It is the Feb.7th - Feb.13th 2011 edition of the weekly magazine. The article is located on Page 39, and is written by Craig Torres. Good information to know, Craig...Thank You