Mr Mortgage Update: Ultimate Fannie/Freddie ‘Con’ Job

Posted on June 24th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

For those of you that want to know most everything on the new Fannie Mae/Freddie Mac (agency) Jumbo loans and their new-found expanded purchasing capacity that was supposed to save the real estate market beginning last March, this post is for you. Remember, this was being viewed by many at the time as a license for these two companies to blow themselves up.

This is all a complete failure and sham and has been from the onset in my opinion. Throwing crap against the wall at taxpayer to see if it sticks is not a good game plan. In addition to the new Jumbo programs being virtually unsalable to the general public in this market environment, the agencies are using their expanded capacity to buy their own mortgage securities back. This action backstops themselves and those holding agency paper such as Bill Gross (guess what other “luminary” is now working at the PIMCO bond house now and benefits from this? That’s right — Alan Greenspan).

Pumping $10s of billions into the agency MBS market may also provide false support and marks on agency MBS prices. If they are providing price support for their own securities and suddenly have to stop, the agency MBS market mistakenly thought to be very safe, could suffer a severe dislocation like we have seen with most other mortgage-related securities. Remember, these securities are not backed by the Government other than $4.5bb total by the Treasury, they are backed by Fannie and Freddie.

Just three months after the new programs and expanded funding capacity was put into effect, it is already evident that this is just another financial sector bailout for those in the agency MBS market. Below are three stories. This post is long, but once you read it you will have this topic covered. Let’s begin.

On April 18th, I released a YouTube video and research regarding the total lack of demand for the new agency ‘Con-Jumbos’. The new programs kicked-off in March to much fanfare led by Frank and Paulsen, but today we learned that my initial research was spot on. Fannie Mae has only done about 48 jumbo loans and Freddie Mac 440 according to the Mortgage Finance newsletter. That is in the entire nation! You must be kidding me, right?!? (This loan count is based upon a $500k loan amount).

Mr Mortgage April 18th YouTube Video on Fannie/Freddie ‘Con’ Jumbos:

“Since the rule change took effect in March, Fannie Mae has packaged $24 million of jumbo loans into securities, while Freddie Mac added $220 million, according to the Inside Mortgage Finance newsletter.”

I call them “Con-Jumbos” vs. Conforming-Jumbos or Agency-Jumbos because they were being portrayed as the savior to the housing market in higher values states and regions by the Solons and talking heads on bubblevision for months. Nothing could have been further from reality and anyone in the mortgage business for even the shortest amount of time could have told you this.

Below is my original April 18th post on the topic. I received flack over this by pundits and mortgage ‘professionals’ who said ‘you have not given this enough time’. I didn’t need to. I know what the interest rate levels have to be to get people into fixed rate loans and compete with the exotic loan affordability that was lost. A 6%-7% 30-year fixed is much too high with today’s prices (still). I also understand the reality of all of this and the math. Simply, who in the world would want to refinance into a 7% agency Jumbo when you currently have a nice, low-payment exotic loan? And what percentage of the population can qualify for a purchase loan with 7% rates, tight credit guidelines and large down payments required?

Note that most of the original post below still applies other than rates have changed. The rates on <=$417k loans are higher and on “Con-Jumbos” are slightly lower than quoted below.

April 18th post – I Just got off the phone with three of my top contacts at three of the nations leading mortgage lenders/banks. These programs are not selling at all. The volumes are very low. Banks are highly disappointed. The difference between a standard Fannie/Freddie (Agency) is roughly 75 to 100bps depending on the lender. Agency 30-yr fixed are roughly 6.25% with no points and Agency Jumbos are roughly 7 to 7.25%. Mortgage rates have gone up about .375% in the past few days.

For refi’s, nobody wants out of their 5/1 ARM, ALT-A interest only or Pay Option ARM into a 30-yr fixed at 7.25% where their payments increase substantially. Also, in over 50% of cases appraisal are not coming in at value. For example, the loan application is taken with an estimate of $600k and the loan is an 80% loan-to-value (LTV). When appraisal comes in, the value is actually $500k making the loan a 100% LTV and there are no programs available. This is happening on a vast amount the $417k conforming loans as well.

For the purchase money folk, rates are also too high for current property values. Plus, a down payment required is 10%+. Debt to income ratios have tightened, further reducing buying power. A household wanting to take advantage of a $700k Agency loan at 7.25% must earn about $175k per year at current rates. And that only buys a $770k home, which was a low to moderate neighborhood in most areas in CA and now many of these priced-ranged neighborhoods are riddled with vacant homes, subsidized renters and wild card sales going off 20-50% below recent comparable sales by those who bought the properties out of foreclosure at significant discounts. These neighborhoods surely are not the first-pick of some earning $175k per year. That same person could have purchased a $1.5 million home with little to no down payment nine short months ago.

In a nutshell, the new Fannie/Freddie jumbo programs are already a bust. They offer nothing to most people other than the few with perfect credit, who have a large down payment and make tons of money. That wipes out the vast majority of the buyers in CA. All while inventories of homes for sale and foreclosures soar. Slowly over time, home values will gravitate towards the most readily available financing, which is standard agency conforming <=$417k. This is just another example of how far CA Real Estate has yet to fall. -Best, Mr Mortgage

ADDITION TO ABOVE…a) a $720k loan at 7% on a 30-yr fixed is a principal and interest payment of $4,825 PLUS taxes and insurance of another $1,000 for nearly $6k a month. With a 40% debt-to-income ratio and reasonable other debt, the household income would have to be in very high $100k’s per year to reasonably qualify. b)10% down is the minimum but rates are higher with that LTV and good luck finding a second mortgage to 90% so LPMI is the only option, which adds even more to the rate c) credit score must be over 700 to qualify for the best rates. d) in region deemed ‘declining or soft’, LTV’s may be even lower requiring more equity for a refi or more cash down for a purchase.

Then on April 30th, the New York Times came out with a story echoing what I said on April 18th. I was so thrilled that somebody actually agreed with me that I immediately released the post below:

May 2nd post – A couple of weeks ago I released an update on how bad I heard the new Agency-Jumbo programs were selling and how the overall interest in them was bleak. If they just would have asked me, I would have told them that in the past many years 30-yr fixed rate Jumbo loans never really sold well unless the rates got down to the lower 5% level because most could just not afford the payments or benefit from refinancing. Of course, my reports a few weeks ago were ridiculed by many saying ‘give it a chance’ and ‘it is so new, you don’t know what you are talking about’.

But even without my friends telling me how bad it really was, I knew they would not sell because I understand the math. Who in the world would want to refinance into a 7% agency Jumbo when you currently have a nice, low-payment exotic loan? And what percentage of the population can qualify for a purchase loan with 7% rates, tight credit guidelines and large down payments required?

From day one I have said “the new agency Jumbos are for rich people to buy homes. The very same people who could have gone to any bank they wanted and obtained a loan”. Perhaps agency rates are slightly lower than bank portfolio products, but not by much.

The simple fact is most people do not earn enough to qualify for these programs. With current rates on a 30-yr fixed, a household must earn roughly $100k to afford a loan amount of $417k. To fully take advantage of the new Conf-Jumbo programs at $729k, you must earn over $180k. Gimme a break…that is a small fraction of the population.

Guess what…the NY Times came out repeating what I said two weeks ago. Therein, lies the benefit of you reading ML-Implode and the Mr Mortgage blog as your first source of mortgage and housing related information.

NY TIMES STORY QUOTES –

“The program “is so much of a failure that it’s really unbelievable,” said Daniel M. Shlufman, president of the FCMC Mortgage Corporation in Clifton”

““We’re getting some benefit but not as much as I’d hoped,” said Representative Barney Frank”

” “It’s a complete joke,” said Jose Lemus, president of Brymus Capital”

“the interest rates on them remain prohibitively high, said prospective borrowers, like Nathan Menaged”

4/30 NY TIMES STORY LINK

Now, the big guns have come out to weigh in. Today, Bloomberg released a detailed story on just how little demand there is for these products and how Fannie and Freddie are actually spending their new-found expanded capacity buying their own mortgage securities. This was supposed to go into the front lines of the housing crisis. This wasn’t part of the deal.

It is apparent that Fannie and Freddie and those who approved these new provisions are only concerned with saving their own skins and those that own their bonds such as Bill Gross (who basically called for a self-interested bail-out a few months ago). Pumping $10s of billions into the agency MBS market may also provide false support and marks on agency MBS prices. If they are providing price support for their own securities and suddenly have to stop the agency MBS market mistakenly thought to be very safe, could suffer a severe dislocation like we have seen with most other mortgage-related securities. Remember, these securities are not backed by the Government other than $4.5bb total by the Treasury, they are backed by Fannie and Freddie.

Once again, this entire “Con-Jumbo” deal and expanded agency capacity looks like another financial sector bailout. I knew this smelled rotten from the get-go. – Best Mr Mortgage

June 24 (Bloomberg) — Story highlights…

Three months after Fannie Maeand Freddie Mac won the freedom to step up home-loan purchases, the government-chartered mortgage-finance companies are doing what critics in the Federal Reserve and Congress had predicted.

The $168 billion fiscal-stimulus bill signed by President George W. Bush on Feb. 13 temporarily allowed Fannie Mae and Freddie Mac to buy jumbo loans in 91 of the most expensive U.S. housing markets.

The increased lending power, combined with an agreement to reduce the companies’ capital requirements, are part of congressional efforts to revive housing starts and the economy following restrictions placed on the companies two years ago.

Instead of using powers granted by Congress to buy jumbo loans for the first time, Freddie Macand Fannie Mae are purchasing their own mortgage-backed securities, helping reduce losses, company filings show.

Since the rule change took effect in March, Fannie Mae has packaged $24 million of jumbo loans into securities, while Freddie Mac added $220 million, according to the Inside Mortgage Finance newsletter. In April, the companies spent more than $32.4 billion to buy their own instruments, regulatory filings show.

“They were granted expanded opportunity to help recovery in a troubled housing market and yet have appeared to focus on their own recovery, The change places taxpayers at greater risk without facilitating the policy goals I believe the Congress had in mind when they eased these portfolio limits,” said former U.S. Representative Richard Baker,

“Had they been quicker into the marketplace, they could have helped slow the downward spiral in housing prices,” Jerry Howard, president of the National Association of Home Builders, said.

The National Association of Realtors estimated last year that Fannie Mae and Freddie Mac would buy $150 billion of jumbo loans in 2008. UBS AG analysts now say the amount may be $74 billion; the companies’ own projections indicate that they may not even reach that figure.

Fannie Mae added $4.05 billion in net purchases of its mortgage-backed securities in April, taking its portfolio to $728.4 billion, according to company filings. Freddie Mac net purchases were $28.4 billion, bringing holdings to $737.5 billion, filings show. Buying existing debt may help prop up prices for the companies’ instruments.

For a loan of more than $417,000, Fannie Maeand Freddie Mac require a minimum down payment of 10 percent and a credit score of 660. That compares with 3 percent and 580 for loans under $417,000 at Fannie Mae; and 5 percent, with no minimum score, at Freddie Mac. The rankings, which range from 300 to 850, are used by lenders to predict whether a borrower will repay.

“Fannie and Freddie are catering to low-risk homeowners with high credit scores and a lot of equity in their homes,” said Dan Green, a loan broker at Mobium Mortgage Group Inc. in Cincinnati and Chicago. “I’m sure there will be some high-cost areas in the country that will benefit. They just don’t happen to be Florida, Michigan, California, Nevada.”

Jumbo loans bought by Fannie Mae and Freddie Mac carry an interest rate of 6.59 percent, more than a percentage point below regular jumbo rates of 7.68 percent, according to HSH Associates. Los Angeles borrowers are paying an average 7.87 percent, while Miami mortgage seekers are being charged 8.03 percent, indicating that few loans with low rates from Fannie Mae and Freddie Mac are being offered, according to HSH.

The companies’ purchases of their own securities are making them riskier because they retain 100 percent of the credit and interest-rate exposure on those assets, said William Poole, president of the St. Louis Federal Reserve until March and now a senior fellow at the Cato Institute.

“Any legislation today that simply expands what they do is going in the wrong direction,” Poole, 71, said. “It’s potentially digging the taxpayer in deeper.”

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Last Updated: June 24, 2008 15:12 EDT

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46 Responses to “Mr Mortgage Update: Ultimate Fannie/Freddie ‘Con’ Job”

  1. So I totally understand (from your explanation) why the new jumbos were DOA. Rates are higher now than they were a year ago, and the only way most people could afford those million dollar homes is with the exotic mortgages in the first place.

    But what I don’t get is why F&F would want to purchase their own mortgage backed security products? Do they buy them for a big discount from overextended hedge funds or something? What’s in it for them?

    I do get the fact that money that was intended to be used to fund home purchases is now going somewhere else, and that just makes the politicians look silly – but why is that particular trade such a bad thing for F&F? It might be a good trade right now, if those things are trading at a big enough discount.

    Apologies for not understanding.

  2. […] Mr Mortgage Update: Ultimate Fannie/Freddie ‘Con’ Job …in, the value is actually $500k making the loan a 100% LTV and there are … have fallen 29 percent and Freddie Mac has lost 31 percent in New… […]

  3. A lot of people now turn to believe that during the past 2months, US top administration had position itself well to manage through the upcoming global recession, the following representing this interesting point:

    Author: miat42, source from: http://web.wenxuecity.com/BBSView.php?SubID=tzlc&MsgID=102340, 08-06-24:

    Why subprime housing bust/credit crunch, inflation, high oil price, dollar devaluation and raw material price are happening together? Why? pure coincidence? If you care to think deep, you can easily sum it up as “bad luck”. No, I don’t think it’s a coincidence at all.

    First, let’s look at the net effect these combination of bad events will produce to developing nations. It’s terrible, very very terrible.
    1) Developing nations must now spend many times more to buy raw material, 2) Developing nations must now spend many times more to buy oil.
    3) At the same time, developing nations will suddenly find that their products become too expensive because the exchange ratio went down.
    4) Developing nations will sudden find that shipping cost will sky rocket to make their export even more expensive.
    5) In addition to export product shipping cost and price, Developing nations suddenly find that the receiving nations (USA and Europe) are nose diving, driving demand for imports down.
    6) At the same time, developing nations suddenly find that food cost is skyrocketing.
    7) Adding frost on the snow, developing nations find that inflation is ramping up out of control.

    Developed nations (USA) will go through some 7 years of belt-tighteming recession. But that’s not the point, the point is that all the negative situations are happening at the exact instance to hit developing nations, it’s not just one problem. They a dozen mutually reinforcing forces hitting developing nations.

    The end result is very clear. Developing nations will be badly hurt. How badly hurt will they get? You can borrow history to learn a few precedence. For example, Asia in 1990s, Latin America in 1980s… The smaller the nation is, the deeper the hurt will be. China is in relatively better position to fend this onslaught because China is not as privatized and open market as its neighbors. Vietnam is in trouble, Indonesia is in trouble. India is in trouble. Domino effect is starting.
    China will be hurt but relatively speaking in lesser degree.

    Now, I am connecting the dot. I want to point out that why this tidal wave to damage developing nation is to coincide with a near monopoly control of oil resource by USA? We all know what the US can do after they reached the peak of the Monopoly game. Just like a monopolizing landlord can ruthlessly demand rent increase to his helpless tenants. US can use oil to dictate terms to its helpless developing resource scarce nations in Asia, Africa and Latin America.

    Finally, funds will be flying out of developing nations to safe harbor. This is what happened to Latin America in 1980 and in South Asia in 1990s. Many poor developing nations’ trade surplus dollars will be recycled back to USA. USA immigration will shoot up due to poor job condition in developing nations.

    It’s all coincidence? Sure, you can still simplify it luck if you want to. 🙂

  4. Feng, how is it possible for the USA to have any control over the oil resources when they import almost 70% of the oil used and have no new pumping in the future?

    I don’t get it….

  5. Which coincidentally, will lead us to a third world war. You can count on that. “It’s about the economy, stupid” will become “It’s about oil, stupid.” I just can imagine the place in 50 years. Third World War by 2017.

  6. So Feng, you had me totally with you until you got to the point where you said, “a near monopoly control of oil resource by USA.”

    Could you explain that? Being a citizen of the USA, it feels to me like we control very, very little in the way of oil. Even if you say we control all the oil in Iraq, that is still only 5mbpd (US) and 2.5mbpd (Iraq) out of a world total production of 85mbpd. How is that “near monopoly control?” Russia alone produces more than that – and I do not think you could make a convincing argument that Putin is some sort of American lackey.

    When it comes to the Bush Administration a US citizen might want to believe that all the apparent bumbling on the world scene serves to conceal a deep master strategy that will only after 10-20 years become apparent as a brilliant maneuver that places the United States at the top of the world heap.

    Sure, that’s possible. But Occam’s razor suggests that a simpler answer is more likely to be correct: they really are short sighted and have made some really poor policy choices, and the confluence of credit crunch, peak oil, and housing meltdown will end up dramatically reducing the role of the US in the world economy.

    We borrow too much, we consume too much, we produce too little, and we use our military power without regard for consequence. While some part of me would like to believe there is a happy ending in spite of all that, I don’t see the story ending well.

  7. Dave, I have the same questions about this Fannie Mae/Freddie Mac buyback. On one hand I’m gleeful to see the politicos end up with egg on their face. I’m hoping that humiliating the powers that be will keep this “temporary” increase actually temporary. However, doesn’t this stabilize F&F and make them less likely to flounder? I guess I’m not getting it.

  8. You were real lucky in the US. That’s the problem with luck. It’s like oil, it runs out one day or another. Asia saves and the US borrows. It’s still true. What will happen when Asia starts to borrow and spend ? 300$ oil and 15$ bushel of corn. It’s as simple as that.

  9. Personally I think China/Asia/SA will get the oil, they have expanded use of it by 3000% and rising. USA has declined but the prices go up. One only hass to look at the 96% rise in price that China paid to secure iron ore, this will also happen in oil.

  10. This just gets more depressing by the day, sadly it is only going to get worse.

    Mr. M – I have one question? in your orig. post back on May 2, you state that a borrower has to make roughly $100k to afford a $417k loan – I would think you would have to make more than that – ? My household brings in more than 100k (not a ton more), with a lower mortgage than 417k (at 5.5% 30yr. fixed – no home equity line), one car payment (toyota camry – nothin’ fancy), only one kid, a conservative debt to income ratio when we purchased 4 years ago, and I have to say, with skyrocketing inflation our family is feeling the squeeze! I would love to know where the hell our disposable income is ’cause I can’t find much of it these days! Having said all that, I can’t see how a family could even survive with a $417k loan, making roughly 100k (am I supposed to feel rich? I don’t, I’m watching every penny at this point).

  11. It is specially depressing when you listen to the TV, you just get a big fat pack of lies. It feels like being raped. Sometimes I think that Adolf Hitler and Joseph Staline are the real winners of 1945. Look at these damn liars hiding everything. How can you stand these people on TV in the US ? Somebody should punch them in the face. It’s disgusting. Today the whole universe will have the privilege of hearing that clown Bernanké saying that he is vigilant about inflation and that the banking system is just fine. Now. Will you buy my 30 years bonds ?

  12. Invest your penny quickly in flour, sugar, corn, wheat. Price of steel is going up 100%. No place to hide.

  13. 300.00 oil and 15.00 corn.Get real.It’s nothing more than maniacal behavior,they WILL get crushed in the near future.

  14. thanks marc, lol – i have been trying to invest that “penny” – pasta on sale this week at the grocery for 50 cents a box (16oz) do you think I stocked up 🙂 – basically any dry good that has a good sale price to it ends up in my pantry. Of course when the big one comes I will gain 30 pounds because all I am eating is high carbs and no fresh fruits / veggies – nice! depressed and then fat, I can hardly wait.

  15. The best is to have a little garden. My grand parents were saved in 1929 by their small garden. 1 acre is plenty. Better to be on the farm, or at least have access to a small plot of land, for good home grown tomatoes. I am sure that this winter, the fruits and vegetables from California will be costing a fortune in Canada. 🙂 Most garlic in Montreal comes from Turkmenistan and mushrooms where else, from China. Crazy ! With higher transport costs, a lot of things will have to change.

  16. I did have a garden the damn chipmunks would eat all my tomatoes just when they would turn red – after the past 3 years of that crap, I have given up! (if you know how to get rid of them by all means let me know) I did invest in an herb garden this year, and for some reason the little bastards ate all my basil (they have never eaten that before?) I guess times are tough everywhere they will eat anything. got more basil and put that on my deck – I figure at least I can dry my herbs come the fall (spices are expensive little devils) and that will help flavor the “hamburger helper” and “Kraft Dinner” that will be dining on in winter ’09 😉

  17. Eat the chipmunks. 🙂 The meat is supposed to be good.

  18. my problem with buying back their own securities is that pumping $10s of billions into the agency MBS provides false support and marks on agency MBS prices. If they are providing price support for their own securities and suddenly have to stop, the agency MBS market mistakenly thought to be very safe, could suffer a severe dislocation like we have seen with most other mortgage-related securities. Remember, these securities are not backed by the Government other than $4.5bb total by the Treasury, they are backed by Fannie and Freddie.

  19. Evil-A: make your own pepper spray and spray them basil plants. Don’t spray your insect-pollinated plants though (tomatoes etc)!

    The biggest problem with F&F buying back their securities is they’re at the Fed feeding trough like every other corrupt Wall Street scumbag. The upshot is higher costs for everything as our money supply keeps dropping from helicopters. $5 gas and $5 milk here we come…

  20. Ok so what they are doing now is kind of like the underwriters supporting the auction rate securities which gave them those markets the appearance of being liquid right up until until they stopped supporting the market.

    You are concerned that F&F are bidding not because they are finding bargains, but just to keep up the appearance of a market so that the banks don’t have to mark things down that they otherwise would have to mark down. You are suggesting it is a total political “bid”. And the cost of this operation is, F&F are getting more and more of their own flawed product on their books, and when the chickens eventually come home to roost via foreclosures and defaults, the folks at F&F will be shocked, simply shocked at the poor performance, and would you please bail us out Uncle Sam?

    My mother (widowed, retired) was sold a LOT of “auction rate securities” by her trusty broker at Citibank, after instructing him to find something really safe yet with a decent yield to put her money in. On her older account statements these ARS lemons used to have the magic words “money market” on them. After the ARS market froze up, Citibank quietly removed the words “money market” presumably hoping nobody would remember. She still has these former “money market” securities.

    I’m not so happy with Citibank.

  21. Hey everything will be just fine. How can you take anything seriously specially with todays market price action ? The will pump the crap and dump it to somebody else, eventually again probably to a stupid arab, a stupid canadian pension fund or really stupid japaneese insurance company or dumb german bank. There seems no problem today. The sky will soon be limit. American crap will soon be in vogue again and I am sure they will find a jerk somewhere to buy again the air collateralized crap. It’s original indeed. It’s like the US government lending money to itself, and buying the crap back to boost the price.

  22. Wow the same happened in Canada. They were sold “an ultra safe commercial paper”. The funds (40$ US billion) are frozen by the stinking stupid and moronic canadian bankers until 2017 ! and they have managed to negociate a no class action or no lawsuit clause. The suckers that bought the crap will maybe get their money back without interest, but more probably 60 cents on the dollar. A lot of big corporations and pension funds are stuck bad. You don’t to know what I think about bankers.

  23. Oil is not staying up because their is no supply problem. There will be a demand problem howevr and that is already taking shape. Many speculators, with what they feel is no place else to put their money, are going to get burned and burned badly.

    When do prices increase on anything? Economics 101 tells us that supply vs. demand controls free market prices. While this is true indeed, what then has caused oil to sky rocket? Speculation is what! I see no problem getting oil do you? Are you pulling up to a gas pump and seeing signs “Sorry out of gas” or calling for some home heating oil only to have them tell you they went out of business due to lack of oil… off course not because their is plenty of oil… gobs of it for sale.

    When the reality sets in and the demand dries up even further it will fall like a rock right back down under $100 literally what will feel like overnight. That is not to say we will feel it at the pumps right away due to refinaries or lack thereof, but we will eventually.

    It is sad that so many are making such bad knee jerk reactions to every little thing that pops up. Stocks are up today because why? Because housing showed a continued and total bust in still underway? Because consumer confidence dropped to the 4’th lowest level ever recorded? Because CW shareholders (like they had a choice in the matter) approved the BofA purchase?

    Would someone PLEASE explain to me WTF is going on out there when such bad news brings such good news!!!

    I am beside myself trying to get my hands around this nightmare and that is what it has now become for many, but yet the MSM still reports bliss… go figure?

  24. I wish I could explain stu – I am just as frustrated and baffled – but on your oil comment – what do think of this one:

    I live in the north east and heat with oil, we have “watch dog service” (they deliver oil based on my usage) – every year for all my home owning years (since 1993) I have recieved a delivery in April which usually lasts at least until the end of July. I have never had a delivery from an oil company half way through that cycle, except for last week !?!?! – well, I actually went out and told the oil guy no thanks, I still had 100 gallons in my tank! – and given that it is summer there was no way I needed any for awhile especially at $4.39 gal (cash price)! So, my point is this; I was thinking to myself, “yeah, these guys have a boat load of expensive oil sitting on their hands and they want to dump it on the consumer before the price drops and they have to sell it off at whatever the loss”. ?? am I nuts on this one?

  25. No evil you are spot on! I also live in the Northeast and had a similar, but more diabolical tact by my oil company (who will remain nameless and I should say X-oil company). I prepay and have auto fill every year and have for many years. A typical (like mine) contract expires on 5/31. Wouldn’t you know that I got ZERO OIL delivered in March, April and May this year, but 5 days after my contract expired (@ $2.51 PG) I got a whopping 175 gallons delivered… IN JUNE!!! They topped me off at the NOW MARKET PRICE of $4.41 PG!!!

    I called them up and gave them 3 choices. 1. Come take it back and let me know when your coming so I can watch over you (trust was gone). 2. I will pay my prepay price like I should have before it expired if you were delivering oil reguarly. 3. Do nothing and I will never, ever pay you for the oil and your services are done today.

    What do you think they chose? Well off course #2 was taken rather than not get paid or take it back…

    This is what the oil companies are holding right now:

    A. A bunch of high priced oil that they themselves specualated on and didn’t move nearly enough of it before the warm weather hit.

    B. A bunch of A/R issues and collecting in this environment will be tough.

    C. Falling demand and increased awareness which is always trouble when speaking about commodities and speculation.

    D. A false supply issue that was dreamed up by the commodity speculators and a false demand which was also dreamed up by false emerging markets.

    We have many issues right now, but oil is certainly a biggie!!! Not as big and bad as housing, but right up there in the top 10 or so IMO…

  26. thanks, did the pepper spray, they ignored it, tried this disgusting smelling deer repellant, they chomped away, tried putting cayanne pepper all around the plants themselves, they scampered right on through, I don’t know, they make ’em really tough where I live – they mock me – lol….I think I will take MA’s advice and roast them up on spit on my bbq – anyone want to come by for my 4th of july picnic 🙂

  27. Wow, stu, real nice.

    Your oil company does the pre-pay a bit different from around here – here you buy at least 500 gal at the offer price ($2.45 last summer) then you take delivery on that price from Oct. / April at the end of the contract they either send you the $$ you have any left or deliver the remaining oil at the current market price. Of course I did not do a pre-buy last year, because I really felt that with a coming recession there would be lower demand, (and at that time the bargin price of $2.45 looked high), boy was I wrong, not about the slowing economy, but at the pace it was to slow, thanks to that can getting kicked down the road! – now the idea of a pre-buy at $4.49 a gal (I use about 1,200 gal a year) is just insane!

  28. E, I find it ammusing (sort of…) when I hear the housing zealots say things have bottomed and sales are on their way back up. With the tightened credit and anywhere from 5% – 20% down WHO has 20K – 80K in cash to put down on a 400K (GSE loan) home right now?

    People are looking at 5K in oil consumption next winter and $200 or so per week in gasoline. Add in the food inflation and cost of overall goods due to shipping cost and labor cost increases and were not talking too many folks out there with the actual financial ability to buy a home right now, even if they wanted to.

    This months report showed a 40% YOY decline in new home sales… WOW! Next month will be closer to a 50% decline and so on it goes.

    Folks can’t even afford to pay for oil in advance and the NAR still with their heads in the sand or up there a%$ thinks people can afford to buy new homes still. Folks are cutting travel, medicine, fresh fruits and veggies… staples of life and nutrition, but people still think everything is just rosey out their… amazing really when you sit and think about it all!!!

  29. So my biggest question is “how much $$$/capacity to buy loans do Fannie and Freddie have left?”. I remember how high rates spiked for the week in March where Freddie and Fannie had hit their caps/the MBS market tanked. Things normalized when emergency legislation increased their caps/reduced their reserve requirements. But “If they are providing price support for their own securities and suddenly have to stop, the agency MBS market mistakenly thought to be very safe, could suffer a severe dislocation like we have seen with most other mortgage-related securities.”

    Obviously they are providing significant price support, and that might not be a bad thing. Better a 6.25% 30 year fixed to a perfect borrower than a 7.25%. There is anger in congress over Fannie/Freddie “not jumping on the grenade to save the mortgage market” by lending to borrowers with poor credit and income and taking losses on the loans, thought that was funny.

    But my guess is that Fannie/Freddie run out of money soon, and the (poo) hits the fan. I really would love to see any information, if Fannie/Freddie publishes anything….

  30. yeah, then ask my neighbor the RE Agent – she says things are slow, but told me she had 6 closings in June – ? I can’t understand where people are getting their loans from, everything I read says it is so tight? I tell her nothing of my opinions, it would only be viewed as doom and gloom, and not cautionary as intended, but whatever, if you read earlier in this thread, I thought I was conservative enough to deal through the slowdown (we are not down and out yet, but how many shoe drops until we are?) – my husband and I keep looking at each other saying if we cannot make it, not many will, so what the hell is that?

  31. E, mt take on it is this…

    The majority of sales taking place are coming from 3 key areas and this also explains why inventory doesn’t seem to be moving.

    1. Swaps – People moving up or down with another indivdual wanted to do the opposite. No inventory gets eaten up, but 2 sales take place. This area of sales has slowed drastically of late for countless reasons.
    2. FTHB – Buying REO’s or Auction sales and in really just 4 major markets (NV, FL, CA & AZ). Seeing as how most of this is simply not counted as inventory (not MLS listed) again no change in the inventory number.
    3. Speculators – They have, as they always have, got caught with there pants down. These are the uneducated speculators or newbies getting fished into the all too familiar double dip that happens historically in downfalls such as this. There is that lull (the eye of the storm if you will) that gets people thinking I better get backj in before I miss out. They will, for the most part, lose whatever they had left.

    Higher priced homes are simply not moving and there is virtually no market for condos right now unles they are REO or Auctions. I see a long slump after recovery of flat sales and price adjustments which means the smart money awaits the real bottom because of the ample time folks will have to get back into the game. Until then just save like crazy and wait it out. Those are the folks that will do well come 2012 – 2015 IMO.

    Oh, and on the doom and gloom thing… I am so sick of people using that line when you speak the truth (i.e. negative to them) about what is actually happening. I am convinced it is reality now and people just refuse to believe anything that is not dreams, hopes, la la landish sentiments if you will. The MSM did such a great job of putting rose colored glasses on everyone these past 6-10 years that people are having a real hard time taking them off unles they are forced to. Well millions of folks are being forced to now aren’t they!!!

    Read economist like Shiller, Shiff, Roubini etc. and they clearly show what is going on and why in laymen terms. These are top economist in our country who have laid it all out to see if folks want to take off their rose colored glasses and actually read, and comprehend the facts. So many are fighting so hard not too, but in the end it changes nothing. In fact it may make things worse if while in their little denial period it has them making some big mistakes as a result.

  32. Fannie and Freddie buying their own MBS’s does make sense and actually is more help to the overall market.

    If a bank were to sell off their 100% portfolio for 98-99 on the dollar every bank out there would have to mark their portfolio down. This of course triggers more capital raising and tighter lending as a result.

    Also why should the GSE’s be buying jumbos. A 500,000 dollar home that falls 10% is a 50k loss, a 100k home that falls 10% is a 10k loss. The higher the value the home the fewer the buyers and generally those are the homes most at risk of falling values. SO the GSE’s take on the added risk, but the government has made it VERY clear that they will not bail them out or help them, but strangly will help JPM Chase buy out Bear Stearns and assume most of the credit risk. Makes no sense to me.

  33. stu, you are preaching to the choir on the doom and gloom thing – but, in my world “suburban stay at home mommies, in mini-vans / suv’s” Their brains cannot handle the possibility that they may not be able to pick up their $400 Coach purse this fall, and the $$$$ for the $1,000’s in cheerleading and riding lessons could be on the line. They know it down inside and they feel it, but admit it? never…..there is alot whistling past the grave yard around here. 🙂 I just sit on my deck in the evening, glass of wine, and look around and wonder – “when the tide goes out – who’s gonna have the bathing suit on” 🙂
    …thanks for the exchange and your ideas, it’s been fun.

  34. Milstar – this capacity was supposed to be used to support the jumbo housing market in CA for example. Not to support the prices of MBS to avoid mark to market ramifications for themselves and agency mbs holders. This is bullshit. Another example of a bailout at taxpayer risk.

  35. I know the intent was suppose to go toward the jumbo housing but if the GSE’s had to mark to market their entire portfolio downwards because of some distressed sales of MBS then they will be undercapitalized and still would not be able to support the jumbo market. You can’t have it both ways.

    Not to mention CA is pretty much all stated neg am and rapidly falling home values. Touching anything in that state is a losing investment. And the reason for this not working is for those reasons right there. To many people got into homes they could not afford, and do not have the equity to refi because of a falling market. YOu can’t help those people.

    Honestly I can count the number of full doc loans I’ve seen from CA, NV and AZ on one hand. Which leads me to believe that most of the rest of the loans were borrower’s getting in over their heads.

  36. Admin, I must ask you this question then… Do you really think that ANY “bail out” in ANY capacity from this current goverment is going to be the kind that helps the people out? Please, you know far better than that. Only the sheeple are buying into that nonsense and you are not them. Too bad for us that they do however represent the majority which leaves the rest of us just shaking our heads and murmering stupid…

    ALL atempts at solving this from a political stance are eroneous from the start. They have their very own self serving agendas with pay back to those that got them literally where they are today. In a 6-figure income out of whack with main stream society. Heck, who can blame them really as they are merely playing the system the way it is set up to be played. We need reform at the political level LONG BEFORE reform at the lending level. It reminds me of illegal immigration. Until our borders are secure nothing we do will change what is happening.

    We need change and we need it now! Vote ALL incumbants out of office next election and send a clear message the good old boy network and way of doing business is over!!!

    Take back our goverment FIRST and then lets talk about cleaning things up or nothing we do or say means a damn thing IMO!!!

  37. Stu – I am only here to set the mainstream press and bubblevision record straight.

  38. Fair enough then…

    I won’t bother to ask you why the MSM is not DEMANDING an investigation into this CW issue surrounding several political people of which some such as Dodd is the damn Chairman of the very Committee pushing through this bill!!!

    I won’t ask you to comment on the guise of this bill that contains measures to help lenders far more than homeowners and BofA (akaCW) in particular will benifit greatly!!!

    I won’t even ask you why the MSM actually protects these people by not calling them on the carpet each and every day until an investigation is launcged. This SHOULD BE FRONT PAGE NEWS everyday until it is resolved to the satisfication of the masses IMO!!!

    Do me a favor though and when you stop your ONLY GOAL of setting the MSM STRAIGHT or in your own words “mainstream press straight” then take up some real issues and follow it ALL THE WAY THROUGH!!!

    This issue isn’t selective record straightening 101, but REAL ISSUES DAILY and they need to be addressed with not ONLY words but action as well… What is YOUR solution, and what is YOUR end game here? We need a GOAL!!!

  39. OMG – LOL – stu

  40. I don’t believe that only 48 jumbo-agency loans have been doen thru Fannie Mae since i have done three already myself, and have two more in approved status waiting to close next month. I can’t be responsible for 7% (soon 10&) of all Fannie Agency Jumbos. I am lucky that my major market is NY, NJ, and CT, which almost 75% of the counties are in the 729k max loan limit.

    Also, 7% for agency jumbs are from when they first came out when the pricing hit was over 1.50. Now the hit on a purchase is only .25% (AmTrust and 5th/3rd bank) when LTV is at 75%, to .50% for everyone else. This means with a 729k loan, 30 yr fixed, 720 plus fico, purchase, to 80%, i can give a borrowre 6.50% and still make .75% YSP as of today with most lenders. I don’t know about you, but 6.50% for a jumbo 30 yr fixed is a great deal for the borrower and makign .75% YSP on the deal in today’s business i wil take all day, every day, and not complain one bit.

    Now, if it is a rate and term refi, rates wil be .125% higher and if fico lower, than normal fico adjustments come in too, but that is the same with normal agency loans. In fact, same scenario as above but loan to 417k to 80%, rate is 6.25% to 6.375% making same .75% YSP (or more if using provident savings).

  41. dk, I believe you and why is because up until now we have actually had the free market dictate the LTR and most attempts at Goverment interference has been stopped… for the most part anyway. That is until now. This new bill is bad, no wait… VERY BAD for Joe public!

    Now the Fed is another story all together, but the saving grace there is that they are out of nearly all of their bullets. Due to the fact that they can’t shoot straight to save their lives (obviously) this is a good thing!!

    Things IF allowed to just work themselves out as you bare witness too… WILL!!! LET the markets correct WITHOUT Goverment interference and perhaps address the idea of abolishing the Fed at some point down the line and were onto something.

    DO NOT allow the blatant attempt at taking over the banking system or we are ALL DOOMED. Talk about the fox guarding the hen house… WOW!!!

  42. Wayne, basically, when you can not control something, you fail. However, if you can not control something, yet you can make others lose the opportunity either, that, call “success”.

  43. Furthermore, if you can make others’ 10years hard working equals zero, you are super successful.

  44. […] consumer is not getting pay raises commensurate with true inflation. The consumer also has no access to home equity anymore. Furthermore, the consumer might lose his job. They wouldn’t be doing THIS (article on […]

  45. I was wondering. Bernanké that clown, a year ago, said that there was a worldwide “glut” of savings and liquidity. Oh ! Bennie boy. Where is glut now ? Pouf! It just vanished like that! The glut has evaporated. This moron confused true liquidity, hard cash, with puffed up pieces of shitty paper like CDO’s or bloated real estate values. Incredible. I.O.U.’s are not cash, specially these type of I.O.U’s. So much for the glut and the gluttony.

  46. PAULSON

    “Firms that are too big to fail will be allowed to fail.”

    We will see. I dont’ believe him. Oh Joe Blow can fail many times without any problems. If let’s say Goldman Sachs failed, would Paulson let them fail ? 🙂

    This is not capitalism it’s communism for the very rich. Ah yes. In the name of saving the system. What system ? Their system, not mine, not yours. The US was the credit nation of the world, now it will be known as the banking communistic bailout nation of the universe.

    Will Paulson let GM, Ford, Chrysler, Citigroup go bankrupt ?

    The list of “too big to fail” in 2008 goes on and on and on and on. I can’t keep track.

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