If the Fed Lowers rates again ....

[4RE KLR]

If the Federal Reserve lowers interest rates again do you think it will be considered yet another bailout?

I think the Fed should not lower rates just yet. I know they will need to eventually but if they do it too soon the mortgage companies still will not keep the adjustable rates down. They are set to increase this year and when they do so many Americans will loose their homes.

I am wondering what everyone else thinks here. I am not trying to start a fight with anyone. Please try to be constructive. If this get to being a mad house I will ask Ron and Jamo to close it down. I am asking a serious question and I hope every one will respond accordingly.

I am in the new home construction business and this has hurt our industry terribly bad. We are all paying the price.

How can we fix this without lowering Interest rates?

[Scott S]

The first thing that needs to be done is to stop the selling of mortgage paper, the lenders should be forced to hold the note for at least 5 years or so.

That way we would all know where the risks are and can invest accordingly.

Second, a rate decrease would have a positive impact in the market psychic and may help to moderate the swings.

Things suck pretty bad in the timber market too Steve, Canadian lumber and paper from China is not helping either.

Scott S

[Ron61]

Steve,

I really can't answer your question, but the list of foreclosures around just this small area is staggering. And they are still building a few new houses on speculation, but most are setting for long periods with no offers. I see For Sale signs on nearly every street, and they seem to be there for at least 8 to 10 months before the place sells. I talked to one person and they had lowered their asking price from $210K to $150K and still haven't even had anyone interested. Of course a lot of the people losing these homes paid three times what they were wort to start with. A $100K home form example for $275K, and now more are out of work and can't make those big payments coming up. So right now the housing market in this area is really soft. And there was a half page in the newspaper on delinquent taxes on property around here.

Ron

[WildBill3]

we noted in one of our seminars 60percent of homes in cali went arm last year.

[392cobra]

I'm having problems trying to figure out the "why" on this ARM business.

Why would anyone get a ARM when interest rates are at historic lows ??
What direction would you expect it to move during the life of your mortgage ?

It seems like a lot of people had no business (the finances) buying a house in the first place.

Buying a house with an inflated sticker price.Too high a percentage of their take home pay going to the payments,even before the ARM's adjusted up.Very little put into the down payment.Bad credit,so you start off paying at an inflated interest rate.

A lot of people shot themselves in the foot and the lenders loaded the gun for them instead of taking the gun away from them.

In the end it's the borrower's fault though.You shouldn't expect other people to protect you from yourself.

[trularin]

Fred, go fixed and deal with it.

[imagine2frolic]

I think it is effecting every splinter of business, except for food and liquor. You have got to eat. Anything can be said about liquor.

I opened a new muffler shop over a year ago. In March it started to take off, and in April it just exploded with business. Then May it started dwindling, and gets worse each month. The crazy thing is I am holding my own against long time established shops around me. It is bad all over for my business.

I have had my house on the market for 6 months, and only one offer. I wanted to use the money to buy property to move the shop to, I rent now, and move back onto the boat.

I think Scott is right. Stop selling the mortgages, and at least hold the interest rates for now. Let the dust settle in this stampede. Once the dust starts to settle then maybe lower the rate a bit. I think people look around, and see chaos. That scares people, and me too....LOL

[Wayne Maybury]

I have been following this whole sub prime situation for quite a while. Much of what I have read is simply unbelievable. People that had absolutely no way to make the payments, were being encouraged to buy homes. The lending brokers were pulling all kinds of tricks to make a potential borrower appear to be better than he/she was. They produced false bank statements, over estimated income, etc. The idea was to make the loan and get the commission, never mind that the borrowed could not make the payments.

I felt stupid when I found that I could not understand how the lending actually functioned only to recently learn that even the banks did not know what loans they were buying or making in the form of asset backed commercial paper. This whole debt situation has been spinning out of control with some people making quick money, others losing out.

I recently read that defaults on adjustable rate mortgages are probably going to begin to kick in just as the sub prime mess is being cleaned up so this isn't over yet.

Scott, I work for a Canadian forest products company and we are hurting up here, big time. Our fibre costs, especially in Eastern Canada, are considered to be the highest in the world. Combined with a very weak US dollar, high labour costs, and high energy; it makes the situation very difficult. Our stock has historically traded in the $7 to $12 range with the all time high being over $18. It is at 72 cents today and we are not the only one suffering, it is an industry wide problem.

Wayne

[4RE KLR]

OK,
I also think Scott is right but we all know unless the government steps in a regulates the mortgage companies that will never happen. I think it is a wonderful idea. I know on our home the mortgage was sold twice before we closed on it when we moved in and three times before we made the first payment. So in a period os 45 days it had sold five times. We had no idea where to send the payment.

The "exotic" mortgages were based on LIBOR, which is "London Inter Bank Overnight Rate" (or something like that) Non the less it is the rate that banks borrow money from each other, overnight in LONDON, England.

Now today the LIBOR rate is still very low, at 1.25% today. The mortgage companies have taken this as a starting benchmark and raised the rates every six months since these notes were originated. Now, why do they do that when the LIBOR rate is low, and the overwhelming majority of homeowners on the LIBOR ARM are not making the payments as scheduled????? Why, GREED>

I believe ( my opinion) that the mortgage companies are doing this to themselves. If they choose to keep the rate the same, which is still more than the LIBOR rate they are still ahead. But they choose to raise the rate and take the homes back. I just don't get it.

Fred,
I greatly respect you and your input, but everyone can't pay cash for their home. If they could then we would not be in this position. I think your question is WHY, more than anything. I think the answer is we as builders we "sold" on the plan in large numbers by the mortgage companies. We were courted with potential upswing in sales and sugarplum dreams. Problem is our cost skyrocketed at the same time so our profits actually diminished.

Again as to why. People actually believed what the mortgage companies were telling them. That by the time the first rate increase would come along everyone would be making more money.

I think if the Fed lowers the interest rates it would give a false sense of security to the public and it would bail out the mortgage companies. It would also cost the auto industry another fortune or two. We cannot keep asking the FED to bail us out of our stupid mistakes. I think the mortgage companies are guilty as we are for accepting and they should also pay the ultimate price.

Countrywide has tapped $12.7 Billion line of credit and now they have borrowed another $2 Billion from Bank of America. The TV commercial say "they are the largest in the country, they can do what they want to" Yes they can go broke just like everyone else.


Wayne,
What is the ticker symbol? It might be a great buy in on a penny stock level??

Edited for spelling error

[TampaFla]

The Fed created the "housing crisis" to begin with...by giving away money almost interest free during the past. I recall a Wall Street Hedge Fund manager being asked if he planned to buy a new Ferrari with part of his $300 million Xmas bonus. No, he said, already have 2.

All that "free" Fed money winds up downstream in those hedge funds whether it starts out in Freddie Mac or Fannie Mae, or goes directly (as it did last week) to big banks. Freddie and Fannie (and big banks) resell the money, they don't save it. And cheap money is much easier to resell.

If the Fed would loan me money at 1% interest, I am sure I could use it to buy some high risk investments, knowing that I can always declare I'm bankrupt later (or have the Fed bail me out) and live a very comfortable life in between.

[imagine2frolic]

That is why I say let the dust settle, and then MAYBE lower the rates a BIT. I also agree that lowering rates now might give a false security.

I am one of the lucky ones.I sold my business 5 years ago, paid cash for my 3 yr old boat, took 4 years off of work while I am still healthy enough to sail the oceans effectively. Came to Florida, and paid cash for the house. Before I ran out of money I decided to go back to work. Took cash out of the house, and what is explained above is my current situation.

The past couple of months has me wishing I had kept on sailing. I would be in the South Pacific by now with a healthy bank account. Instead of wondering what the next move will be. Hindsight is always 20/20, but I have always taken responsibility for my decisions, and worked my way through them.

People hear what they want to hear, and the mortgage companies were telling some lovely stories. Even BofA was selling the future to me as if things were going to keep on rolling. I took the fixed rate for fear it might not. The ones who accepted the loans will in one way, or another accept the responsibilty. Unfortunately many will be whining. The ultimate responsibility is on the one who borrowed, IT'S IN THE CONTRACT.

[TampaFla]

Take a look at today's news. The Fed gives away money to the Bank of America.....then the Bank of America loans the money to Countrywide to bail them out of their problems with subprime mortages. Course, the Fed could have bypassed the middle-man and simply said it was bailing out subprime mortages but that might make the public mad and besides there are commission$$$ to be paid each time a Fed dollar changes hands.

Speaking of BoA, they inticed me into a line of credit. They wanted to double the amount I was willing to accept. Then, apparently they announced they had a lien against my property for the full amount although I never used the line of credit and when I asked them to reduce the line of credit by 90%, they refused. Wonder Why?

[4RE KLR]

That is exactly my point.

Why do the large companies get bailed out and the little tax payers are left in bankruptcy.

[392cobra]

The Fed loaned the money to BOA. No give away .

[imagine2frolic]

I wonder what the commission is on 2 billion $s? I would have gladly been the middle man on that deal.....LOL

[4RE KLR]

Being a 15 year banker,(not any longer) I can tell you there is no commission. We borrow money on an overnight bank rate. It is a fee, not a commission. However I'll bet on $2B. It is a nice fee.

I am sure BofA has already cashed out of the deal. I would not be surprised if they did it to save their own butts as a major investor in mortgage investment from Countrywide.

When I was in the banking business I would buy $Million dollar blocks of FNMA mortgages and sell them a week later. It happens everyday folks.

[4RE KLR]

double post ;(

[Wayne Maybury]

Originally Posted by 4RE KLR

OK,
Wayne,
What is the ticker symbol? It might be a great buy in on a penny stock level??

TBC on the Toronto Stock Exchange.

[1ntCobra]

Originally Posted by 4RE KLR

OK,
...
The "exotic" mortgages were based on LIBOR, which is "London Inter Band Overnight Rate" (or something like that) Non the less it is the rate that banks borrow money from each other, overnight in LONDON, England.

Now today the LIBOR rate is still very low, at 1.25% today. The mortgage companies have taken this as a starting benchmark and raised the rates every six months since these notes were originated. Now, why do they do that when the LIBOR rate is low, and the overwhelming majority of homeowners on the LIBOR ARM are not making the payments as scheduled????? Why, GREED>
...

I bet that a LIBOR based mortgage does not just take the LIBOR rate into consideration, but is also adjusted by the US dollar/British Pound exchange rate. So a weakening dollar get you a higher rate too. So you have more than one rate to worry about and get you into even more trouble.

And I think the B in LIBOR is Bank not Band.

[4RE KLR]

According to Countrywide it is based soley on the LIBOR rate.

Of course large companies have been known to not tell the truth when it comes to money.

LOL
Yea Bank. Phat Phingers

But do you think that the Fed lowering rates again would be a bailout of the mortgage companies?