Florida Mortgage Report

Did the Feds Screw Up? Again?

In my post over at Agent Genius, Have Bernanke and Buddies Gone Bonkers?, I talked about the Fed screwing up and looking to appease the stock markets more than really worrying about the economy in general.  Bernanke, in a MarketWatch article yesterday, admitted they screwed up, acting based on the failure to do a complete analysis of the situation.

The Federal Reserve was not aware that Societe Generale was unwinding trades in Europe on Monday that had been amassed by a rogue trader at the French bank, a Fed source said Thursday.

You would think that the Fed would dig deep into why the markets moved dramatically lower worldwide, even though we (the US) were on vacation, before the Fed made a drastic, potentially fatal, action.

If the weakness in overseas stocks spilled over into the U.S. market, the wealth outlook for U.S. households would have darkened because of already dropping home prices, economists said.

What?  I guess the continued devaluation of the dollar is increasing our wealth.  The decrease in my buying power in the other countries I fly to must be my imagination.  Yeah, that's it, I am imagining my wealth disappearing every time the Fed acts like this.

SocGen did, however, inform regulators at the Bank of France as early as Sunday, a full day the U.S. decision on the big rate cut, according to a letter that the bank's chairman, Daniel Bouton, wrote to investors. The Financial Times reported that SocGen got permission from the central bank to postpone its announcement to allow it to unwind trades on Monday.

Why the Fed, which usually keeps in contact with the world's central bankers, wasn't aware of this when Bernanke held his emergency policy meeting remains an unanswered question that might dog officials in coming days.

So, there you have it.  Had the Fed done their job, they would have realized why the markets were tanking worldwide and could have stated so Tuesday instead of hitting the panic button.  Or did they really want to drop the rates now, and then again next week? 

I don't know about you, but I have now lost what little confidence in the Fed I had left, and you know what that means (read the underlined print).  And apparently I am not the only one...

Longer-term, if the Fed was spooked into making an emergency rate cut this week on the back of what was just technical selling, it could further undermine market confidence in Bernanke.

"Tuesday's panicked 75 basis point cut will prove to be an historical embarrassment a blot on the Fed for all its days," Ritholtz wrote.

I couldn't have said it better.

Just How Are Homeowners Affected by Changing Mortgage Guidelines

I have been asked this exact question several times but never bothered to make a post as the demand for this answer had not been very high.  Ironically, as I was reading my feeds which came in last night, Dan Green over at the Mortgage Reports had done a video presentation on this exact subject.  So, instead of reading, watch this video as I think he does a pretty good job explaining in black and white (with shades of gray).

Of course, if you still have questions or want to know how it affects you personally, please feel free to contact me.

If Bernanke Doesn't See a Recession and Inflation is Growing, Why Cut Rates?

I am still trying to see the hidden meaning in why bonds are still rallying when inflation is growing and recessionary indications, according to what Bernanke said this morning, do not point to a recession happening, but rather a slowing economy (Limpflation versus Stagflation).

“We currently see the economy as continuing to grow, but growing at a relatively slow pace, particularly in the first half of this year,” Mr. Bernanke told the House Budget Committee, acknowledging that conditions are worse this year than in the “reasonably good” second half of 2007. (NY Times)

The chairman insisted that despite valid concerns about the “slowing growth” of the economy, it remains “extraordinarily resilient,” fortified by diversity, a strong labor force, excellent technology and a “liquid financial market that is in the process of trying to repair itself.”

So, in one speech he downplays inflation due to recessionary risks, then in another he claims recession isn't really an issue.  He again downplays inflation stating that inflationary pressures should ease this year and next, as long as the public’s confidence in the Fed is not shaken. 

That's a big IF! 

I guess a devalued dollar doesn't matter either.  Maybe he should run for President.  But wait, he did reiterate his last speech's point...

“We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.”

That quote has been translated as more rate cuts even though we don't necessarily need them.  Since the Fed loves to throw money, even if fake, at the problems, we can expect these rate cuts to occur.  If for no other reason, the Fed must cut rates just so the DOW doesn't drop to 8,000!!

He does point out what many in the RE.net community, including myself, have talked about for a while and that is that the housing and mortgage mess is far from over...

“Our expectation is that delinquencies will go higher and that there will be ongoing losses in the subprime area,” he said. Asked to put a dollar figure on total losses, he said, “I see so far about $100 billion, but it certainly could be several multiples of that as we go forward and the delinquency rates and foreclosure rates rise.”

So, there you have it.  Despite a weakening economy, Big Ben doesn't see a recession and believes since the American public loves him, we won't see inflation either.  No wonder people keep buying bonds.

Are the Feds Finally Seeing Reality?

Ever since September 20, I have posted about the risk of inflation as the Fed rushed to lower rates and increase liquidity in the system.  Now it appears that the Fed is admitting that "stagflation" is occurring and they are in a bind.

Fed President Plosser (Philadelphia) stated this morning that the Fed is in a tough spot on monetary policy since the economy is slowing down and inflation is rising.  All I can say is it's about time the pulled their heads out of the ground.

We have been seeing signs of a slowing economy for several months and the last two months saw the PCE reports moving higher.  Remember I stated back in November that the PCE report, though within the Fed "comfort zone", was in fact changing direction as it ticked slightly higher.  Then, the last report had it pop higher to 2.2%, outside the Fed's comfort zone.

Since Plosser made his statement and we are heading into the CPI, PPI and then PCE reports starting next week, I wonder exactly how bad they think it will be.  Remember that I fully expect that PCE to climb over 3.0% before year end and the Fed to cut rates at least one more time creating more chaos in the system. (see What's In Store for 2008?)

These coming weeks will shape the future for bonds and mortgage rates, but expect reality to return to the markets as the real inflation numbers start pouring in.

The Feds Answer to Everything...Throw Money at It

Well, the Fed continues to devalue the dollar despite its "strong dollar policy".  After the success of throwing money into the banking system to bailout, ahem, I mean assist the idiots running those in trouble (Citigroup, Countrywide, Washington Mutual, and the list goes on and on), the Fed is going to throw another $60B into the system.

The Treasury Auction Facility is going to be expanded to handle two $30B each auctions, one on the 14th and the other on the 28th.  Keep in mind that the success of these auctions is due to the anonymity of those gaining the money.  Those institutions can feel free to grab all the money they can without disclosing to shareholders what is really going on, thus keeping their stock artificially inflated and keeping them liquid.

The Fed has also stated that they will continue throwing money at the problem until liquidity concerns are gone.  With more and more delinquencies spreading across the board, that guarantees that inflation will rise, the dollar will continue to lose value and we can all look forward to less purchasing power everywhere for a long time to come.

But, alas, the good news is that the Fed is now expected to lower rates by .50% the next run and we can all borrow even more money at lower rates.  But who cares since we won't pay them back anyway?

If Bush Says the Economy is Strong, the Data Must be Wrong

Despite all the clear cut evidence in this morning's Jobs Jamboree, Bush came out after a meeting with his economic advisors and said that the economy, and the markets, are strong.  All I can say is that I want some of the Kool-Aid his advisors are drinking.

Here is a quote from today's CNN Money article...

"This economy of ours is on a solid foundation, but we can't take economic growth for granted," Bush said. "And there are signs that will cause us to be ever more diligent and make sure that good policies come out of Washington."

Has he been in a coma for the last 5 months?  He went on to say that there have been 52 straight months of job creation, core inflation is low, and consumer spending is strong.

Let's look at what the data shows...

Job growth - BLS data has be known to be more BS than factual at times, so 52 months of job growth is likely to be inaccurate, especially with an unemployment rate climbing to 5.0%

Core inflation is low - Well, that may be true, but people do need food to survive and more than likely energy to stay warm and drive to work.  Oops, I goofed.  Sorry, you used to drive to work, so now you can save a little.  CPE data shows otherwise and has increased to 2.2% year over year and is likely to rise further.

Consumer Spending - Sure, but based on what...cheap credit and a home ATM machine.  Those sources are quickly drying up, even with the Fed rushing to lower rates.

Ok, so the data must be wrong because Bush understands, right? 

"For those of you who are paying more and are worried about your home, we understand that," Bush said. "That's why we have an aggressive policy to help creditworthy people stay in their homes."

Oh, you meant that mortgage rate freeze that doesn't help anywhere near the numbers presented when thought up?  You know, the one that really bails lenders out more than homeowners as it allows them to delay losses and maintain a little better liquidity (like that is helping them, case in point Citigroup)?

So, sleep easy with the peace of mind knowing Bush says everything is OK...

"While there is some uncertainty, the report is that the financial markets are strong and solid," Bush said.

I Take a Vacation and the World Goes to...

Well, I guess I can't take a vacation from my blog anymore as the world just seems to find ways to screw things up.  That's right, bankruptcies were reported 40% higher, credit cards are reporting more and more delinquencies and even home equity loans are gaining on the delinquency acts.  Heck, even Florida got cold, what's up with that?

Will people ever start paying their bills, or has the home ATM machine dried up and no real money exists to pay those accelerated debts?

I guess everything is all fine and dandy since the Fed will likely set up a bail out program for credit card companies, like the 33.6% APR they charge is not a big enough ripoff.  Oh, wait, they will dream up a fancy name to try to pretend it is not a bailout program for anyone other than consumers.  Like we are going to fall for that one again.

Apparently there is some good news from this last week.  Mortgage rates are headed lower on all sorts of both fake and real news.  Also, people are apparently getting paid more, but more of them are finding themselves without a job.  Cool, huh?  But are the BS (sorry, I meant BLS) statistics trustworthy?  I doubt it, though we will have to wait until next month to see just which direction the revisions will actually go.

On a side note, one of my predictions for 2008 was that we would see unemployment break 5.0% and we saw that this morning.  I am guessing it will still go higher before people realize they need people to work in order to maintain competitiveness.

So, what is real and what is fake?

Real - Slowing economy, stagflation, inflation rising, weakening dollar.

Fake - "Strong Dollar Policy", "Strong Economy", just about everything out of the government's mouth right now.

Ok, I know I am being harsh (with a hint of sarcasm), but fundamentals have not changed, so why are bonds soaring?  Sure, bad economic news, but are we to believe that inflation is not going to push bonds back down?  Do we think the Fed is not going to continue to allow the dollar to lower in value?  Do we really believe that the economy is strong and growing?

The proof is in the pudding and eventually the numbers cannot be hidden.  Though I am glad that bonds are rallying and mortgage rates are heading lower, they are likely going to reverse course as we head into the "inflation" data coming, such as CPI, PPI and definitely PCE.

New Poem to the Tune of Dr. Suess's Green Eggs and Ham

I just ran across an interesting story in the the Wall Street Journal online which highlighted a poem written by Cameron Crise titled "Broker Joe".  It is a poem written like Green Eggs and Ham that was inspired by the financial turmoil which started back in August and continues today.

You can read the WSJ article here and read the full poem here.

Credit Crisis Claims First Airline

Maxjet Airways, a Washington-Dulles based airline, filed for bankruptcy today, becoming the first airline to be taken down by the credit crisis.  The all-business class airline took "drastic measures" because of soaring prices and the deterioration of the credit markets.

“With today’s fuel prices and the resulting impact on the credit climate for airlines, we are forced to take this drastic measure,” Mr. Stockbridge said. “Our top priority is to assist our customers, particularly those who already have begun their travel with us, in securing alternative flight accommodations.” (Source NY Times)

This may be the beginning of several airline failures due the deterioration of the credit markets.  Airlines typically are successful or unsuccessful in large part due to the current state of the economy, including their and their clients' ability to access credit.  Airlines such as Maxjet Airways tend to get hit quickly and harshly due to deteriorating credit markets since businesses cut back unnecessary air travel and these airlines cater to the business traveler.

Most airlines that cater specifically to the business traveler will likely face similar problems unless they can adapt to the ever changing marketplace.

Top 5 News Stories of 2007

Taking a look back through the events of this year, there is been numerous stories across the US, so we look at the top stories of 2007..

#5 - Dow Tops 14,000 - Hard to imagine at this time, but back in July and again as recent as October, the Dow broke above 14,000.  Volatility remains in the markets.

#4 - Fed Moves - Since August 3, the Fed has been battling the worst credit crisis in nearly a decade and has moved to cut rates three times in an effort to bail out the markets and to keep the economy on track.  Our opinion is they over reacted as inflation already ticked higher, but time will tell for sure.

#3 - Toy Recalls - Recall after recall came out about Chinese products that contained lead-based paint, illegal pesticides, electric shock risks, and even laced with the "date rape" drug.  And most came just in tome for Halloween.

#2 - Record Oil Prices - While oil has backed off a little, we are still feeling the increased expenses in our wallets.  A lot of the increase came from the falling value of the dollar, along with fears of dwindling supplies and increased demand in growing places such as China.

and the #1 story, yet again...

#1 - Housing Contagion - Mortgage defaults, increased foreclosures, failing debt across the markets.  Between the US and Europe, more than $100B have been written off after downgrades occurred.  Add to that, we are likely to continue to see write off into next year.  The effects are spilling over into other areas of credit, including commercial paper.  2008 will likely see increased defaults in credit cards, auto loans, and more.

There you have it, no surprises as far as we can tell.  What does 2008 hold?  Who knows, but we can expect increased legislation of the housing industry, mortgages in particular, for good or for bad.  We can also expect to see more foreclosures, credit card defaults, and basically continued write offs for the foreseeable future.

Where do I see the Florida mortgage and real estate markets in 2008?

I see a slow improvement coming as reality sets in, particularly in South Florida.  I don't see a recovery per se.  Many in the real estate industry, both realtors ad mortgage brokers, will be bowing out under the financial strains of staying in business and not adapting to the new marketplace.  That can be good news for the consumer as most who fall out will be those you wouldn't want to work with anyway, though I am sure a few will be.

As for those who work in the industry, if you can adapt and persevere, you will be rewarded.  Slowing markets do not mean your business needs to slow also, rather it can actually increase in these times.  As for me and Solid Rock Mortgage Corporation, our plans are to grow in 2008 and beyond, still meeting our goal of being #1 in Broward County for mortgage planning services by 2012!