Posted on 12/02/2007 5:14:51 PM PST by shrinkermd
As much as $362 billion in U.S. subprime home mortgages with adjustable interest rates are due to reset at potentially higher rates in the coming year, according to Banc of America Securities, risking a wave of defaults by borrowers unable to afford the new monthly payments. That in turn could exacerbate a wave of write-offs by investors who now own those mortgages. Losses related to bad mortgages already have reached the tens of billions of dollars and have led to turmoil in the world's financial markets.
Fears that the problems could accelerate have led the U.S. Treasury and the mortgage industry to develop a plan that would postpone the higher rates for some borrowers.
The success of the plan, details of which are still under discussion, may hang on the many investors in securities backed by mortgages. A coalition of lenders negotiating with the administration includes investor representatives, but the securities are held world-wide and it would be impossible to get everyone's approval. A deal could also spark lawsuits from investors who believe they're being cheated out of their money.
Unlike in years past, when just a bank and a borrower were involved in a mortgage, today's loans have been bundled together, sliced into securities and sold to investors. That has created problems for officials trying to help borrowers, because so many parties are involved.
Alan Fournier, a fund manager at Pennant Capital Management LLC, Chatham, N.J., predicted that the plan being pushed by the Treasury Department will prolong the pain of the housing slump. He said it would merely delay inevitable foreclosures for some people who can't afford their homes, while allowing holders of mortgage-backed securities to put off marking down their assets
(Excerpt) Read more at online.wsj.com ...
Your whole statement is very thoughtful and well written.
That's bad? You didn't answer why the investors are "bottom feeders", and you didn't point the blame squarely where it belongs: the Fed. The Fed was the reason investors could borrow short and lend long, the Fed caused the low teaser rates with their absurdly low short term rates. The market simply responded, but that doesn't make them "bottom feeders".
“Is “more clear picture” more comforting, or not? There’s no shortage of bad news, I don’t really need more ;)”
The actual situation is the opposite of apocalyptic, but kind of funny, in that a lot of “Dilbert’s pointy haired boss”-like “cost cutting” is revealed to have been a foolish muddle that is now coming home to roost. It also means that the servicers will probably have to hire a lot of new help to sort through their paperwork and fix up the tangled chain of loan ownership that the secondary market’s “cost cutting” has created. Judges have simply gotten fed up with attempts to foreclose on houses that don’t have proof of the plantiff’s standing in the case.
It’s like the old “oil change service” commercial: “Pay me now, or pay me (more) later.”
You can explain your position to Toddsterpatriot and groanup. Standby for a blast of denial that the Fed has anything to do with the money suppy. It is their thesis, not mine, and I will let them defend it.
More like a denial that Andy understands the Fed or money supply.
Since you felt a need to include me in that post I'll ask you to show me where I said that.
however, don't I feel silly having actually bought what we could afford, not buying every fancy car or Humvee or 4 wheeler or gone on fancy vacations because I didn't want to run up the HELOC or my cc.....
my, to just get what I could, to save, to delay purchases, to not buy that vacation home or investment home because it didn't feel right....
gee I could have had the govt step in and help me speculate up the ying yang and the wazzuuu..
Exactly and isn't Wall Street a gamble as surely as a Las Vegas slot machine is? Since when were investors' guaranteed any return? Shouldn't the investors and corrupt ones fight it out in court and with the SEC. And the Judge is right if Deutsch Bank did not offer proof they were the mortgage holder.
This is a bigger scandal than the Keating 5 but it is not getting the bad press. And think one of the Keating 5 is up for reelection. Are we slaves fools or what?
Toddster would argue that the Fed doesn’t set rates, the market does. True to an extent; 1 and 3 month rates have been dropping so the Fed is responding. But a big part of the reason the 1 and 3 month rates dropped is the anticipation that the Fed would lower their short term targets.
Why wouldn't they be? Banks can borrow from other banks at that rate and use that money for liquidity, lending, repo etc.
Also the banks can invest money overnight at that rate, greatly influencing the banks' return on excess funds.
What did the Fed set the 10 year rate at today? LOL!
Did you guys read my post? I wrote that the Fed does NOT set rates, it only targets one rate. However the market has recently lowered other short term rates in anticipation of lower future Fed rate targets.
What you're saying is that my argument is false to an extent. So, you're saying that the Fed does set rates. So what did they set the 10 Year rate at today?
Or were you wrong? The market does set rates?
A lot of markets at work here:
http://www.cbot.com/cbot/pub/page/0,3181,1525,00.html
http://wfhummel.cnchost.com/repos.html
http://www.riskglossary.com/link/bankers_acceptance.htm
http://www.bankrate.com/brm/news/fed/fedchart.asp
http://www.bankrate.com/brm/news/fed/fedchart.asp
Why would anyone borrow money for 6 months at 5% when they can borrow short term for less in anticipation that future short term borrowing will be even less?
Why is the spread rising in the second graph in your link? A: once people realize that the Fed is going to cut and cut big, they stop borrowing at higher rates so the commercial lenders lower their rates and the spread rises. The counterforce is that lenders are reluctant to lend right now due to credit market worries so they raise rates to compensate. But overall short rates plummeted because everyone knew/knows the Fed would/will continue cutting.
I'm glad that we are now in agreement that the market sets interest rates.
When the banks start sharing their profits with me thay can have my taxes to bail them out.....NOT UNTIL THEN!
When the banks start sharing their profits with me thay can have my taxes to bail them out.....NOT UNTIL THEN!
They pay interest on savings, checking accounts as well as CDs.
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