Freddie Hubbard & Art Blakey ~ Moanin'
As usually happens after a significant market event (such as the mortgage industry melt down), there are reactions and over-reactions in the market.Consumers feel fallout from Fannie, Freddie
The most recent burst of fear about Fannie and Freddie's future came on Monday, after a Barron's magazine article over the weekend, citing an anonymous Bush administration source, reported that the government is pressing the companies to raise more money to guard against losses but doesn't expect the companies to succeed.
The Barron's report said the government is likely to buy preferred stock in the companies, wiping out common shareholders.
Chief among the reactions in the home loan market are that it is just plain much harder and more expensive to qualify for a loan. The free and easy lending style of the past decade is gone like a cool summer breeze. Now the standards are much higher and the costs have jumped due to the extra handling costs. Bottom line is, very few people will qualify for a home loan in this market. Money is tight and only the cream of the credit market will qualify for now.
Now, these things go in a pendulum pattern. We will go along like this, with a tough, tight market for a while. Then some enterprising financial institution will see a profit opportunity in the lending market and turn up the lending activity. That will generate a jump in profits, and so other lending institutions will follow suit. Additionally, some people getting turned down for loans may then seek recourse in the courts and claim that they were turned down for demographic reasons. Banks will then try to avoid the legal costs of such claims by turning up the lending activity even more and then selling off the shaky loans.
Years ago when I worked in banking we used to joke that you had to prove that you did not need a loan before you could get one. That joke has become reality today.
~ 3 Wood
Fanny ~ Borrowed Time
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