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I think that is a cut/paste error.
I wonder if there was a life change - getting married or something else. I’d also guess that there was a net pay-down of mortgage debt up to late 2000, as BRCM and other tech stocks ended their massive run.
I think Whalen is missing a point about current originations. Few of the large banks are holding onto the 4.25% mortgages they are originating. They are almost all going to the GSE’s. They are also reducing their exposure to performing 5-6% loans by refi’ing loans they (or another bank) own into GSE’s. I wonder if you had a 6% loan with Wells if they are calling you to refi? Before we moved, they were. They probably thought we’d be refi’ing with someone, so why not with them. I would expect this to have the effect of reducing bank assets/liabilities, but more severely impairing their cash-flow.
If we have a large bank failure it will not be Lehman-esque, or even AIG-esque, it will have to be closer to how Merrill or Wachovia went down. But if one of the massive 3 went down, you’d have to break it up in order for others to be able to swallow the pieces.
“When banks could borrow at 0% and loan money for mortgages at 6%, the margins were helpful, and the banks had opportunity to recover; however, over time, competition drives down long term rates and flattens the yield curve. Banks are still borrowing at 0%, but now they can only loan at about 4.25%, a significant decline in margin.”
I see you made some progress in understanding but you still don’t get it. The banks are borrowing at 0% and investing in t-bills and the margins are infinite no matter how you look at it. They are creating margin out of thin air. The banks sole goal is to stay in business so that they can continue to create margin out of thin air. Operating as an REIT is a side business that allows them to continue investing 0% money into t-bills.
That ain’t working, that’s the way you do it
Money for nothing and your G.S.E.
Exactly. Mortgages that are originated are sold to the government.
Obviously mortgage rates will continue to decline as long as this trade is available to the banks. The end game and goal should similarly be obvious: create inflation, that’s how banks stay in business. Anyone who couldn’t see this 2 years ago was blinded by their own self interest.
“Mortgages that are originated are sold to the government.”
No, they are insured by the government and sold to private investors in MBS pools. Banks are buyers of their own mortgage backed securities because they are as secure as treasury notes and have a higher yield. This is how the banks are recycling their bad loans and getting the government to take all the risk.
And with inflation, interest rates will go up—a lot…. And when interest rates go up, affordability will go down unless the inflation also translates to higher wages, which seems unlikely with high unemployment. Lower affordability and large supply makes for lower prices.
Anyone who couldn’t see this 2 years ago was blinded by their own self interest and kool aid intoxication.
9-28-2009—The 2011 Inflation Spike—The Federal Reserve may allow inflation to spike in the medium term.
One day you will submit to the fact that you were wrong, but first you need to get rich in Las Vegas.
So let me get this straight, you can ‘invest’ in a MBS that’s insured (by the GSEs)? What does that mean, you have a secure investment with almost no chance of declining in value?
How can I get in on this action? I can’t find any stable investments yielding more than 1% right now. 1% is a far cry from keeping up with this inflation that someone is trying to create.
All you need to do is be born into the banking aristocracy. Maybe next life.
The GSE will insure you against default, but the investor still takes on the interest rate risk. Plus, unless you buy something like a mortgage backed REIT in your brokerage account (NLY for example), you will mostly likely need to have a serious sum of money to directly buy a MBS.
There’s not going to be high inflation any time soon. We had actual deflation last year, for instance.
All the junk that large banks sold to GSE’s and thought they washed their hands are now become bigger problem for banks again. FNM has already filed a suit againt BAC for putbacks, where BAC sold loans to GSE that were not qualified loans. In other words, banks issued FHA loans to folks who were not first time buyers, who did not meet FHA standards, and either/or got sour, GSE’s are sending these pools of loans back to the banks.
The problem in mortgage and banking is very severe, Govt. can and may continue to extend and pretend but day of recokning is coming. If job situation does not imporve which it sounds like its actually going to get worse, major problem is yet to hit markets.
Reality check PR… as a former banker, I can tell you that buying short term TBills yielding less than 0.25%, even if you are using money at 0%, is the death of a bank… that simply does not generate enough income and, more significantly, cash flow, as short term TBills are zero coupon bonds, meaning that the cash doesn’t come back with interest until the end of the term. So, if you are a bank, that yield doesn’t even keep the lights on… Sure, you can get a yield of about 4% on a 30 year bond, but no bank is going to take that interest rate risk… which is why they are selling their 4.25% mortgages to the GSE’s and pocketing the origination fees (non-interest income).
Don’t try responding to Planet Unreality with facts—you’ll be met with empty silence, or just a repetition of his usual mantras (high-end Irvine prices will never fall, inflation will save the banks, etc.).
As an add-on to PR’s comment. A LOT of REITs are also playing the margin game right now -> They leverage up 5-8x at near zero borrowing costs and hold onto MBS at 4% = 20% returns.
Also, you do not have to be born into the banking aristocracy (it helps a lot), but you do have to get into the game pretty much right out of college.
I had considered going down that path. The problem is that I was too short-sighted. I had many friends who took jobs with big banking/finance firms in NYC, and their salaries were around 1/3 of what the engineers were getting fresh out of college.
Fast forward ten years and even considering raises and promotions, the engineers have salaries 1/3 of what the banking/finance guys earn.
I know there’s a lot of attention about how the banks cut their staff, however most of the competent young guys are still around and have stable work.
the engineers have salaries 1/3 of what the banking/finance guys earn.
Obviously the engineers are not as brilliant as those finance guys!
When was the last time you saw an engineer run for office? I REST MY CASE.
The engineers are always weird, just like programmers, and don’t relate well to other people. They prefer watching Star Wars for the 100th time and planning their next ComiCon visit. They’re unfit for public speaking.
I think a lot of stereotyping went into your comment. Sure, engineers are not nearly as good at B.S. as attorneys but they most do relate well to other people, and are logical thinkers. I would bet many of the posters on this board have engineering backgrounds.
My reply was to “Perspective”.
Who saw the OC Register article today (too lazy to link) regarding UCLA school of econ predicting a 49% increase in home values in OC by 2016. You simply can’t make this stuff up!!!!!
I think they are already celebrating the passage of Prop 19 over at the Register. Lansner and his buddies are breaking in their new bong when they decided on those headlines. Too Funny.
I saw this in the USA Today the other day:
For many over 55, debt defers dreams
Basically talking about how high debt levels are affecting the Boomers. I read it looking for the house debt angle, but that was buried at the end. As always, it’s easier to talk about the victims (job loss and medical, mostly). Those who spent their house are not as interesting, I guess.
Check out this 60 Minutes Special on the 99ers that aried last Sunday. The interviews took place in San Jose…
http://www.cbsnews.com/video/watch/?id=6987699n&tag=contentMain;contentAux
Oh WOOO WOOO WOOO! The boomers sure have it rough don’t they! I just broke another violin while reading that.
Them’s some big bucks.
Top 100 Real Estate Agents Worldwide, by sales volume
http://online.wsj.com/ad/top100individualvolume_2009.html
Look at #14!!!!!
What a name!
I’m in the process of creating a real estate firm that pools investor money together to buy distressed properties and rents them out for positive cashflow. It’s called “Dewey, Dickham, and Howe”
That list is loaded with high powered markets.
Montecito, Palo Alto, Beverly Hills, Palm Beach
I did a double take seeing
Bakersfield at #50 & #51 with
$64M each in sales volume
This place is a lot of ugly for $613,750.
BOO!!!!
Real or Fluff to try to increase rents?
http://lansner.ocregister.com/2010/10/27/irvine-co-sees-end-of-apartment-rent-cuts/86060/
I hear that CA has ~10% unemployment, 7% underemployment, 6% discouraged workers (over 2 years without working or no longer looking). Can rent go up with those underlying numbers? Only if section 8 will pay. How hard is it to get section 8 in Irvine area?
Make an offer now and select the paint colors
HURRY!!!! Don’t want to miss out on choosing those colors now!
In Spain, Homes Are Taken but Debt Stays
http://www.nytimes.com/2010/10/28/world/europe/28spain.html?pagewanted=1&hp;
We Can Either Have a Rational Resolution to the Foreclosure Crisis or We Can Preserve the Capital Structure of the Banks. We Can’t Do Both ... GeorgeWashington relates in ZeroHedge post.