Blog by Rich Bira

Well yesterday was one of those days we would like to forget when it comes to mortgage rates.  Rates on a 30 year fix spiked over .5% yesterday alone.  So what happen?  Well to put it in a nut shell the government spending as of late has to be paid for.  The government has been trying to raise capital for its stimulus plans and one of the main ways to do this is to sell Bills, Notes and bonds.  The Treasury auctions have been on a very large scale.  This added supply of bonds is weighing down the entire bond market.  Basic economics....When there is too much supply, the prices go down.  When prices go down, our mortgage rates go up. 

So what has happen to all the purchasing of bonds by the government to keep out rates low?  Answer, the government can't buy as much as what is being sold or auctioned.  If you think about this for a second, on one hand the government's plan to buy mortgage bonds and treasuries is what has helped the mortgage rates go lower.  However, the government is also Auctioning off more treasuries than ever before.  Kind of defeats the purpose.  Rates today are in the mid 5's.  Very far off from the low 4's the media has been estimating that the rates will get too.... Rich Bira 

Last week the Federal Housing Administration made a very interesting announcement in regards to the $8,000 tax credit for first time home buyers. Currently if you buy a house this year and you are a first time home buyer you will receive a tax credit of $8,000. (Now there are some income restrictions to this rule) The announcement last we stated that if you get an FHA loan you would be able to use that $8,000 tax credit as a down payment for the house. This would come in a form of a short term loan from the lender until the borrower receives the tax credit. This is the only information that was leaked out and in typical fashion; there are no more details on how this will work. Sounds like someone jumped the gun again. I will keep an eye on this and update you when more news comes out.

On the mortgage rate front the government released details of how much they purchased in the form of mortgage backed securities. For the week of May 7^th through May 13^th, they purchased $27B. The buying concentrated on the 4%-5% coupons. There were no 3% or 3.5% coupons purchased. I make note of this because if you read one of my earlier blogs, I noted that in order for interest rates to get to the 4%to 4.5% range, the 3% to 3.5% bonds would have to be purchased. There is about a 1% mark up over the coupon rate that translates into the going rate on the 30 year fix. In total, the government has purchased about $477B in mortgage back securities. It doesn’t look like rates will be headed down to the mid 4’s like everyone is hoping for.

Thanks for reading. Rich Bira

So, the latest stimulus package has something included for homeowners that want to refinance but can’t due to their property values being much lower. Let me explain. If you bought a house 3 years ago and put 20% down, you would most likely find that your house is less worth than what you paid for it. It is an unfortunate reality. So, this same person would probably not be able to take advantage of the low rates that the market has to offer now. Why? If the house is worth less, you will now have less equity in your house. The loan that started at 80% loan to value is now more like 90% or even worse. Once you go over 80%, there is mortgage insurance. The cost of the mortgage insurance usually wipes out any savings you would get from lower rate. I can’t tell you how many times this has happen in the past several months. I won’t even get into the new appraisal rules that started and are coming up that have brought values down even more. (I will save this for my next blog post)

Now, the new stimulus package is targeted to help these people, right? President Obama has said that millions of people will be able to refinance now and save thousands a year. He forgot to mention the catch. Of course there is a catch. The catch is that your mortgage has to be owned by Fannie Mae or Freddie Mac in order to do this new Refinance Plus. (This is what they are calling it and it went into effect last week) Well, I thought this was really going to help people out. I WAS WRONG. Both Fannie Mae and Freddie Mac have a web site set up to check and see if they own your mortgage. I went through some old applications and current ones that had value issues. I checked about 10 of them and not 1 would qualify for the new program because someone else owned their mortgage. We are talking about mortgages that are A paper, and serviced by all the large banks. Once again, we have a program that will help very, very few. I would like to ask the Obama administration to really break down their projections. Help a million borrowers out of how many??? Rich

So I always write about mortgage related issues except for today.  I just wanted to take a minute to share some ideas in regards to reducing your carbon foot print.  Today at 8:30 local time people and businesses around the world are turning their lights off for one hour.  Last year electricity consumption was decreased by 7% for that hour.  I am sure this year will be more. 

I have really taken a stronger interest in reducing my carbon foot print and learning more about it.  On my recent business trip I went to an energy store.  It was very eye opening to see how even changing the light bulbs in your house can make a big impact.  One regular 100 watt light bulb is equal to 4 CFL bulbs (compact fluorescent light).  They last much longer, use less power, and run cooler.  In fact, the technology these days have made the lights much better and cheaper.  I went to the store today and bought packs of 4 for about $3.75.  Needless to say, I spent a part of my day today changing my light bulbs in the house.

I also recently found free software that you can download onto your computer that will manage your power consumption on your computer and tell you how much you are saving.  The website is www.verdiem.com/edison

There are so many things that we can do to conserve energy.  I will try to add in a few more ideas in the coming weeks. In the next few days I will write about interest rates and the differences in the way the media has been touting rates and what you actually get when you go to a bank.  Rich 

So we got another jolt last week in regards to rates. What happen? Well just like back in December, the Fed made a surprise announcement about an initiative they have in regards to keeping rates low. Back in December they made the announcement that they would spend about $500 billion in purchasing mortgage bonds. The next day the rates shot down, but have since come back up. Interestingly enough, the rate got better on the news of the program but when the purchasing of the bonds started around the first few weeks of January, the rates got a little worse instead of better. Now the same thing happened last Tuesday. The Fed announced that they were going to buy an additional $750 billion in mortgage bonds and another $300 billion in Treasury bonds. They are now buying Treasuries as well to make sure one type of bond is not in more favor than the other. The mortgage bonds instantly jumped up which translated into to better rates. That was Tuesday, and the bonds have already given up some of those gains by the end of last week.

Now I wanted to address all the headlines that have been posted out there in regards to rates coming down to 4.5%. This will most likely not happen. The reason is that the government is buying a specific mortgage bond. There are different coupon levels that can be purchased. They are only buying 4.0% and 4.5% and some 5%. In order for rates to get to 4.5% or lower, they would have to buy 3.5% or lower. There is about a 1% difference in the level of coupons to actual rates that are offered. I encourage people to click on this video link that explains this a little better than I can. Barry Habib is an expert on rates and he is the main source that I read on a daily basis for the last 7 years. He is featured in this video clip on Fox Business a few days ago. Mortgage Rates Expected to DeclineThe risks of loosing out on good rates are far greater if people wait instead of acting now. I will keep you posted as things change. Thank you for reading. Rich Bira

Hello everyone. It has been a while. Long story short, the lending environment has become very difficult. It eats up so much more of my time than I would like. It does not leave me free to do much more. Loans are still getting done, however we jump through 20 more hoops just to get to the finish line. As I said before, a person’s credit has become a very big deal. If you have not taken a look at your credit lately, I encourage you to do so. There could be one little library collection from 5 years ago that you do not even know exists that can pull your score done significantly.

Now, to get you up to speed, here is what is going on. Lenders have been pulling in the reins on their lending because of 2 main things. Mark-to-Market accounting rules and the new Stress test put in place by the government. Mark-to-Market is basically a formula that is used by banks which dictates how much they are allowed to lend out at any given moment. It is a percentage of what your assets are worth. Well, the problem is that all the major banks have seen their stock prices plummet and they can’t put a true value on the toxic mortgages they hold. This shrinks the amount that they are allowed to lend out. In recent weeks some big lenders have pulled out of lending on the wholesale side and have put a freeze on closings. One of the largest banks recently told clients that even though you are clear to close; you have to wait another 4 to 5 weeks before you can close. All due to the fact that they have reached their maximum allowed lending capability.

The Up-Tick rule was removed last year and some point to this as one of the key factors that have made this recession worse than it should have been. When they removed the Up-Tick rule, it allowed short sellers to aggressively drive down the prices of certain stocks. It put some companies out of business that really should have been able to survive this down turn.

I mention these 2 items because I believe they are holding the banking sector back from recovering. By reversing these two rules or at least modifying them, it would bring back some confidence in the banking sector and truly start unfreezing the credit market. Well, this Thursday there will be a congressional hearing about Mark-To-Market. In addition there were comments made today by Barney Frank and Ben Bernanke in regards to the Up-Tick rule and Mark-To-Market. They both seem to be on board that there needs to be some changes made in these two matters.

Where does that leave us? Well, if they do revise the Mark-To-Market rule this week, we will see a rally in stocks. In fact there was a huge rally today because of these comment made and some positive news from Citigroup. Barney Frank says that the Up-Tick rule will be changed next month. If we see a huge rally in stocks, which it is poised for, the bond market will lose value and our rates will go up. As much as I would like to see the rates stay low, we really need to get credit flowing.

Lastly, I was in the Chicago Tribune two weeks ago talking about credit scores and how they impact the loan process these days. Click on the link to read.Is "Good" Credit the Best You Can Do?

Well it has been a while since I last wrote a blog entry. In fact, back on December 16^th, it was Fed day and I said that the language that followed the rate cut was going to be more important than the actual cut. I have to say, I did not expect that to hold so true. The Fed reiterated the fact that they were going to start buying mortgage bonds. That afternoon the mortgage bonds rose to a multiyear high. This caused out mortgage rates to drop to their lowest levels in many years. I spent the remainder of the day and night trying to get a hold of as many clients as I could because I knew the rates would come out great, but then fade away by the end of the day. Sure enough, there was about a 2 hour window the morning of December 17^th to lock in the best rates. History has a way of repeating itself because the exact same scenario played out back in February of 2008.

Currently today the rates have not come back down to the levels we saw on December 17^th. There is a lot of speculation that the rates will come back down. Every day that goes by, I am starting to think that they just might not. You see, the Fed actually started the purchasing of the mortgages bonds a few weeks ago. They are going to purchase about 500 billion between the 1^st of the year and June. In the first week alone they purchased 10.4 billion. In a normal environment, the more demand for a product, the higher the price goes. The higher the bond price goes, the better the interest rate gets. So why aren’t rates slowly getting better? Main reason, they can’t stop the flow of sellers of the bonds. The government is not the only one that buys and sells these bonds. For many other investors, they see this as an opportunity to make a little profit and sell their mortgage bonds. It’s like pouring water into a bucket. The water will rise within the bucket as the water gets poured in. What if the bucket has a hole in the bottom? As you pour the water in, the water is coming out at the same time. The water would stay at the same level within the bucket, depending and how fast the water is coming out versus coming in. The money flowing out of bonds also has a lot to do with the other factors in the economy, as I have explained many times before.

Well it has been 2 weeks since I last wrote an entry in this blog. I stated last time that I thought the rates were going to get to their best levels of the year. So, it did happen last week. To add, they just might get better……however, I do caution that the stock market can rain on the parade in a big way if we see a rally start. Many analysts are predicting a first quarter rally. If this happens, bonds will sell and these rates will get worse. Last week I sent an email to all my past clients that explained a little about what is going on in the current interest rate environment. I would like to share with you some of what I wrote.

“Recently you may have heard in the news that rates are going down to 4.5%. I wanted to take a moment and clarify a little what was actually said and the current environment for rates.

First, the Fed has been rumored to be working on a plan to bring the 30 year fix mortgage down to 4.5%. There is truth to the fact that they are trying to work on a plan, however there were absolutely no details given about it. I researched extensively on it and found that if this program does come out, it would be for purchases only, NO refinances. Secondly, there might be income restrictions, loan to value restrictions, and credit restrictions. This might turn out to be another one of those “solutions” that the Fed is going to try that might only help a few.

Secondly, rates in the past 2 weeks have come down significantly. This happened primarily on the news that the Government was going to start buying mortgage backed bonds. (Approximately $500 Billion worth!) The rates dropped more than half a percent just on the news alone. The actual purchasing of the bonds is set to start taking place in the coming weeks. Once this happens, there is a good chance that rates will come down even further!”

Back to today, it is Fed Day! The street is anticipating that the Fed will lower the Fed Fund Rate by .5%. As always, this and the language that follows is a market mover. So hold on tight, this will get interesting! Rich Bira

Rates are about to hit their best levels for 2008! (Well...maybe, see below)  So what has happen? Well last week the Fed announced that they were going to purchase $600 Billion worth of Mortgage Back Securities which are backed by Fannie Mae, Freddie Mac and Ginnie Mae. On this news, the mortgage bonds shot up in price which lowered the 30 year rate. However the next day, the mortgage bonds lost a little of their gains. Overall, we still ended up pretty good on the interest rate front. It was all over the headlines last week that rates have dropped into the low 5’s. Well, they always quote the average national rate and forget to mention that to get that rate the borrower would have to pay and average 1 point. What makes it a little less appetizing is that the borrower has to be below 80% loan to value and have a credit score above 720 to be able to get the best rates. With the way home values have been falling, getting an appraisal to support value has been the hardest part of doing a refinance there days.

Since I last wrote an entry a lot has changed. I will not go into many of the stories because I am sure that you have heard of them by now. The media had done their job of keeping us informed. Unfortunately, the media likes to highlight the negative, which sometimes just adds to the downward spiral.

So two weeks ago we started off with the news that Circuit City was going bankrupt. It is very sad to see that so many people will be without jobs this holiday season. I remember like it was just yesterday when I use to work in retail myself and Circuit City was just entering our Chicago land area. They were the ones to watch out for. On that note, many retailers came in last week with worse than expected numbers for the month prior and they were not able to give any kind of forecast for the months ahead. No forecast into the holiday season is not a good thing. Another example of how retail is would be this weekend when I went shopping I was seeing 50% on almost everything in the Christmas department at one of the largest retailers. These are the types of sale we use to see after the holidays.

Back to some economic news. Last week the Fed spooked the markets by using the word Deflation. The Fed said that they have a fear of deflation coming into the picture. What is deflation you ask? Deflation is when prices drop due to a lack of demand which leads to a lack of pricing power. (Doesn’t this sound like the example of the deep discounts I saw over the weekend?) Many economists now think we are headed for a deflationary recession. The one possible good note is that when there is deflation usually there is a flight to quality with money. That would be bonds and mortgage bonds. Back in spring of 2003 Alan Greenspan had made similar statements about possible deflation. Within the weeks that followed, interest rates improved by 1.5% to 2%. Now, this is a very different environment and there are other forces at work. Lets hang in tight to see what happens.

Today, we saw another bail out of one of the largest banks in the world, Citigroup. The government has agreed to guarantee 306 Billion of Citigroup’s troubled assets and give them an additional 20 billion investment. This is on top of the 25 Billion it received in October. Wow… I am amazed at how some of the strongest companies can also get caught in this tidal wave.

Lastly, I wrote many months ago about one of the Governments initiatives to help fight foreclosure. It is the Hope now program. Well, since it has officially started October 1^st, one report I read said that there were only 150 applications to date. We are talking roughly about 3 a day. THAT’S IT? I said it a few weeks ago, there still has not been much news on how to get this done for people and I am in the mortgage business. Imagine a homeowner trying to find out about this program. No wonder it isn’t working. To read more about the red tape on this program read FHA's New Risky Loans Make Housing Even Riskier  Thank you.  Rich Bira

I wanted to start off by saying thank you to all our Veterans that have served this country, without them our lives would be very different today.

Last week the US economy got more grim news. On Friday, the Labor Department reported that we lost 240,000 jobs in the month of October. That was worse than estimates of 200,000. In addition they revised the prior two months down by another 179,000 jobs. This brings the total for 2008 to 1.18 million jobs lost. In all actuality the job loss number is a lot worse than this. The Labor department uses a birth/ death ratio. In a nut shell what that means is that they look at how many news companies where started and average out how many new employees were added, versus the closure of businesses and the average of those employees lost. This comes up with a ratio that they use to estimate how many jobs were created or lost in a given month. We all know that everywhere you turn, you see a small shop or store in your neighborhood that just closed down. It is very sad and we all see it every day now. Many experts say that if we could actually count each individual person that lost their job for the month of October, it would be far worse. The unemployment rate jumped up to 6.5% from 6.1% the month before. 6.5% marks the highest level since 1994. Unfortunately, we will see this number get worse before it gets any better. We truly have to turn that number in the other direction before we see ourselves out of this recession. (On a positive note, the new stimulus package that is being worked on is actually meant to help local governments create new jobs by having funds to spend on much needed projects that have been put on hold due to this crisis).

Today, we had Fannie Mae and Freddie Mac announce that they are going to start a new program to modify mortgages. This would be for people that are more than 90 days late on their mortgage and the current balance is 90% or more of the current value. Some other details include possibly lowering the rates down to 3% and extending the mortgage out to 40 years. Also today, Citigroup announced that they too would halt foreclosure proceeding and try to help some 130,000 current clients in trouble. This would also be a loan modification with potential rates as low as 1% for the next 2 years. All this is a step in the right direction, although controversial. I think that the lenders are trying to get proactive about it now because if nothing is done, you can possible see the courts stepping in to force everyone to modify loans. We might be headed this way anyways because more than half the mortgages out there are serviced by a company that really does not own the mortgage. Sometimes the mortgages are owned by several entities. This is why a lot of these programs have yet to really work. The servicers have to check with the owners and not all agree to do the modifications. In addition, if the servicers act on their own, they fear getting sued. The debate continues on what the best action will help stabilize the housing market??? Rich Bira

The financial system is flushing out. Let me explain. One of the big reasons that the stock market and bond market is have such big point swings is largely due to hedge fund managers continuing to unload their positions in the equity markets and bonds. They are doing this because there is a large increase in clients pulling their positions out and putting it into cash. This is called, customer redemption, which has been talked about a lot in the last few weeks.

Last week existing home sales jumped 5.5% last month which is a 13 month high. Yesterday morning, new home sales also came in better than expected which was up 2.7%. In addition the inventory of new houses for sale went down to a 10.4 month supply versus 11.4 a month ago. Remember, a good balance for month’s supply of homes is somewhere around 5.5 months. The one dark cloud in both housing numbers is that the median home price is still falling. I think that has a lot to do with the foreclosures weighing the average down. This morning we had yet another report out from The Standard & Poor’s/Case-Schiller. Their 20 city index showed that for the month of August, the number fell 16.6% from the same time last year. I interject a little perspective here. This is a national number. When you break it down for Chicago, it actually came down 9.8% from the same time last year. More importantly when you look at the month over month number, there was no change. As you can see, there are small little positives happening within these numbers. No one is calling a bottom yet, but a few more months of this, and I would say we are there. Rich Bira

Have you heard of the Adverse Feedback Loop theory? In a nut shell it kind of explains in a broad term what has happen in the last year or so. But before I get into that, let’s get you up to speed on what has transpired in the last week. It has been a lot. It started off last Tuesday with the Treasury announcing plans for them to purchase short term commercial paper. What this means is that small businesses that need short term loans, like 3 months, will be able to go to the Treasury to get these loans done. When the credit market started to really freeze up, the regular vehicle for this financing had gotten way to expense. On Wednesday, the Global banking system did an across the board emergency 50 bps cut to key interest rates. Even with this historical move, the markets still sold off in a big way. On Thursday the Asian Central Bank had also cut their key interest rate. On Friday, we hit the lows on the stock market. Over the weekend there were hints that the US was going to follow the UK and their plan to inject money directly into the Banking system. So, instead of buying toxic mortgages from the banks, the government altered part of the $700 Billion dollar rescue plan to use $259 of that plan to buy stocks in banks. Many have said this is a much better way of getting the credit market flowing again. The Government cannot force the Banks to start lending again, but are doing everything the can to help them down that path. The government even said that they will insure any new debt taken on by the banks for the next 3 years. There are many details to this new plan which would take too much time to go through here. (If you have any questions, please give me a call, I will go over it in detail.) Monday the markets had its biggest percent gain ever in history. Almost 1000 points. Well, that was Monday, and what is settling in now is the reality that the landscape has changed in the banking system. Even the way that I look at bond movement for interest rates have changed. In the last week, rates have gone up about .75%. (Even though headlines today show about .5%, that data is just last week and does not account for this week’s negative move.) Basically the stock market has been selling off and mortgage bonds as well. Usually they move opposite of each other.

In regards to the “Adverse Feedback Loop” theory. I was listening to Ben Bernanke speak and he explained this theory. It describes in a nut shell, what has happen in the last year. Basically the bursting of the housing bubble was the trigger that put this economy into a tail spin. You see, declining house prices weakens the economy. That in turn leads to higher delinquencies and defaults. That in turn weekends the financial system. When the financial system weakens, they are less willing to extend credit. This in turn brings you back to weakening the economy. It is a viscous cycle that spirals down. This is where the argument is, which part do you fix to stop this cycle. Ben Bernanke thinks that helping the financial system will help all the others. For now, the market is still scared it will not work and today is another example. The retail numbers for September were worse than expected which the brutal reality that we are in a recession. The moves by the Government will work, but not fast enough. Rich Bira

Over the weekend I was quoted in the Chicago Tribune. The article is,If You Can Buy/ Refinance Now, Do It . I just wanted to add a few notes about my quote. In the article I state that I think the rates will go up in the long run. However, in the short term, until the stock market does truly define a bottom, the rates can see improvements. While writing this, I glance over at the TV and see that the market is down almost 655 points. Our mortgage bonds are seeing money flow into them, currently up 66 bps. The credit problem that has been plaguing the US economy is spreading fast and other countries are scrambling to put confidence back into their own markets. Investors are realizing that the Bill that was signed into law on Friday will not be the cure all and it will take some time to actually see results. Some now anticipate that the Fed will step in and do an inter meeting cut to the Fed Fund Rate. It would actually help the stock market and the bond market if the global banking system did this at the same time. If only the US does it, mortgage bonds can suffer due to inflation fears down the road. I have to say that this economic environment has never been seen before. It is verify difficult to predict what will happen in the coming months. That being said there are many variables that can make the rates go up or down.

Other news this morning for my Illinois readers is the news this morning that Countrywide worked out a deal with the Illinois Attorney General which would make Bank of America, the new owner of Countrywide to modify some 8.6 Billion dollars of loans. This would be loans that were option arms or interest only. The lender would also cut the balance of the mortgage to the current value of the home. This is supposed to start December 1^st. I will pass along more details as they become available.

Rich Bira

Hope for Homeowners, also known as H4H, went into effect yesterday, October 1^st. This to some degree has gotten lost in the shuffle due to the headlines today about the current Rescue bill. Remember, back in the middle of August, President Bush signed into effect HR 3221 which was dubbed the Housing and Economic Recovery Act of 2008. This is a $300 Billion dollar rescue plan for struggling homeowners. There are many details to this bill and it will help some homeowners save their home from foreclosure. I will give a few brief details here, but I encourage those of you who are reading this that need this program, to call me for the full details.

1) Borrower needed to originate loan prior to January 1^st, 2008.

2) Existing mortgage payment as of March 1^st, 2008 exceeds 31% of borrower’s gross monthly income.

3) The homeowner did not intentionally default.

4) The homeowner does not own other property.

5) The borrower was not convicted of fraud in the last 10 years.

6) The borrower did not provide false information in the process of obtaining the mortgage that is to be refinanced.

Once the borrower meets some of these requirements, they will be able to refinance the existing mortgage at 90% of the current value. (This means that there will be a good portion of your mortgage shaved off). There are some sharing provisions with the Federal Government for the future, but truly not that bad considering what the alternative would be.

As I write this, it is very brand new. I have not seen one lender yet come out and say that they are going to participate in this. I am pounding the phones to get the most information as I can on this. I truly believe that it is a small step in the healing process. Rich Bira. rich@rvbinc.com or 312-267-4859

In a nut shell, a strong public opposition to the plan has made vulnerable incumbents scared to vote for the bill, fearing the loss of their jobs in a few weeks. There is a good article that explains this in a little more detail What Went Wrong-Forces Lined Up Against Bailout .

I will share with you a report that I just saw on CNBC that might help Main Street understand how the lack of a bill is going to effect the average American. In a time that retailers are starting to ramp up their inventory for the coming holiday season, many retailers are doing just the opposite. Retail lending has all but frozen to a standstill. Large institutions like GE and Wells Fargo have stopped financing new retail accounts and have shrunk existing purchase power to current accounts. In A CFO survey, 41% have experienced contracting credit lines. 37% are actually reducing their purchases of inventory. These are not Mom and Pop stores. These are retailers with over $100 million in revenue a year. So how do these retailers make up their cash shortage? The same CFO’s that were surveyed said 36% will start to close stores and 24% of them will start reducing their staff significantly. This is a direct hit to Main Street. I will keep you posted as events develop. Rich Bira

Before you know it, we will have only a few large power house banks left…at least that is the way it looks. As I am sure everyone knows by now, Washington Mutual was taken over by the government late last night and then the assets were sold to JP Morgan Chase. So what happen? Well, in a nut shell, as the housing market has continued to get worse, the assets of the bank started to go down. At the same time, people started withdrawing money from the bank on fears that they would fail. I think about $16 billion dollars has been withdrawn in the last 2 weeks alone. The government is actually being applauded for the way they handled this. The stepped in before the bank actually failed. This is the main reason why Washington Mutual is still open for business. Eventually over the next year or so, some branches will close and other ones will become Chase. Your money and mortgages that are with Wamu is safe. (I have gotten a lot of phone calls on the topic in the last week). One of the biggest reasons that Wamu ran into these problems was that they were one of the biggest originators of Option Arms. You know, the mortgages that allow you to pay 1.9% payment, and the rest of the full indexed rate actually was added to your mortgage balance. I don’t’ need to explain why this was a recipe for disaster. I can honestly say that in 12 years of doing mortgages, I have originated one of these types of mortgages. It served a purpose for the client, who was very savvy, and needed that type of mortgage. When the product was very popular, it was sold incorrectly by many in my industry. In addition, many borrowers thought that negative equity was not a big deal because houses were appreciating so well. It was like musical chairs. I knew back then that it was not a good product for many, I had no idea that it would end up this bad. Now, as I write this blog, Citigroup is in talks to buy Wacovia. (Wacovia originated option arm loans as well)

THE RESCUE PACKAGE. One week later, we still don’t have a resolution on this. It is not necessarily a bad thing, yet. As I said before, we do need to get this done. I also think that the politicians are doing what they are suppose to do, listening to their constituents. They have been flooded with calls from the average American who is defiantly against this. Mind you at a rate of 300 to 1. The biggest problem I see is that capitol hill wants to know how this is going to be carried out. No one is going to get a $700 billion dollar blank check. Maybe it is important for me to stress this; this money is not a gift, this is basically the government purchasing these bad loans to get them off the books, hold onto them, and then turn around and sell them. In theory, the government can make money on this. However, one of the biggest questions is, how do you set the price at which the government will buy these? If they buy it extremely cheap, the banks can still fail. Pay too much for them, and the tax payers can be on the hook. Another sticking point is that the executives of these institutions that will be relieved of these bad loans should have some limitation on their own compensation packages. That is only fair right?