September 19, 2007

CNBC's Diana Olick and others on the Fed cut and the "mortgage despair cycle"

I know the housing cheerleaders are all excited, and desperate homedebtors looking to unload are all in a tizzy, but sorry, bad news. The Fed could (and might) cut to zero, but it ain't gonna help. China and hedge funds ain't gonna buy the CDO's anymore, the Fed funds rate does not set mortgage rates, the toxic mortgages are still gonna reset, foreclosures are still gonna soar, and housing is still wildly overvalued.

And remember, as the stock market soars - stocks ain't houses. Mutually exclusive investment classes. Invest accordingly.

Diana Olick: Since we’re all "Fed, Fed, Fed," it behooves me to weigh in on how a Fed rate cut would affect mortgage interest rates, not to mention the current mortgage despair spiral, as lenders run for cover and investors turn up their collective noses. From everything I hear, it’s not going to do much in the short term, but rather than hear it from me, I thought I’d pose the question to some of my fave experts and let you hear from them:

Bill Seidman/Fmr. Head of FDIC, CNBC Chief Commentator: "If credit is bad, rates don’t count. I don’t care if you lower the rate 100 basis points. It may improve some of the profits of those institutions that lost a lot of money due to bad credit, but it does not address itself to the real problem, which is bad lending. And let me emphasize: it’s not just subprime, it’s substandard lending."

Jay Brinkmann/Mortgage Bankers Assoc.: "The Fed rate cut has already been priced in."

Howard Glaser/Fmr. HUD Official, Mortgage Industry Consultant: "My view is that the effect is likely to be limited – probably a short -term psychological boost more than a fix for mortgage market liquidity... You could lower the rate to zero and those loans (subprime, alt-a) are still not coming back."


Anonymous said...

It only helps the idiot and criminal lenders and borrowers if the government actually lowers the interest rate on the loans or lowers the price of the other words the government has to drop money on the situation and give money away to the idiots and criminals. And yet, even then, when the idiot "home owner" has to sell in a year or two or five years, the house will not sell for anywhere near what the mortgage is for (unless the actual price has been lowered) and so, they will need a bailout again to sell the damn house! There is no solution to the bankruptcy of the borrower unless the good old government essentially purchases part of the house for them! Criminal lenders, criminal borrowers, and a criminal government!

Unknown said...

Although stocks and real estate are separate asset classes, if you look at Robert Prechter's book Conquer the Crash, he has a chart that shows every time there has been a big decline in real estate, there has also been a big decline in stock prices. Perhaps this time is different, but I doubt it. The U.S. consumer has been shown to be much more affected, spending behavior-wise, by home price declines than by stock declines and the U.S. is still pulling the worlds economies. Also, the Minsky model says that the movement is out of ownership-based assets, which includes stocks, housing, oil, real estate and commodities and back to cash, as speculators seek debt reduction and liquidity. For this reason, I think the position of being a well-secured lender is best. Perhaps high-quality non-U.S. bonds.

Anonymous said...

one jew ask some other jews what they think about the rate cuts that some other jew so graciously gave to help bail out his jewish hedge fund owners.

what a country.....

Anonymous said...

I think this NYTimes piece is pretty level headed about it all. In sum they are calling for an RE adjutment of 20% in real terms with other more greatly inflated areas suffering more, and those areas not soo inflated suffering less. Remember that Greenspan did not stipulate if his high single digit low double digits factored in inflation or not. Paulson apparently is being more clear and calling for 20% in real terms. Plus they are not calling for any specific time period, because they really do not know how long it will take to deflate the RE bubble.

Metro DC is down over 10% in real terms already (7% drop + inflation the last 1-2 years) Metro DC was above average but not a poster child, so most are saying 30% in real terms. If the rate of depreciation stays consant then we are looking at another 3-4 years. Based upon foreclosure data and the finishing out of contruction projects in the area I'd say we might see an acceleration in depreciation putting the trough at 2-3 years out from now. So I just cut on a lease for a TH at 1900/month that would cost over 3k/month in terms of monthly PITI costs (at 20% down & prime rate Fixed). So even factoring in the tax deductions its more efficient to rent especially when you factor in maintenance costs/concerns, HOA & other fees etc.

Anonymous said...


"Well isn't that special"!


Anonymous said...

Portfolio Caps at Fannie & Freddie raised today by OFHEO to 735 billion for each agency incrased incrementally by 0.5% per quarter. Add that to yesterday's House vote to boast FHA loan caps while simultaneously eliminating down payments in conjunction with the FED cuts and it looks like the gov't is working feverishly to mitigate the damage the deflating RE bubble is causing. Again all just a give away to wall street and it will do nothing for main street.

Anonymous said...

Happy New Years Diana.

Hugs & Kisses,
Your #1 fan.

Numpty McHoon said...

So the only tool our feckless leaders possess to rescue the American economy from recession is is the friggin' prime rate?

There is nowhere to run, nowhere to hide, and we're being legislated by fools and morons.

Numpty to Fed: get a bigger hammer!

Anonymous said...

What everyone here is missing, including my good buddies Keith and Blowfly not to forget you too DOPES, is that at this point the Fed could give a damn about the DOLLAR. What they are doing now is killing the DOLLAR, so that the sheeple won't bitch when they introduce the AMERO!

Please welcome your new neighbors as they will be happy to teach you the new language of the NORTH AMERICAN UNION.


Anonymous said...

The fundamentals have not changed - period! Houses are still to expensive in most parts of the country, subprime liar loans will not come back, downpayments will be required, and there are still too many homes on the market. . .prime is still 7.75% and subprime people can't afford 3%!!

Anonymous said...

"Since we’re all "Fed, Fed, Fed,"

make that

"Since we’re all "Fed Up, Fed Up, Fed Up,"

Anonymous said...

FBs have made up their mind. No rate cut(s) will do any good! Noone wants an up-side-down mortgage monkey on their back. Rent folks and travel!!! It is the life! When owning homes makes financial sense than it is the time to buy a home. Right now it is the worst time to buy! I hope all the FBs get out and get out quick the ship is sinking.

Current Foreclosure Crisis Deemed the Worst in U.S. History
Sep 14, 2007
According to the most recent foreclosure numbers released by the Mortgage Bankers Association (MBA), the U.S. is embroiled in the worst foreclosure crisis in recorded history. More than 14 percent of subprime borrowers are defaulting, and prime borrowers are beginning to follow suit.

MBA Report Summary

The foreclosure rate recorded in the last quarter has increased beyond the highest point seen in the history of the MBA survey, which dates back to 1953.
14.82 percent of subprime borrowers are currently behind on their home loans.
The highest percentage of foreclosures are on homes with 2/28 adjustable rate mortgages.
In states with severe foreclosure issues, like Michigan, one in every 100 homes is in some stage of foreclosure.

Is the Worse Yet to Come?

According to the most recent Mortgage Bankers Association survey, the foreclosure crisis is deepening. States like California, Nevada, Florida, Arizona, Michigan, Ohio, and Indiana saw foreclosure rates skyrocket in the last quarter, and the problem is expected to get worse before it gets better according to Doug Duncan, MBA's chief economist.

'We will see delinquencies and foreclosures rise for another quarter or so. Home prices are falling as rates are resetting higher, making it difficult for people to refinance,' said Duncan in a conference call with

The problem lies mainly with subprime borrowers, who are defaulting in increasing numbers. In the last quarter, 14.82 percent of subprime borrowers were behind on their loans. In comparison, 2.6 percent of prime loans were more than 30 days past due.

According to the MBA, the infamous 2/28 adjustable rate mortgage and depressed economic conditions are key factors in the foreclosure crisis. With more ARM resets expected for this year and next, it is likely that the foreclosure rate will only continue to increase in coming quarters.

Sean O'Toole, founder and CEO of says the crisis will also be compounded by the number of speculators that are folding after buying during the boom.

'Many blame subprime lending for our current real estate crisis, but rampant speculation, even by those with great credit, played a leading role,' said O'Toole in a press release. 'The subprime market took the first hit as those borrowers had the least to lose when they walked away. Now that nearly half of foreclosures represent non-owner occupied properties, it is clear that speculators are walking away too.'

It is true that non-owner occupied properties have been hitting the auction block in record numbers. Of the 9,477 properties auctioned in California last month, 44.3 percent of them were speculator owned properties.

Another shocker: 90.3 percent of the homes were bought or refinanced in 2005 and 2006.

Anonymous said...

With current U.S. Treasury rates at 4.53% (effective) this is a no brainer. You can get at least 5% on a 6 month C.D. Just don't put in in Countrywide. Long term rates will go up and this will continue to slow the economy and hurt borrowers. Get cash and keep rolling it.

Anonymous said...

Folks the stock market is going up because it is betting heavily that corporations will have sufficient profits to pay back all the borrowing they have done for the last 5 years which is in the trillions. Don't buy it!

There is no way these companies with all that debt which will ever be paid back. The consumer is finally cutting back spending which will hurt corporate profits which will cause major defaults in corporate debt. This is why mergers and acquisition are too risky now and will not fly.

Get into cash!!! Get out of debt!!! Go watch the movie "Maxed Out" before it is too late.

Anonymous said...

Expect to see fewer spots from DO on Bubblevision. Why? Housing is no longer an issue ...

whydibuy said...

The thing about cutting short term rates, which is what the fed did and all it can actually control, is that it pushes long rates up. Long bond buyers fear, rightfully so imho, that the fed is giving up trying to contain inflation. Thus they demand higher rates to compensate for that added inflation risk. So long bond prices fall and the rate rises. Unfortunately, long rates are what governs the mortgage market. We will actually see fixed rate mortgages start to rise in response to the feds dramatic cuts. And more pain for the housing market. There is really nothing the fed can do to stop the inevitable implosion of housing. Here in Michigan, its shocking to see what the actual selling prices are at. Numerous sales with the sale at 10, 15 or 20% below the assesed value. What a bloodbath.

Paul E. Math said...

I can't believe they raised the limits on fannie and freddie. Those institutions haven't filed proper accounting statements to the sec since like 2004 or something. And the regulator thinks it's a good idea raise their limits.

And ofheo wants them to help some subprime borrowers refinance. Don't they realize that the reason subprime mortgages are toxic has a lot to do with the toxicity of the borrowers themselves? The borrowers can default on a subprime mortgage or they can default on a fannie mae conventional - the only difference is there will be a democrat in the whitehouse when fannie mae goes TU and they'll be more than happy to spend our tax money on a bailout.

What a sh!t sandwich.

Anonymous said...

to quote the monetary interventionists: "The sky is the limit!"

Anonymous said...

Even if the interest rate reduction did have an effect on people's mortgage rates, isn't the real problem that most of these loans had teaser rates that didn't require payment of principal? Even if the interest rate was 1%, the addition of principal payments will still increase the payments beyond what people can afford. So I don't really see the rate cut helping average Joes.

Anonymous said...

Anonymous said...

one jew ask some other jews what they think about the rate cuts that some other jew so graciously gave to help bail out his jewish hedge fund owners.

what a country.....

September 19, 2007 4:18 PM
F U you racist bastard, go tell that to all the "jews" who helped build and defend this country, to include 18 Congressional Medal of Honor recipients

Anonymous said...

Walking On Broken Glass

Anonymous said...

Sheesh, Saudis hint they might unpeg from the dollar.

Let the stampede begin.

Anonymous said...

Anonymous said...

The other day, I asked Keith to remove a comment similar to the one made by Annonymous September 19 4:18 p.m. The comment thereafter was removed. Though I am loathe to dignify the latest comment with a substantive response, the irony of the comment compels me to do so.

It is suggested by the poster that the Fed's decision to lower the rate by 50 basis points was the result of advice solicited from "one Jew" by "another Jew" as to whether or not to bail out a "Jewish" financial institution, in this case, a supposed hedge fund.

The irony--and falsity--of the comment is evidenced by the history of the Great Depression. No, not the stock market crash. Rather, the bank failures that commenced several years later. The cause of the bank failures? For reasons of anti-semitism, the Fed declined to do that which was its express mandate to do: to increase liquidity (money supply). Because of the Jewish ownership of a major bank located in New York, the Fed declined the bank's request to lend it money. The bank ultimately closed, paying off about 98 cents on the dollar out of its own money. Because of the name of the bank, it was perceived as a government entity. The psychological damage in domestic and international markets was unavoidable. The name of the bank, I believe, was Bank of the United States or something similar.

In hindsight, it seems, much misery could have been avoided had the Fed done, in 1933, when the Fed now has done in 2007. Perhaps.

I'm not making this up, by the way. Milton Friedman won a Nobel Prize in economics in part for this thesis. It was in his book, "Freedom to Choose." Then again, Milton Friedman was a Jew, wasn't he, so his observations may be suspect by some.

Anonymous said...

4:46....oh so now it's 30% in real terms is it? What happened to 70% nominal predictions of just a few months ago?

Man you losers sure change your tune quickly.

Anonymous said...

I'm inclined to be repelled by the "anti-jewish" comments you sometimes see here, but it does seem a bit odd that the last two Fed chairmen were Jewish. Jews are over-represented in financial markets and seem to have undue influence over the economy. Is it a coincidence? Would it raise eyebrows if any other group so dominated the money culture? And how do they manage to keep finding jewish republicans to run the Fed? Jews aren't normally republicans.

I know they have a special level of protection from criticism due to the Holocaust but has anybody asked if their grip on the financial system of Germany, the system that made so many so miserable, led to their status as pariahs?

Groups often bring on their own stereotypes. Many of you seem to have no problem attacking blacks as a group due to gansta rap culture. I hear comments to that effect all the time. So why is criticizing Jewish influence in the financial world so rabidly and automatically attacked?

Anonymous said...

"4:46....oh so now it's 30% in real terms is it? What happened to 70% nominal predictions of just a few months ago?

Man you losers sure change your tune quickly."

Dear anonypuss:

First, get a name.

Second, different people on this board predict different things. There is no official HP forecast.

What were you predicting a few months ago? I bet you were calling bottom.

Cease your idiocy! I must now fight Rodan!

Anonymous said...


Groups often bring on their own stereotypes. Many of you seem to have no problem attacking blacks as a group due to gansta rap culture. I hear comments to that effect all the time. So why is criticizing Jewish influence in the financial world so rabidly and automatically attacked?


Very Powerful statement! With a great question.

Let me comment regarding the attacks on Blacks. Every stereotype has it's truths. Blacks like any other group are no different. I think we are easy targets due to our history here in the US. and prevailing racism in this country. I also feel that most people on this blog assume there are no blacks that read this blog or very few. This may or may not true, but let me tell you...we're here.

I often read the racist comments, but rarely let it bother me because at the end of the day the only color that mattered when it came to this housing debacle was green, and I feel this blog is all about information, education, and saving the fellow man from financial ruin. I think we all should sit back and reflect on our inner selves and be the best people we can be. Let me tell you over the next 5-10 years you all are going to be very suprised who moves in next door and down the street.

Kieth, I don't know what race you are or care. But I myself and most others here appreciate what you are doing and have done on your Blog!



Anonymous said...

September 20, 3:45 p.m., asks "Why" is it inappropriate to criticize "Jews" for their supposed mismanagement of U.S. monetary policy. After all, or she asserts, "Jews" are over-represented in senior positions at the Fed and elsewhere. RayNLA dignifies the libel by noting that this is a "powerful" question. Horse manure!

The answer to the question, "Why," is because the RACE AND RELIGION OF THE FED CHAIRMAN OUGHT TO BE AND ARE WHOLLY IRRELEVANT TO MONETARY POLICY ESTABLISHED BY THE FED. It suffices that he is a United States citizen.

Reminds me of the same scumbags who suggest that "Jews" got Christians to fight in Iraq for Israel. Rationale is that a "Jew" was a deputy secretary of one agency or an undersecretary of another agency. Duh! Fact that neither the President, the Secretary of Defense, the Secretary of State nor the National Security Advisor were Jewish doesn't mean jack to them. It's those darn "Jews."

Would the Fed's decision have been any less or more correct had the Fed chairman been a Christian and/or an African-American?

Want a "powerful question" RayNLA? Here's one: Why doesn't anyone mention Cheney's religion? or Rumsfeld's religion? or Condoleesa Rice's religion? You're as much a racist and an anti-semite as the original poster was.

Anonymous said...

The reason Jews attract attention and criticism when they fill positions of power is that they have such a strong identity that goes beyond religion to nationality. If Israel wasn't such a dependent allie, if the Jewish lobby wasn't so visible and powerful, if the religion wasn't so intimiately tied to a country that is constantly involved in conflict, perhaps their religion wouldn't matter so much.

Seems to me being a muslim matters these days in a big way. Why should jews be any different when their religion is so upfront?

Anonymous said...

Dear September 21, 8:02 p.m., you ask why shouldn't the "Jews" religion be fair game, since "Jews" are so "up front," about it. The reason, you scumbag, is because neither Alan Greenspan nor Ben Bernanke's policies have anything to do with their being Jewish. Moreover, I do not remember either Mr. Greenspan or Mr. Bernanke having made mention of their religion in any public policy pronouncements. Muslims, on the other hand, are directly linked, by their violent Islamo-fascist religious ideologies, to the terror that now threatens the civilized world.

In sum, the only reason that religion has been introduced into the Fed policy debate is because garbage such as you choose to look behind the headlines and policy statement into the private lives of the Fed chairmen. When you conveniently discover that they are "Jews," you then insinuate their religion into the global conspiracy theory that you hold dear.