According to the Chronicle Staff Writer James of the SFGATE.com GOP is flagging resistance to increasing the conforming Loan Limits that allow FannieMae, and FreddieMac to purchase loans above the $417,000 treshold.
Unfortunately, a handful of Senators that don't realize that a combination of events have literally killed economic growth for Calirornia and the nation and it will get worst unless they raise the conforming loan limits now. We don't have the luxury of time to wait. How many people have to lose their homes, jobs and any kind of stability before actions is taken to get the country moving forward.
What some government officials don't realize is that the laws they create or delay taking action on, ultimatly can and will affect us one way or another. Most politicians don't seem to realize that not everyone who has a mortgage is in trouble.
Take for an example, 70% of the mortgages made are not necessarily first time buyers, quite a few of thoses trying to get a mortgage are existing home owners, who are trading up to buy a larger home for their famiilies or baby boomers downsizing to move into much more manageable smaller homes, or they are trying to refinancing for some reason or another. (Send their kids to college, pay bills, investments, get a better rate to lower their monthly payments, etc.)
Only a small percentage of home buyers buy a home less than the conforming loan limits, especially in places like California, New York and Massacusettes to name a few, where the average medium home price far exceeds the Conforming Loan Limits. there are approximently 30% of the population are renters, on average only 6% of those renters convert to home ownership, the remaining 24% will never own a home unless they inheiret it, or win the lottery.
All of the mortgages made are not in default. Most lenders on average have a 3% to 5% delinquentcy rate that sometimes end up a foreclosure on a normal basis, due to many reasons, loss of employment, divorce, loss of a spouse's income , medical bills, death, job transfer, and yes, some loans that shouldn't have been made, but that's not totally the reasons why we are having financial calmity.
One of the reasons why we are in our financial mess is that the secondary market has not been allowed to relieve the pressure that many lenders are faced with today, liquidity.
Some lenders have assets that are performing as scheduled, and some have not done quite as well, and some that have assets being foreclosed on, which are non producing assets. When lenders don't have the ability to sell their loans (MBS) on the secondary good or bad, they are caught up in a situation, they can't sell, they can't loan, they can only borrow into more debt, like Countrywide did back in August 2008 from Bank of America, which ultimately is, was or could be the end of Countrywide, with Bank of America standing in the wings to pluck the remaining assets, consolidate and put more people out of work.
When the secondary market and the monitary policy act in unison, the flow of money keeps the money supply moving in the right direction.(Buying and Selling, like a revolving door)......
Just like the air in a balloon, if you don't relieve the air pressure that keeps building up in the balloon, eventually at some point it's going to pop. A lender who can't sell their loans on the secondary market, is force to somehow liquidate those assets, good and bad just to survive long enough, before the government officials gets off their (#?#$?) to do something. (That's why we are seeing so many lenders opting to do a short sale to salvage cash too keep them afloat).
The Secondary market is much like an overdraft protection to a consumer, when funds start to deplete to a certain level and a need for more capital to lend out is necessary, the Primary market (Lenders) will often Sell a block of loans called Mortgage Backed Securities (MBS) at a discount to FannieMae, and FreddieMac. These Mortgage Backed Securities are a combination of performing and non performing assets.
The Secondary market, which means FannieMae and FreddieMac Buys these MBS. These two institutions also Sells these MBS to investment pools on wall street. The secondary market acts much like a broker, they get paid for Buying and Selling. This sustem works well when the flow of money keeps revolving, that's also why the Federal Reserve System also has so much leverage on the flow of money with their two key interest rates the Federal Funds Rate and the Discount Rate.
The Biggest Problem occurred, and no one saw it coming, subprime loans, with an over zealous Wall Street, along with the Mortgage market credit crunch meltdown, couple that with the Federal Reserve raising short term interest rates (Federal Funds) for 17 long continuious months of increases of a .25% basis points.
The results, of these interest rate hikes, were slow in nature, starting in 2004, the real estate market continued to trive, 2005 was a banner year, the rate hikes continued, slowly chipping away as the rate of appreciation slowed to a crawl in 2006, asking prices of homes began to drop, as the demand began to dry up, consummer confidence withered with an over zelious news media, grabing as many headlines to gather media attention to ultimately sell their advertising message, like a feeding frenzie, this provoked many political leaders to jump on the bandwagon, without looking at the underlying problem.
As property values started to decline, we were on a direct collision course with the Home Equity Lines of Credit (HELOC). These 100% type financing had two loans, an 80% 1st Loan and a 20% 2nd loan, because of the 20% 2nd loan, there was no requirement to have mortage insurance. The other part of this equastion leading us into a fast moving freight train is that when the loan is scheduled for recasting or resets, that's when the deferred interest reaches a 115% of the original loan balance, the mortgage is reamortized at the remaining balance plus any deferred interest, and usually at an adjustable interest rate based on the most commonly volitle Libor Rate, and ooften at a substancially higher monthly payment.
This is a perscrition for disaster, not only for the 3% to 6% directly affected with this type of loans, the entire system is currently bottleneck. While those politicians are still trying to debate what to do, it a break down of the system. The breakdown is this, The Conforming Loan Limiits need to be raised that will allow the flow of money to circulate the way the system is set up to do.
With the conforming loan limits at current levels of $417,000, the people who want to buy, sell, move up, move down or refinance can't. Can't Can't Can't.
20 hours ago, the GOP have expressed opposition to the raising of the conforming loan limits. This is out right stupitity on our elected leaders, they are not clearly looking at all the damage that has been done or what further damages that rest with the outcome. The dollars, will drop like a bomb, it's already taken a beating against other currencies, this is sheer political bull, that makes no sense?
Any attempts by the federal reserve to have lowered interest rates will all have been in vein. I don't side whether you are a Democrat or Republican, which side or philosophy you have, We are all Americans, and deserve to have a government that's for it's people. A hand full of United States Senators, are keeping the Country from moving forward. Bankrupting the entire economy, doesn't make a lot of sense, doesn't it?
My name is Carlos R. Arvizu Sr
562-755-3856
