Jim Kochakian

What a difference a week makes with respect mortgages rates. In my 20 years in the mortgage business I have never seen a period like this filled with uncertainty and volatility. At the beginning of this year mortgage rates dropped significantly due to uncertaintly with the financial markets. A 30 year fixed was under 5.5% with 0 points. This only lasted a couple of days and then rates started going up from there to over 6.5% in a months time. This was due to the perceived higher risk associated with mortgage backed securities. A couple of weeks ago rates dropped significantly due the news that the government was taking over Fannie Mae and Freddie Mac. Now that the government was backing the mortgage backed securities from Fannie and Freddie ,there was less perceived risk, therefore lower rates. They were back in the mid to high 5 range and everyone in the mortgage business was excited because this could this jump start the home buying market or help people refinance. Just a week later rates went up. This time it was the news of a government bail out which caused investors to take money out of bonds and put back into the stock market. Now rates are over 6% again. Here is my advice, next time rates drop lock it in. If your mortgage professional calls you with an opportunity to refinance please consider it and don't wait. If you are buying a home and the rate drops down, lock it in. Rates move very quickly. Our natural instinct is to wait for more of a drop. Maybe you heard on the news that the Fed might lower rates or some talking head said mortgage rates may drop. The Fed moves are not directly tied to long term or mortgage rates and your mortgage professional knows more about rates than some person talking on CNBC. Stick to the advice of people close to you.

PART II

As far as this government bailout is concerned, I can understand the outrage from the tax payers. As a tax payer and a mortgage professional I am appalled at what is going on and what has happened to our industry. Starting with greedy hedge fund managers with politicians in their pocket fueling the supply of sub prime paper ,to the Wall street firms that made billions off this junk paper. The name of the game was selling the paper as fast as you can so you don't get caught when the music stops. Well the music has stopped and several don't have a chair. What about the mortgage broker making 5 points on a sub prime loan with no regard for the borrower. Or the borrower that just went along, with the intent that they would just sell the property when the value went up. The values will never go down they just go up forever? The government just watching it all happen and turning a blind eye because of the power of the lobbyist. Fannie and Freddie paid millions to lobbyist to keep the train rolling. There were great programs for 1st time buyers offered by Fannie Mae and Freddie Mac and ALTA programs for those challenging financing situations. All were abused in the name of greed. All checks and balances were swept aside. Telemarketers selling loans programs, unlicensed loan brokers, no regulations,quick buck artists and a waive of real estate speculators. There are so many to blame up and down the line for this mess. Well at this time, blame will do nothing for we are all now knee deep in it. We are in the thick of it and we have to do something. Is this bail out the answer? only time will tell. You can dial all you want to your congressman but it won't do any good. This bill is going to happen especially since this is an election year. I feel that if nothing is done, there will be further dire consequence. This sub prime mess (sub prime meaning giving loans to people that have no money, bad credit and no means to pay the loan back) has caused so much damage to our financial system and threatens to cause a seizure to the system. Something has to be done. The government bailed out AIG insurance last week. You should know that it is not really a bail out. The government gave AIG a 85 billion dollar loan. In return the US Govt will own 80% of that company and the loan will allow AIG more time to sell some of their assets and get back on their feet. Hey that 85 billion come from us the taxpayers, so how about sending us some AIG stock. This is not a socialist country (at least not yet) so we should all share in this investment. Hey, AIG might be $80 per share 10 years from now. How about this huge gov't bailout of 700 billion. What they are doing with this 700 billion is buying sub prime mortgages for 30 cents on the dollar. The government is now the bank and servicer of those mortgages. As example the govt will take over some ones 100,000 mortgage but are only paying 30,000 for it. If the borrower continues to pay the gov't will make money in interest payments. If they don't pay the mortgage the gov't can forclose and they will own a home for just 30,000. Either way the US gov't could make out pretty well financially with a huge profit. The lenders who hold these mortgages just want to dump them at all costs because they don't have the financial capacity to hold the paper. So this will help many banks with liquidity and prevent them from going under and that is good for all of us. The gov't will also control these mortgages so maybe they will modify them (rate,term balance) in order to prevent homeowners form losing their home. There are positives that will come out of this but again what is in it for us. The average tax payer is collectively making an investment in the sub prime mortgage market. We now own the paper since it is our tax dollars being used to buy these mortgages. Will we get a check from the government ? or a tax break if this turns out to be profitable? We should get something because we play by the rules and have to pay for those who do not. ALso, all this goverment control is not good as a formal practice.

Lets all hope this works and this market gets back to normal. We should all learn a lesson from this. Put people first, not money. Save money to buy a home and don't live beyond your means. Take care of your credit and think of home ownership as a privilege not something that should be given to you. In this country we all want things right away whether it be a home or wealth. Get to work and earn it and you will feel better about yourself and we will get this country back on track.

Jim Kochakian

Monday September 22,2008