Mortgage Rate News

Even as Lehman Brothers files for bankruptcy, Bank of America has turned its sights on Merrill Lynch, buying it out for close to $50 billion. Bank of America has, indeed, created a reputation for itself as a kind of savior, especially since its earlier acquisition of embattled mortgage lender Countrywide.

And now Bank of America is hauling an investment bank out of the fire. The offer, however, is already down to $24.63 from the original $29 a share offer it made. Of course, as one might guess, Bank of America stock is down a bit this morning. The question is whether or not BoA can absorb the losses that Merrill is seeing due to its riskier CDS and real estate investments.

Mortgage lending and the current crisis

This current crisis amongst investment banks can’t be good for would-be mortgage borrowers. This is because it is quite evident that liquidity is going to suffer. Banks will be less willing to lend money to each other, and that means that they are going to be even more reluctant to lend money to the likes of “regular folks” like you and me. So chances are that the mortgage market (and the housing market) is about to get tighter.

Indeed, mortgage lenders, to make up for their extremely lax standards that led to this crisis, are now tightening things — probably too far. And with investment banks failing left and right, it is no surprise that  capital is getting harder and harder to find. So it also means that you will have an even harder time getting a home mortgage loan. Before you apply for a mortgage loan, make sure your ducks are in a row, because you will need:

• Good credit.
• A down payment of anywhere between 5% and 20%.
• A desire for a less expensive house.
• Documented income.

Tags: Bank of America, Merrill Lynch, home mortgage loan, home loan,
Lehman Brothers, mortgage lenders, mortgage market

It’s finally happened. The U.S. government has acknowledged the inevitable and called the executives of Fannie Mae and Freddie Mac in to let them know that the government will be taking them over.

This move, which is expected to be officially announced by Sunday, has been coming on for quite some time. Even with the new rules offered to Fannie Mae and Freddie Mac, giving them more flexibility, when the housing relief bill was passed a few weeks ago, have not been enough to save them. And now the government plans to put the two companies under conservatorship, reports the New York Times:

A conservatorship would operate much like a pre-packaged bankruptcy, similar to what smaller companies use to clean up their books and then emerge with stronger balance sheets. It would allow for uninterrupted operation of the companies, crucial players in the diminished mortgage market, where they are now responsible for nearly 70 percent of new loans.

Freddie Mac’s chief executive is actually under more scrutiny, since that company failed to raise less capital than Fannie Mae, and he has still pulled down  $38 million since 2003. (Hmmm…maybe if he didn’t make so much, more of it would have gone to help capitalize the company.) At any rate, here are two more features of a government conservatorship plan:

1. The boards of the companies would be replaced.
2. Shareholders would lose big time, as they would receive only nominal compensation for their shares.

The plan, though, is to rescue both government sponsored enterprises before things get as dire as they were as Bear Stearns collapsed. And the government also considers Fannie and Freddie as vital to keeping the mortgage market/housing market even somewhat solvent at this point — not to mention assuring foreign investors that they will back the companies up.

Tags: Fannie Mae, Freddie Mac, home mortgage loan, mortgage market,
housing market, Bear Stearns, government takeover

A lot has been said about subprime lending and the crash that resulted from shoddy lending practices to those with poor credit. But what about the next expected wave of mortgage loan defaults? The next mortgage market crash is expected to come thanks to Alt-A loans — loans that were made to people with good credit.

The New York Times offers some insight into how the next mortgage market crash may come about:

Defaults are likely to accelerate because many homeowners’ monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are “alt-A” loans, many of which were made to people with good credit scores without proof of their income or assets.

“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”

Indeed, it does appear that the confluence of economic slowdown and falling home values is likely to cause a real problem. As real wages fall, and prices rise due to inflation, more pressure is being put on household budgets. Add climbing unemployment numbers to the mix, and things could get ugly for those who could formerly afford their home mortgage loans. Where does the mortgage payment fit? After you pay the transportation costs to get you to your job? After you have bought food for your family? Or do you make sure your mortgage is paid and cut back everywhere else?

And, without the ability to refinance…well, you can see where things are headed on that front.

So, even though we appear to be recovering from the subprime lending crash, it may come just in time to feel the effects of the next mortgage market crash.

Tags: subprime lending crash, mortgage market crash, home mortgage loans, Alt-A loans,
unemployment numbers, refinance