Posts filed under “Credit”

Treasury Plan to Freeze Mortgage Rates

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"More than 30 percent of borrowers with subprime adjustable-
rate mortgages are behind on their payments before their loans
reset at a higher rate, according to estimates from analysts at
Credit Suisse Group. The bank projects 775,000 homes with $143
billion of mortgage debt will go into foreclosure in the next
two years."

-Bloomberg

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Subprime_cHence, the political and economic motivation for doing something — anything — rather than look like they are just sitting there.

Which leads us to the just announced "rescue" plan. While it isn’t exactly binding, it does have the support of "major investors." I assume this refers to the various banks, brokerages and funds that own the increasingly worth less and less (though not "worthless") paper.

The terms of the plan applies to "loans originated between Jan. 1, 2005, and July 31,
2007, that reset between Jan. 1, 2008, and July 31, 2010." According to the WSJ, the Office of
Thrift Supervision Director John Reich said that "the plan
could help "tens of thousands" of homeowners."

Tens of thousands? The subprime foreclosure forecast for 2008-09 is over 3/4 of a million homes.

The WSJ asked readers, Do you support the Treasury’s plan to freeze rates on some mortgages? Their answer was quite similar to mine:

Ratesfreezemortgage

I am not sure why the rest of the crowd voted no, but I can tell you my reasons: This plan does nothing to address the issues which led to the snafu in the first place:

• The FOMC, who took rates down to historic lows, and left them there for a year;

• Ratings agencies, (not unlike the equity scandal of the 1990s) were in cahoots with underwriters, to the detriment of investors;

• The Federal Reserve, in their capacity of over-seers of the Banking industry, failed to supervise the rampant issuance of irresponsible debt;

I am sure you can think of additional reasons as to why this is unlikely to have a major impact. (Use the comments for this).

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Sources:
U.S. Mortgage Delinquencies Rise to 20-Year High
Kathleen M. Howley
Bloomberg, Dec. 6 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aalYt3UzOuLU&

Bush and Paulson Unveil Plan To Aid Struggling Homeowners
DAMIAN PALETTA, AMY CHOZICK and JOHN D. MCKINNON
WSJ, December 6, 2007 2:44 p.m.
http://online.wsj.com/article/SB119696216000715924.html

Question of the Day
Do you support the Treasury’s plan to freeze rates on some mortgages?   
WSJ.com Forums, Thu Dec 06, 2007 2:28 pm      

http://forums.wsj.com/viewtopic.php?t=1035

Category: Credit, Derivatives, Economy, Psychology, Real Estate, Taxes and Policy

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Inflation? What Inflation?

A tale of two headlines:

Inflation Fears Hit Eurozone

          and

Goldman Sees Funds Rate Cut to 3%

Won’t someone please explain this to me?

How is it possible that the regions of the world with strong currencies — like Europe, U.K., Australia, and Canada — are having inflation problems. And yet at the same time, the nation having a record low currency — i.e., the United States and our Dollar — doesn’t seem to either inflationary pressures (At least according to official CPI data). And we seem to have little concern about further currency induced price increases.

Am I the only person who finds this incongruent?

If Goldman Sachs is correct, and the Fed does eventually cut rates to 3% — what might that mean for various dollar priced commodities like Oil & Gold?

Probably very little — if (and this is a big IF) we are in the throes of a recession. But what if the Bulls are right, and this is merely a mild mid cycle correction?

A 3% Fed rate could mean Oil at $150 and Gold at $1200.

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Excerpts after the jump . . .


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Sources:

Inflation fears hit eurozone

By Ralph Atkins in Frankfurt and Krishna Guha in Washington
FT, November 27 2007 18:02

http://www.ft.com/cms/s/0/55ff8ca6-9d10-11dc-af03-0000779fd2ac.html

Goldman Sees Funds Rate Cut to 3%
Greg Ip
WSJ, November 27, 2007, 9:26 am
http://blogs.wsj.com/economics/2007/11/27/goldman-sees-funds-rate-cut-to-3/

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