Wii the secondary market dry up?

This past Sunday's business section of the NYTimes had an article by Gretchen Morgenson, "Will Other Mortgage Dominoes Fall?" Interesting piece...she is a good writer who seems to get it. Basically, there is a fear that the issues facing subprime lenders may spread to Alt A, and eventually to the MBS marketplace that gobbles up loans and packages them to investors. The real question is how much of an effect will issues in the Alt A marketplace have on the economy...will default rates hurt investors? Many argues that the traunches that make up these investment vehicles are diversified enough that a higher default rate is not that big of a deal....though Morgenson's piece would beg to differ. Just as important of a question in my humble opinion is: what is going to happen to all of the folks who are legitimate Alt A borrowers...ie, self-employed, or those w/ varying incomes? If the Alt A marketplace dries up, many people who benefited from these loans, and who did not miss payments, are going to have no where to go when they are ready to buy their next property....that's when the real ripple will be felt...Many Alt A borrowers are big income types, who get the pros of an interest only or neg am loan...if they can't find the right loan product, they may not purchase their next property...too bad if we end up throwing the baby out w/ the bath water...

Stock prices of mortgage lenders take a hit....

The stock prices of mortgage lenders and banks that generate a big chunk of their profits from lending took a big hit today. Both HSBC (which does Alt A lending through their De scion 1 unit) and NewCentury ( a very large subprime player) got whalloped today. Why? Because it is getting much tougher for clients w/ poor credit and little equity to refinance once there initial fixed rate period is over. Lenders are raising the bar to get these loans done because Wall Street has less of an appetite for the increased risk that these types of loans now carry.

I fear that the default rates will get much worse before they begin to get better....right now I am glad that we are brokers and not bankers... I would not want too many of these deals on our books!!

Check out the article on Bloomberg for more info.
http://www.bloomberg.com/apps/news?pid=email_en&refer=us&sid=a3ztUp9Z6_UE

Is the Fed Done?

Looks like the boys of the Fed Reserve Board may be done for awhile (well at least raising rates). Seems like the markets are in good shape, U.S. payrolls increased at a healthy pace last month after closing 2006 on a very strong note, while the jobless rate ticked slightly higher and wage growth slowed, suggesting the favorable mix of solid economic growth and low inflation continued into 2007 (according to wsj.com) ....we have survived a wild ride in the crude markets (as well as an attack of Boston by Comedy Central), and soon enough, it's going to be election season...and you know that the Fed does not like to ticker too much w/ the economy when the politicians are out stumping.... so maybe 2007 will see few to no rate changes.

So what does this mean for the mortgage markets you might ask? My guess is that rates will stay in a pretty tight range. I think conforming (good credit, under $417K) should remain in the low 6s, while jumbos will trade slightly higher. Sub prime, on the other hand, is a different matter. Wall Street seems to have lost its appetite for the low end of the subprime market, and as such, it is now very hard for to find a home for the bottom tier sub prime stuff. The folks with the very low FICO scores and the very high loan to values are feeling real pain when their current adjustable loans re- set. The rates that they will have to pay are well above their initial start rates, and no new lenders are willing to extend them credit. These are the people who are going into foreclosure.....If they are smart, they will sell their homes at what ever their local market while allow, cash out their equity, and rent for a while. We see too many people who are frozen in disbelief, and take no action, and by the time their home is foreclosed on, they have give up any chance of at least walking away with a couple of $$ in their pockets. All part of the cycle, I suppose.....