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Phase 2 of the Real Bailoutâ„¢ is here


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2008 Feb 27, 2:33am   26,933 views  273 comments

by HARM   ➕follow (0)   💰tip   ignore  

Fannie Mae, Freddie Mac Portfolio Caps Will Be Lifted (Update2)

Phase 1 : Congress raised the GSE (Fannie and Freddie) conforming loan limit from $417,000 to $729,000.

Phase 2 : Congress instructs the OFHEO to lift portfolio caps on the GSEs (which were placed there because of GSE "accounting irregularities" and concerns about the GSE's size/share of market).

Next up...

Phase 3 : Eliminating all qualifying “standards” on the type of mortagages the GSEs can buy: allowing no-docs/NINJAs, neg-ams, I/Os, option ARMs and assorted hybrids.

Phase 4 : Congress making implicit GSE guarantees explicit, and taxpayers assuming/liquidating the portfolios of the soon-to-be bankrupt GSEs (RTC, part II)

Can’t happen, you say? Never say “never” where a bought-off "Socialize all losses" Con-gress and whining, clueless, bleating "why me?" sheeple are concerned.

HARM

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52   Malcolm   2008 Feb 27, 5:01am  

Yes, it is the purchase decision. As a seller you want interest rates to drop, then you can push the price higher for the next fool.

53   Malcolm   2008 Feb 27, 5:01am  

an inarguable

54   DinOR   2008 Feb 27, 5:14am  

I suppose one could also argue that cheap money (in and of itself) doesn't necessarily create value? Let's just look at lumber/bldg. mat. prices. At the height of the boom dimensional lumber went sky high. Why? Was it suddenly of better quality?

Yet the slightest uptick in rates and all of a sudden building suppliers were stuck with a pipeline of over-priced inventory. I guess one of the ways going forward we can determine if we're over-bidding on tulips is to simply take a step back and ask; "Is this demand truly needs driven (or propelled by access to too much cheap money?)"

Oh, that's what we've been doing here the last 3 years! My bad.

55   HeadSet   2008 Feb 27, 5:18am  

Cash would be A-ok for me: Unlike ~95% of the public, I actually *have* some.

A-OK for me also. If cash does become king, we may find out we have more savers than we think. Savers tend to put away cash quietly in contrast to the loud complaining of the debtors.

56   DinOR   2008 Feb 27, 5:22am  

Perhaps we should... ahem, amend Patrick's contribution ever so slightly?

In a n-o-r-m-a-l world you can't renogotiate the price of the home!

With all the "Mod-Squading", Don't 1099 me bro', Jumbo raising (rate lowering) "mortgage rescinding" and Cap Lifting going on I'll have to re-think my position? :(

57   HARM   2008 Feb 27, 5:30am  

@DinOR, word.

How does the old saw go? "If you're going to do something stupid, do it with large numbers of other people."

58   Malcolm   2008 Feb 27, 5:31am  

DinOR, in 2004 I hit the 1 million mark in net worth and felt poor because everyone had access to cheap money. It was one of those flukey situations where everyone with a house thought they were Donald Trump and moved massive amounts of borrowed money around.

59   Malcolm   2008 Feb 27, 5:33am  

Next bubble coming, collector cars. Now instead of "What's my house worth?" the new show on is "What's my car worth?"

Guys, can we please stop the madness?

60   Peter P   2008 Feb 27, 5:34am  

“If you’re going to do something stupid, do it with large numbers of other people.

Yeah, that is a smart thing to do. ;)

61   Malcolm   2008 Feb 27, 5:35am  

I know, I collect Japanese swords so who am I to criticize, but man these boomers wasting all this effort to constantly count their pennies is really getting under my skin.

62   Malcolm   2008 Feb 27, 5:36am  

Why can't they just own something and enjoy it for what it is rather than only caring what they can flip it for?

63   Peter P   2008 Feb 27, 5:38am  

Can someone recommend a commodity futures broker with reasonable (NOT necessarily rock bottom) commissions and great customer service?

I want to hedge with gold options. GDX/XAU options just don't track GLD well. :(

Thanks.

64   Malcolm   2008 Feb 27, 5:41am  

Oh, this show is great. The guy told the boomer his car might be worth 18K not 22K and he started arguing with him. Just as I thought, the graph showed the price tripled in the last couple of years, right in line with the easy credit we're talking about. These boomers, I tell ya!

65   HeadSet   2008 Feb 27, 5:47am  

DinOR, in 2004 I hit the 1 million mark in net worth

Malcolm, that is very impressive for someone your age, assuming no inheritence. I would tend to discount equity in a principle residence, cars, and collectables when calculating net worth, since these are non-productive assets.

66   HARM   2008 Feb 27, 5:48am  

@Malcolm,

"A cynic [Boomer] is a man who knows the price of everything but the value of nothing."
--Oscar Wilde

67   EBGuy   2008 Feb 27, 5:48am  

The tax bill and assessor records actually do seperate the two and then track both. For an income property you use that figure to depreciate the structure.
Not to be overly attentive to details, but shouldn't you get an appraisal to assess the values of the building and land as "the man" tends to error on the side of allocating more to the non-depreciable asset (land). At least this is what I've read (Holmes Crouch book, I think). I suppose you have to weigh the overall benefit of the appraisal vs. its cost.
Euro broke $1.50 today; okay, I am starting to get worried.

68   Peter P   2008 Feb 27, 5:49am  

Oscar Wilde. Important of Being Earnest. Cucumber sandwiches. :)

69   DinOR   2008 Feb 27, 5:49am  

Malcom,

They already have such a show. (It's called the Barrett-Jackson Auto Auction) Happens every year in Y-O-U-R.... favorite town!

70   Malcolm   2008 Feb 27, 5:52am  

Yes, no inheritance and that WAS including the principle residence that has dropped by $100K. Take off about another $250K in taxes that I then paid in 05, and 06 and now I'm where I am. To be considered a true millionaire you would have to exclude your home as you say. You could always borrow against it, put the cash in the bank, and have the same net worth excluding your home and loan note. That is, if joining the millionaires list is really that important. To me it wasn't I was happy just to pay off my house.

71   DinOR   2008 Feb 27, 5:53am  

"and felt poor because everyone had access to cheap money"

And so did I.

I have a client that was frustrated his property loan didn't go through more quickly and I told him; "You should be rejoicing in this!" Having solid financials finally.... matter!

72   Malcolm   2008 Feb 27, 5:59am  

Harm, you slay me. I swear we got our sense of humor watching the same train wreck.

73   HeadSet   2008 Feb 27, 6:04am  

DinOr, Malcolm,

Access to cheap money does not equal wealth, you had nothing to feel "poor" about. Maybe you felt you were "underconsumers."

Never envy another man's debts.

74   FuzzyMath   2008 Feb 27, 6:05am  

Malcolm,

may I ask how old you are? It will save me an archive search...

75   Malcolm   2008 Feb 27, 6:09am  

It impacts what you can do. When every wannabe Trump is jumping on every bandwagon that you're on, the competition gets to where things (like investment real estate) stop making sense because a fool and his borrowed money especially, are easily parted. That's how you end up with houses valued at 3 times what the income stream says they are. In that respect you feel like you are in old Russia. You have money but no way to spend it properly and the interest rates are punishing if you want to save it. You have to take on more risk to gain the same rate of return, that's why I am so hopefull about the future now that credit is tight and cash is king again.

76   Malcolm   2008 Feb 27, 6:10am  

I am 36.

77   Peter P   2008 Feb 27, 6:15am  

You have money but no way to spend it properly and the interest rates are punishing if you want to save it.

What about gold and platinum coins/bars?

Not investment advice

78   Malcolm   2008 Feb 27, 6:18am  

I regret not buying more gold when I did, but I had a little fun with it. I did well, can't really complain.
Not having a mortgage is the equivilent of investing that money at about 8% very safely, so I'm happy.

79   HeadSet   2008 Feb 27, 6:20am  

What about gold and platinum coins/bars?

Speculative, ain't we? Some folks like investing in items that pay a return. Why are you trying to inflate another bubble? Just for that, I'm going to try to bid up the price of sushi.

80   HeadSet   2008 Feb 27, 6:22am  

Not having a mortgage is the equivilent of investing that money at about 8% very safely, so I’m happy.

Yep, like having your very own form of rent control.

81   Peter P   2008 Feb 27, 6:23am  

Speculative, ain’t we? Some folks like investing in items that pay a return.

I like investing in items that pay good *total* return.

82   Malcolm   2008 Feb 27, 6:25am  

I factored in an intuitive risk premium which is why I was conservative. I am definitely NOT a gambler or speculator. I currently make my living lending through commercial trust deeds. Some of the long time posters like DinOR know my activities in a little more detail since the subject has come up. I used to try to represent the investor's point of view on the threads where we talked about the roles of the servicers and what they can and can't do, and how mortgage pools work.

83   HARM   2008 Feb 27, 6:26am  

Buying gold and PMs when the Fed & Con-gress are trying to debase the USD like mad is "speculative"? Since when?

I agree that putting 100% of your savings/investment money into PMs is risky --as any undiversified investment is-- but having a small % as an inflation hedge hardly reflects a casino mindset. There are also plenty of other inflation-hedging plays out there: foreign currencies, oil/gas/commodity ETFs, etc.

84   Malcolm   2008 Feb 27, 6:29am  

I like buying into something with a tangible income stream where I can compare the rates of return and determine whether it is actually more than banking it. That's what I mean by everyone having access to cash sucks because you are then looking at a proposal where you get to invest money which should be called a subsidy since the return is so poor. Some of these deals look so ridiculous you have to put hundreds of thousands into them to just break even on a monthly basis. I then would say, why the hell would I do that, the response, "I know what you're saying but that's what these buildings are selling for." My biggest asset is that I have the discipline to say, thanks but no thanks, at leas the banks will pay me a real return.

85   Malcolm   2008 Feb 27, 6:30am  

least

86   Malcolm   2008 Feb 27, 6:31am  

The information I got from this site led me to buy gold when I did because I knew that was happening. Remember, gold had been very stable up until then, it was definitely a perceived risk. Very few things react logically in the marketplace, speculators and interests constantly throw it off kilter.

87   Peter P   2008 Feb 27, 6:35am  

RE: Foreign currencies

I have a feeling that other countries will too run into "issues" like ours and have to debase their currencies like crazy.

Of course, some currencies are safer than others.

Not investment advice.

88   Malcolm   2008 Feb 27, 6:36am  

That's my fear with gold now, is that it has surpassed the real decline in dollar valuation but it seems unstoppable probably because of these legitimate future concerns. Logically, an ounce of gold should always buy the same thing, now it buys a lot of the same thing. Real wealth has been created by gold ownership over the last few years. That welath is further amplified if you want to buy a house which is decreasing in price as your gold is increasing in dollar value. It's a nice position to be in, then again, houses are dropping much faster than the inflation tax on your saved dollars so it's kind of hard to screw up right now. All these sideline buyers IMO are doing exactly the right thing, nothing!

People make a recurring mistake which is they feel they always need to be doing something. Sometimes doing nothing is a very logical decision.

89   Peter P   2008 Feb 27, 6:39am  

Again, nobody should be married to his gold. Eventually, gold WILL become overpriced and a spectacular decline in gold price is in the future. For now, it looks interesting.

I swear to jump headfirst into the next financial orgy.

Disclaimer: I have position in gold and GLD.

Not investment advice

90   HeadSet   2008 Feb 27, 6:43am  

No offense intended, I just think buying a PM merely on the hope of price appreciation is a but speculative to ME.

Yes, the US gov looks like it is trying to devalue the dollar, but that fact is well known and may already be priced into today's gold. There is still a reasonable chance that gold and other PMs may fall in price.

I have paid off real estate that I think protects me against deflation or inflation. I am assuming we will get deflation in house prices, which is making my money in the bank more valuable to buy more real estate in the future. In the mean time, I am putting up with 3.5% to 6% returns (6% were long term CDs bought a couple years back). If we get rampant inflation that hits even house prices, I lose, and you PM folks win.

91   Peter P   2008 Feb 27, 6:46am  

No offense intended, I just think buying a PM merely on the hope of price appreciation is a but speculative to ME.

Why is speculation bad? Success is mostly about making the right decisions by taking calculated risks.

Real estate is one of the best investments most of the times. It just happens that these few years are the exceptions.

Not investment advice

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