A Sacramento mortgage lender's vision

It is with great sadness that I write that all CalHFA loan programs have been suspended. CalHFA (California Housing Finance Agency) is a state level organization that provides down payment assistance and special loans for low income families.  It has helped many of our clients buy homes where they never had the chance otherwise.

This happened because CalHFA has ran out of funds. No surprise, given the ailing health of the entire state's balance sheet...just a week or so ago I wrote that California is paying it's vendors in IOU's.  At this time we have no idea when funding will be restored. If you have a loan already in process, don't stress out, an exception is being made for previously registered CalHFA loans, they will all be funded.

This comes on the heels of other bad news such as the 100% down FHA program called ACCESS being canceled, also for lack of funds.

And just today I got the news that the much hyped FHA Secure program is expiring December 31st, and is not expected to be renewed. Are you KIDDING me???? FHA secure (besides a short sale) is the only federally-sponsored mortgage relief program that ACTUALLY WORKS. As it turns out, it doesn't even work that well (private market lenders were reluctant to offer it, and put many stipulations on it), but nonetheless it actually did help some people.

The government needs to pull their collective heads out of their assets and put some actual, sensible, mortgage relief programs together, backed by effective legislation, serious financial support and FORCED cooperation with the private sector. Until this happens, the collective ship will continue to sink. Meanwhile, the loan modification sector continues to experience exponential growth. More on that later.

In closing, due to a technical failure on our hosting provider's end(non-editable blog landing page), we will now be promoting the SacBee Real estate blog every third post on this blog using the image link below, and removing it from our site's footer. We feel this is much more effective means of reaching our blog readers. Check it out!

Yields on two-, five-, 10- and 30-year U.S. government debt touched the lowest levels since the Treasury began regular sales of the securities as the Fed signaled they will keep interest rates low for “some time.” This occured as the Fed cut it's benchmark rate to near zero, to .25%. Clearly, that last .25% is being kept up the sleeve.  It is important to note that Treasury bond performace is reacting to the motive of the Fed, rather than the actual cut itself. In other words, the market is much more concerned that the Fed believed the economy warranted such a cut.  As with all fed changes of this nature, this latest cut will take 3-6 months to impact the economy.

Of troubling (but hardly unexpected) nature, The Federal Reserve is open to the idea of buying lower-rated securities to ease the credit crunch, and plans to discuss possible strategies with President-elect Barack Obama’s Treasury. Actions of this nature are a last resort and are being used because now the Fed has nearly lost their #1 policy making tool, rates.  However, in times of questionable valuation of almost all securitized assets, (and seeing that current Treasury purchases of securities is bad enough) how can the Fed now take "B" paper? But we're fortunate that we are even hearing about it, given Sec Treas Henry Paulson continued refusal to disclose where, how and what is happening. I have an idea, lets just wrap all banks and assets into one giant Federal megabank...what could go wrong?

Treasury bonds hit a new record low this week as the economy continues to tailspin. On center stage is the automaker situation...the Senate rejected the proposed bailout yesterday but the Bush administration said later it still wants to help. The only alternative is bankruptcy, which would normally be the only option. Funds from the TARP program are looking like the solution as automakers won a temporary reprieve today.

A proposition for a "clearinghouse" is now on the table. This entity is part of federal efforts to impose oversight of the $31 trillion credit-default swap market after the contracts contributed to this year’s demise of Lehman Brothers Holdings Inc. and the U.S. takeover of American International Group Inc. Credit default swaps are an interesting financial tool- essentially an insurance policy for debt, they get paid out if the insured debt(usually a security) defaults. This purpose was overshadowed by mass speculation.  For every rotten security containing suprime mortgages, there is some of these waiting to unwind. The clearinghouse is a good idea as it would allow more of these financial liabilities to reach "market price" and be a way for banks to unload their balance sheets. How it actually plays out is anyone's guess.

The crisis is wrecking it's way through the third world as well, with today Ecuador defaulting on $510 million in foreign money bonds.

In closing, something you should be upset about is the continued refusal of the US Treasury to disclose the recipients of the 2.0 Trillion it lent out under "emergency conditions" using the power of the Bailout passed a little while ago. This nondisclosure is in violation of the Freedom of Information Act.

• “If they told us what they held, we would know the potential losses that the government may take and that’s what they don’t want us to know,” said Carlos Mendez, a senior managing director at New York-based ICP Capital LLC, which oversees $22 billion in assets.

Under pressure to create a bailout which will actually produce jobs, Obama announced the Largest Building Program Since 1950s to among other things modernize hospitals. This new bailout, estimated to be within $500-$700 billion should hit immediately upon Obama entering office. This of course is shades of FDR, who combated the great depression with the "alphabet soup" of social engineering programs putting workers on federal jobs improving the community. While of course socialist in nature, nobody seems to have a better idea.

In other news, Congress will now consider the Automaker Bailout next week. The big 3 have asked for up to $25 billion in bailout funds stating that they are close to failure.  Some view the situation as bleak: with or without the bailout the automakers are doomed: their current pain is due to a sharply softening economy which a bandaid bailout will not repair.

• Representative Gary Ackerman, a New York Democrat who faulted the executives for their private-jet use two weeks ago, said the scrutiny the automakers face was due to the rescue package Congress previously approved for the financial industry. “We’ve given away almost $1 trillion in taxpayer money with what we thought were some strings attached” in that plan, Ackerman told the auto chiefs. “You face the fury around here with the American public of having really no accountability for any of that money.”

Great.

You may have heard that recently rates dropped considerably. It's true, the National Average of 30 year fixed interest rates has dropped to 5.65 from 6.03 one month ago. Though the European Central Bank dropped it's rates 75 basis points (a historic first in it's ten year history) and many other countries followed suit, this was not the cause of lowered interest rates. No, as the bonds report, this was due to continued concerns on economic slowdown and also the federal rescue of Citibank a little while ago. The 3, 6 and 12 month maturity T-Bills are all zero coupon and almost no yield. This means anyone purchasing them is virtually guaranteed no profit except in the case of currency deflation. Tbill yields hit new record low.

California will now pay it's creditors in IOU's (yes, you read that correctly). But never fear, the US dollar is gaining on it's appeal as a "safe currency". Meanwhile, hedge funds fell 1.41 percent in November, a record sixth straight monthly decline, on losses by managers focused on emerging markets and equities. Hedge funds are traditionally highly leveraged into risky (but lucrative investments). Incidentally they were a huge source of funding for the subprime securities market, but I digress.  Anyway, this slowing economy that is killing commodities prices such as oil and gas(you know you're loving gas prices right now) is by proxy killing underdeveloped nations such as Venezuela whose economies depend on these commodities prices.