Market Update
 Several issues ago I explained that one of the strategies the Federal Reserve is employing to shore up the economy is to buy Mortgage Back Securities (MBS) from Fannie Mae and Freddie Mac. An MBS is essentially a stock where the value of the stock is based on the income stream generated by a pool of mortgages. The point was supposed to be that by buying these securities and thereby pumping a huge amount of cash back into the secondary market (Fannie Mae and Freddie Mac buy loan pools from lenders) lenders would be able to start lending again because they would once again have a way to liquidate the money they have tied up in loans.
Since the inception of the MBS program the Fed has spent $905 Billion buying these securities (or about $4 Billion per day). They only have $345 Billion left to spend which at the current pace would take the program through the end of the first quarter of next year. But despite almost $1 Trillion of electrolytes to replenish a very depleted financial body, the lending market is still as tight as ever. Loans on condo conversions are virtually non-existent, sub-prime loans are non-existent, state income loans are non-existent and loans to "A" borrowers qualifying with full documentation take forever. An argument can be made that these are all healthy precautions. The point is just that when a market is built on the model of a buffet and the next day the only menu item is a baby green salad, people will experience some hunger pain.
Part of the reason I think lenders are still skittish about originating new loans is because the national unemployment rate has hit 9.8% and is still climbing. Hundreds of thousands of jobs are still being lost which translates into additional foreclosures. In a normal market when a bank forecloses it sells the property at a trustee sale recoups its money and then re-lends the money to a new borrower. But when property values have dropped 40%-50% and the typical loan-to-value was in excess of 80%, every wave of foreclosures means a new wave of massive losses to the financial industry. According to Foreclosure Radar, in August the average loss on loans that went to foreclosure sale was 39.5% of the original loan balance. In other words lenders are losing about $40,000 for every $100,000 they lent.
Overall the economy is slowly improving but it will be a while before that improvement is felt on Main Street.
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LOL - Laughs OnLine
"BBQ at my house. You bring the steaks, I'll get the shopping cart"
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What's the big idea?
"Best in Show" is a movie about the lives of five people preparing for a national dog show. It was made in 2000 but somehow I just got around to seeing it. Hysterical. But more than just funny, I think it helped me finally figure out something that has puzzled me for quite some time. If you are in a foreign country, say Brazil, and you walk into a restaurant where the waiter only speaks Portuguese you would not launch into a discussion in English about what you feel like having for dinner. Yet, dog lovers (and I am very fond of dogs) will have a full-blown conversation with their dog knowing that the dog has no idea what they are saying. Why is that? I realized as I was watching the dogs in this movie that it is because of the expression on a dog's face. See, if a person doesn't understand what you saying they will shrug their shoulders and give you a look that says "save your breath I have no idea what you are talking about". A dog on the other hand genuinely looks engaged. It's as if the dog is saying "I'm clueless as to what that means but boy it sure sounds interesting".
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Share If You Care
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Sincerely,
Kwame J. Granderson
Equinaire
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Wednesday, October 14, 7PM
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How to Market for Resale
Analyzing Your Profits
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