Real Estate Insights

“If you are not already aware of it, we (the US economy) are in the midst of a mortgage “liquidity crisis” and “credit crunch”. This is for ALL mortgage products, not just sub-prime or alt-a. We are seeing the credit markets now panic, on all mortgage debt, meaning all home loans are NOT moving through the financial systems of the US or world economy. These loans are not being purchased by investors, so the pool of money available for these loans HAS dried up!

To be honest, I think the press has not even caught up with what is really going on as I type this email. Basically, the once considered bottomless pools of investor money have now been shut off to the entire mortgage industry, and the only loans funding are loans coming from a temporary liquid sources such as a bank balance sheet or portfolio(like Washington Mutual and Downey Savings), or a lender with a credit facility still open, etc.

This form of short term liquidity actually only has very short term life, even for the largest of banks. If Washington Mutual for example has a 300 Billion balance sheet, believe it or not, it has liquidity constraints as well. Funding 40 Billion per month pipeline can add up really fast. Even worse if you are say a 30 Billion bank-like Indy Mac or a 50 Billion bank like Countrywide funding 40-50B per month.

So I guess the question on top of everyone's mind is what does this mean to me? This is what I would expect over the next few days, weeks, and possibly months:

Pricing and interest rates- Pricing and interest rates will be going up for all loans. This will be an industry issue not a company specific issue. Some of this pricing may seem amazing as far as how much it might go up. Lenders are not increasing pricing because there costs are going up. Lenders will be purposely raising rates and pricing to slow loan origination production down (to keep funds available for mortgages – but only for the least risky of borrowers).

Credit- Credit will be tightening across the board in the industry. Again credit may be tightened not because of loan performance, but because if lenders have only so much access to funds, they may only want to fund the best quality loans to help decrease the possibility of mortgage defaults.

Small Lenders- The smaller lenders or non-banks will simply have no funds to fund loans as their prior practice was to fund loans on credit, called warehouse lines, and then sell them to investors on the secondary market – which is now practically non-existent. Because these lenders can no longer fund loans many have gone out of business and many more will continue to bite the dust. This could actually create a "run" at the banks for funds.”

The above statement was taken from an e-mail sent from an executive in Washington Mutual to all his contacts letting them know the impact the current state of the economy is having on the housing industry and how this may affect not only his employees, but also their mortgage brokers and even their customers. By no means is the impact going to cause a sudden panic as it may be interpreted above, but we are potentially facing a very large problem if we, home owners, continue to stay complacent and do not act on the warning signs. If you are facing a possible rate increase because your fixed mortgage is coming adjustable, or if you are just unsure of your home financing situation, please do not hesitate to contact me for a free consultation. Please take me up on the offer so I can help you prepare a plan of action while there are still some mortgage funds available to help you out of your current adjustable.