December 30, 2008

In my last email to you I detailed the interest scenario and banks holding the "bail out" money they received to bolster their balance sheets. Let me add here that the reason again is the year end accounting on December 31st. This is when the banks balance sheets are completed. Those balance sheets will be then presented to the rating agencies for the bank's credit ratings. If the banks can maintain or raise their credit ratings the cost of money in the open market place for their borrowings will be the same or lower. If their ratings drop the costs will be higher. Therefore, it is imperative that the money they have obtained from TARP will be in high grade securities, US GOVERNMENT BONDS. That is why we have 0% on TBIlls and less than 3% on 30 year TBonds.

Whereto from here? How do we get out of the basement? The answer is, ONE STEP AT A TIME!

Let me take that one step at a time, first inflation. We have no inflation at the moment and the BIG FEAR is deflation. Let's face it we want inflation, with inflation we have jobs, the economy booms and home prices increase; along with stock prices booming. Look at your retirement account, would it not be better to see you are up 5% than down 40%? What a foolish question, reality is the FED became so entranced on Inflation, it forgot that inflation benefits everyone. Deflation hurts everyone. As much as I like $1.69 for a gallon of gas, I would prefer to see home prices move up and the economy growing. Would you not feel the same?

Liquidity is the next step. We all know that the media says that mortgage are hard to come by and liquefy has compacted? That is where the 0% is very important. With 0% how can a bank earn money? The banks paying are interest in the form of interest to the US Treasury for the bail out funds, the interest they pay on passbooks, and certificate of deposits? That is why the FED wants bonds so low, the banks are forced to get competitive and use the bail out $$$. If not, investors go to CD's. Money market funds will not survive with 0% TBIlls. Who will invest in them? Where do they go? CD's, short term insured commercial paper. What happens with that money that goes into CD's? Will the banks buy more 0% TBIlls? Are you serious? Pay interest out and get nothing back. How long can you keep a business going that way? At some point mortgages become available for securitization. The banks cannot get greedy, because at the same time the FED is buying bonds in the market place driving interest rates down. The more money tat is in circulation we have inflation, another step out of the basement.

Great rates in mortgages are the next step. Do you remember ARM"S (adjustable rate mortgages) and the reset problem? It was not too long ago the Media spoke about the risk and how those ARMs were going to have double digit rates. Well, I have not heard one word from the media about the reset problem. Why? BECAUSE IT IS NOT A PROBLEM! Good News is not worth selling! It is sunny today and sunny tomorrow, why listen to the weather? Back to the ARM. A majority were 1 year LIBOR or 1 year Treasuries. 1 year Treasuries are .39%! 1 year LIBOR is 2.09%. ARMs with interest only tied to 1 month LIBOR are now at 1.75%! Is that a problem? HEY America wake up! Rates are down, mortgage payments are down and ARM's are adjusted to the new low rates. Doesn’t that sound like a great story for buying and investing?

Last week the emails I received from lenders and mortgage brokers all spoke of "We have money for Mortgages. Countywide has money, Wells has money, and Bank America has money. There is money for Jumbo loans up to $10 million!!!Countrywide on December 20, 2008

Jumbo's 1.5MM - 2.5MM 5.875 No points
Jumbo's 1.01MM - 1.5MM 5.625 No Points
Jumbo's 625k - 999K 5.875 No Points
Conf loans up to 60k - 417k 4.875 with no points
Conf loans up to 417k-625k 5% With no points

Time to get your buying hat on!

I hope you enjoy my comments. I think it is something I bring to my clients with my experience, knowledge and Wharton Certification that most other Realtors cannot bring. You referrals are always welcomed and appreciated; as well as, your comments.