Analysing the impact of the Fed’s MBSs purchases

Believe me after going through a FHA loan app/pre-approval for investment property the Fed ain't lending any value to any mortgage backed securities through their facility. It is laughable to have over > 800 credit scores, more than ample income with very little outstanding debt to net worth, have a property cash flowing 1.35x PITI, and put down 50% of the purchase price with still enough cash to purchase the property 2x over in reserve, and still have to go through the worst f'n loan process I can remember in my life. The govt apparently doesn't want strong borrowers borrowing money any more than NINJA's these days, they have overcorrected so far it is not even funny. The process alone will limit mortgages available to package in the future.

first the FHA may go down to a 540 score but there is about 2 lenders out there that will do under a 620. Lenders rule trump FHA all day long when it comes to credit scores. i wish i could do 540 credit scores loans i would be rich!

I was speaking with a relative last night who is involved with a bank holdco with multiple branches. It is almost impossible to comprehend how very good, highly qualified applicants to which the bank would lend money and hold the loans on their books are not being approved under FHA or other govt sponsored programs. And then we discussed the FDIC pillaging of smaller banks that lent conservatively and are in strong shape that are now subsidizing the FDIC coverage of bad banks and having to pay 3-years "premiums" upfront, that wasn't a happy dialogue, either.

The appraiser who came out and is doing the appraisal told me his friend that is a developer is buying a small commercial property that appraised for $2.3M for $1.5M and is having to put up 50% cash plus one year of mtg payments into an escrow account to get the deal done and the guy is very well off in addition to the current tenants easily cash flowing the property. Then he said a local successful business owner just had his line of credit reduced from $10M to $750k over the phone by his bank from out of the blue. This doesn't begin to enter the conversation I had with a RV/trailer dealer regarding his floor plan financing struggles and multiple stiff arms received from his US congressional rep he has contacted personally multiple times.

Whoo hoo, good times are rolling. Glad we bailed out the rich and are killing the less rich/middle class businesses, what great policy makers we have in DC.

At this rate I might as well go draw the entire $100k availability on my HEL before I get a Dear John call from the lender.

That's common knowledge, the shadow banking system isn't coming back any time soon if ever. Go out and speak with some business owners who have solid businesses and listen to them. To perpetuate too big to fail at the expense of those business owners who can't access needed capital who maintain strong credit profiles is nuts.

Regarding mortgage loans, if someone has a secure job and plenty of liquidity and net worth, and still have to go through the shite one has to go through to obtain what is essentially a no-risk extension of credit is just stupid.

And yes, I will remain PO'd at the GS of the world for a long time. To still claim they would be in business without tax payer bailouts/AIG payouts is ludicrous. At least don't have the gall to lie about it.

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And then we discussed the FDIC pillaging of smaller banks that lent conservatively to pay 3-years "premiums" upfront, that wasn't a happy dialogue, either.

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I was talking to the CFO of a medium sized bank and she seemed a little peeved but not to pissed off.

She said the FDIC claimed they would help her "hide" it; which she responded with "I paid it, why would I want to hid it"...

She went on to say she wished she new what other banks had been charged for their 3 year payment because it would show what banks were in serious trouble...so i guess in conclusion if a bank has that in their financials they are doing good...if you don't see a 3 year payment they are hiding it cause it's bad...

Anymore info you can add from y'alls conversation?

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So the money for loans just isn't available now.

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Are you sure...here is a graph of Japan during its similar crisis which had a similar response


IMO, Banks ARE NOT capital constrained...and if one bank IS capital constrained the one down the street isn't...it's more about the risks the bank is willing to take...based on my new found experience and from convincing arguments by that drunk Russian...

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The secondary market and creative packaging to reduce risk is what made lending in the last 20 years so easy.

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Let's not get carried away here. The last ~6 years versus the the previous 14 aren't remotely the same. The breadth and depth of the securitization wasn't anywhere close to the 2005-2007 levels in the previous decade. Lax lending and near zero interest rates created an enormous supply of loans and [conversely] an enormous amount of demand for yield (which is starting to happen again). We don't need securitization markets to reach that level to produce a smorgasbord of mispriced risk, we need institutional investors to do some fricking due diligence and price stuff accordingly. Yields need to match risk, otherwise this thing just recycles and we end up in the same place we were last fall in another couple of years, just from an even weaker base.

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Capitalism is a unique and complex system and right now its trying to deal with its on complexities for creating money.

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Its trying to deal with the complexities of its natural course versus the new one being forced on it. I'm not arguing whether that's good or bad/right or wrong.

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IMO, Banks ARE NOT capital constrained

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It really depends on the bank. They're all capital -constrained to some degree, they're just not liquidity strained like they were in late 08-early 09. TARP/Fed/market-rally solved the capital issue, at least for the biggies. Doesn't make them "healthy," it just means they aren't on the brink of Lehman-style collapse anymore.

At any rate, I still agree with you in that the problem is not a lack of available money, its a lack of available demand. No different than any other credit cycle recession.

Dude I bring the heat.

This makes me feel like my accounting classes were worthless, since regulators apparently can/do override basic accounting rules at will and not tell you about it. There's no reason that shouldn't be capitalized as a pre-paid expense.

Tire you're losing it brah, get it together.

TGIF right? I'm about to finish up my studying and go get lunch with some friends coming in from out of town. I'll probably be drunk by 3.

Considering two of the other people are both engineers making more than I'll probably be making in 5 years (with every other Friday off), its a good argument for going that route too.