Friday, August 17, 2007

What do you mean you're moving to a stadium

With Markets Moving Wildly, Insight Suffers - A Few Late Mortgages Create A Credit Crisis

Troubles In Mortgage Market Start to Strain Manhattan Deals

OK, slowed by vacation travel and basic lack of interest, As Good As News has not really been on top of this story. Apparently while I was not watching (the last four decades), Wall Street took over mortgage lending from Main Street. This was the result of two factors. One was relentless consolidation in the bank business - the bank on Main Street in your town is now always part of a global supersized financial institution. The other is "securitization" - not security, as in the bank holds a mortgage on your house and will foreclose if you don't pay - securitization, as in the debts of many borrowers are packaged together as a big debt, and sold, like a bond. These packages of mortgage debt were popular, funds flowed down to home buyer/borrowers and a real estate boom was fueled. They were so popular that lending was encouraged beyond the point where old fashioned Main Street banks would have been willing to extend credit. Now borrowers are defaulting, house prices have declined below the amount of the loans they secure and suddenly nobody wants to buy packages of mortgage debt, so it is not easy to find money for mortgage loans. In fact people are worried about old fashioned things like bank failures and borrowing money generally is becoming a sticky proposition. Especially hard hit are mortgage loans over $417,000 (jumbos), the largest amount eligible for packaging by Fannie Mae and/or Freddie Mac - two organizations that sound like fast food chains and may have similar staffing policies but are in fact the preeminent mortgage loan packagers, originally chartered by Uncle Sam.

So, you want to buy a big house, or a large closet in Manhattan, you need to borrow over $417,000 and you can't find a loan - what do you do?

The Jets and the Giants Borrow $1.3 Billion for Their New Stadium - That's right, it does not matter if you are in a high risk industry where your bottom line can turn red based on the performance of a bunch of twenty year old thugs who think a bad record is not a 1-15 season but something they can clear up with a good lawyer and some community service. Just call your prospective country manor a stadium and bankers will throw money at your feet.

Need more than a paltry $1.3 Billion? Countrywide Financial, the nation's largest mortgage lender, borrowed $11.5 Billion from a consortium of 40 banks. Countrywide had to swear off the jumbos to get this money, so on the surface it makes your task even tougher, but think big. Just make sure your bank knows that the country's entire financial system - mortgage loans, corporate loans, stock prices etc, - might fail if you don't get your loan and you will be closing on that dream house next week.

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