graphrix_IHB
New member
<p>Here are some of the highlights and lowlights of <a href="http://www.cnbc.com/id/19809564">Bernanke's speech</a>. I have of course made some points of my own. </p>
<p><em>"Historically, about half of homeowners who get a foreclosure notice are ultimately displaced from their homes, but that ratio may turn out to be higher in coming quarters because the proportion of subprime borrowers, who have weaker financial conditions than prime borrowers, is higher."</em></p>
<p>This is when a borrower gets the notice of trustee sale the second stage of the foreclosure process. I don't know if the 50% rule is true historically because finding NTSs data has just become available. I will try to find a way to find out if this is true for OC. But what is scary is that NTSs are increasing very rapidly and a ratio above 50% will be nasty.</p>
<p><em>"Raising the quality of underwriting practices by all lenders to a uniformly high standard is an important objective."</em></p>
<p>Now I agree with this and really it should have never been an issue in the first place. What I do not agree with is how is this perceived as helpful in the current market. How does this help the borrower who has a $500k two year loan at a rate of 7.5% that made his/her payments on time but still has a 640 FICO? It doesn't because now the borrower can't get a loan amount that high and even if he/she could the loan would have a rate near 9%. This does not help the current market. Higher underwriting standards should have been in place five years ago and all this does is make the forclosure problem worse.</p>
<p><em>"The Board will review nonbank subsidiaries of bank holding companies, and the other agencies will conduct similar reviews of nondepository institutions of thrift holding companies, independent mortgage lending companies, and mortgage brokers doing business with these entities. The reviews will include an evaluation of the companies' underwriting standards and senior-management oversight of the practices used for ensuring compliance with consumer protection regulations and laws."</em></p>
<p>Now if this had been in place over five years ago several of the slimy broker shops who were run by convicted felons would never have come into existance. </p>
<p><em>"Most recently, as I am sure Committee members are well aware, subprime mortgage losses that triggered uncertainty about structured products more generally have reverberated in broader financial markets, raising concern about the consequences for economic activity. As I noted in a speech last month at the economic symposium hosted by the Federal Reserve Bank of Kansas City, the turbulence originated in concerns about subprime mortgages, but the resulting global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans. These wider losses reflect, in part, a significant increase in investor uncertainty centered on the difficulty of evaluating the risks for a wide range of structured securities products, which can be opaque or have complex payoffs. Investors also may have become less willing to assume risk. Some increase in premiums that investors require to take risk is probably a healthy development on the whole, as these premiums have been exceptionally low for some time. However, in this episode, the shift in risk attitudes combined with greater credit risk and uncertainty about how to value those risks has created significant market stress. On the positive side of the ledger, past efforts to strengthen capital positions and financial market infrastructure places the global financial system in a relatively strong position to work through this process."</em> </p>
<p>I guess no one has sent Bernanke the link to Irvinerenter's <a href="http://www.irvinehousingblog.com/2007/05/14/the-anatomy-of-a-credit-bubble/">Anatomy of a Credit Bubble</a>. He is right in saying that even the most pessimistic did not see this happening as rapidly as it has but many of us here have been waving the red flag. And yes the risk pricing has been underpriced for many years now and it does not matter how low the prime rate is it won't change investor sentiment. Note to Bernanke don't listen to Ben Stein who said only that only $67bil of loans will be foreclosed on. He misspoke and meant to say that is just for Countrywide. Also you might want to start reading some of the blogs as you would be surprised at the diversely and highly educated people who post on them. </p>
<p><em>"Earlier this week, Federal Open Market Committee lowered its target for the federal funds rate by 50 basis points. The action was intended to help forestall some of the adverse effects on the broader economy that might arise from the disruptions in financial markets and to promote moderate growth over time. Recent developments in financial markets have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth."</em></p>
<p>I, like many here, was against a rate cut but when I read this it is clear that the Fed has shifted their concern from inflation to the economy. I do not see how this will help all that much other than with a lower dollar manufacturing could pick up and increase our exports which will help the GDP. I do have some faith in Bernanke and although he is flying around in his chopper right now I think he has a greater concern for the economy. How he fixes it or makes it worse will be determined later.</p>
<p><em>"Historically, about half of homeowners who get a foreclosure notice are ultimately displaced from their homes, but that ratio may turn out to be higher in coming quarters because the proportion of subprime borrowers, who have weaker financial conditions than prime borrowers, is higher."</em></p>
<p>This is when a borrower gets the notice of trustee sale the second stage of the foreclosure process. I don't know if the 50% rule is true historically because finding NTSs data has just become available. I will try to find a way to find out if this is true for OC. But what is scary is that NTSs are increasing very rapidly and a ratio above 50% will be nasty.</p>
<p><em>"Raising the quality of underwriting practices by all lenders to a uniformly high standard is an important objective."</em></p>
<p>Now I agree with this and really it should have never been an issue in the first place. What I do not agree with is how is this perceived as helpful in the current market. How does this help the borrower who has a $500k two year loan at a rate of 7.5% that made his/her payments on time but still has a 640 FICO? It doesn't because now the borrower can't get a loan amount that high and even if he/she could the loan would have a rate near 9%. This does not help the current market. Higher underwriting standards should have been in place five years ago and all this does is make the forclosure problem worse.</p>
<p><em>"The Board will review nonbank subsidiaries of bank holding companies, and the other agencies will conduct similar reviews of nondepository institutions of thrift holding companies, independent mortgage lending companies, and mortgage brokers doing business with these entities. The reviews will include an evaluation of the companies' underwriting standards and senior-management oversight of the practices used for ensuring compliance with consumer protection regulations and laws."</em></p>
<p>Now if this had been in place over five years ago several of the slimy broker shops who were run by convicted felons would never have come into existance. </p>
<p><em>"Most recently, as I am sure Committee members are well aware, subprime mortgage losses that triggered uncertainty about structured products more generally have reverberated in broader financial markets, raising concern about the consequences for economic activity. As I noted in a speech last month at the economic symposium hosted by the Federal Reserve Bank of Kansas City, the turbulence originated in concerns about subprime mortgages, but the resulting global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans. These wider losses reflect, in part, a significant increase in investor uncertainty centered on the difficulty of evaluating the risks for a wide range of structured securities products, which can be opaque or have complex payoffs. Investors also may have become less willing to assume risk. Some increase in premiums that investors require to take risk is probably a healthy development on the whole, as these premiums have been exceptionally low for some time. However, in this episode, the shift in risk attitudes combined with greater credit risk and uncertainty about how to value those risks has created significant market stress. On the positive side of the ledger, past efforts to strengthen capital positions and financial market infrastructure places the global financial system in a relatively strong position to work through this process."</em> </p>
<p>I guess no one has sent Bernanke the link to Irvinerenter's <a href="http://www.irvinehousingblog.com/2007/05/14/the-anatomy-of-a-credit-bubble/">Anatomy of a Credit Bubble</a>. He is right in saying that even the most pessimistic did not see this happening as rapidly as it has but many of us here have been waving the red flag. And yes the risk pricing has been underpriced for many years now and it does not matter how low the prime rate is it won't change investor sentiment. Note to Bernanke don't listen to Ben Stein who said only that only $67bil of loans will be foreclosed on. He misspoke and meant to say that is just for Countrywide. Also you might want to start reading some of the blogs as you would be surprised at the diversely and highly educated people who post on them. </p>
<p><em>"Earlier this week, Federal Open Market Committee lowered its target for the federal funds rate by 50 basis points. The action was intended to help forestall some of the adverse effects on the broader economy that might arise from the disruptions in financial markets and to promote moderate growth over time. Recent developments in financial markets have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth."</em></p>
<p>I, like many here, was against a rate cut but when I read this it is clear that the Fed has shifted their concern from inflation to the economy. I do not see how this will help all that much other than with a lower dollar manufacturing could pick up and increase our exports which will help the GDP. I do have some faith in Bernanke and although he is flying around in his chopper right now I think he has a greater concern for the economy. How he fixes it or makes it worse will be determined later.</p>
