Wednesday, August 08, 2007
Newsweek Discovers Gunowners
Let's see. The Dems have caved on God, just did a poll discovering that the average American doesn't pick his or her candidates based on gay endorsements, and now it appears they are solemnly contemplating the last problem in Howard Dean's losing trifecta. If only they would get back to "it's the economy, stupid" we might get somewhere.
(Note: it doesn't matter whether you tend left or right - the workings of our political economy is such that both parties must be in the game, or the winning party is free to do absolutely abysmally stupid stuff. And being politicians, they always do, and they generally get paid to do it too.)
Over at Calculated Risk our dedicated duo of truthtellers (SO unfashionable) is taking a look at Fed madness.
I want to stress that the real problem that will create a high number of foreclosures is being underwater. This problem is significant by area and type of loan. By area I mean microarea. It's beginning to look as if a very large portion of buyers of new homes that didn't put down a pretty big chunk of money are underwater.
FNMA is probably going to yank quite a few of their most marginal products by the end of September. Some of this depends on what they do.
FNMA already imposed so many risk premiums on various features that a base rate of 6.5% can easily go over 8%, so the window is closing fast.
We have a market that is quickly reimposing risk-based pricing and tighter appraisals following a market with utterly fluid appraisals and almost no risk-based pricing. There are bound to be signficant fallouts.
It's not rare to find bond issues vintage 2005 down to about 15%. The problems is what kind of loan succeeded that loan? If the 2/28 buyer was able to get out via FNMA, well and good. But that door is closing very, very quickly because a borrower who can pay the cost may get refied on an underwater loan, but may no longer be able to make the payment at the interest rate offered.
This will roll on for at least three years, but I am guessing peak defaults in 2009.