Last week was a very tumultuous week for mortgages. The credit squeeze is now worldwide and central banks across Europe and Asia reacted with major infusion of cash. Our own Fed added $38 billion in funds last week. The main fear of course is that major investors will make a run to the banks and put undue pressure on the system. Lou Barnes at Inman News summed up the situation really well:
The credit crunch that began three weeks ago reached its end stage yesterday, the Euro-American banking system locked up altogether. Dramatic, but not dangerous: central banks are pouring cash into the system. Ice water will quiet a mob of hysterics, but will not solve the underlying problem.
Which is: massive credit losses in the aftermath of The Great Credit Party, 2000-2006 (R.I.P.). So far, market losses on mortgage and other derivatives merely anticipate the actual credit losses from default and foreclosure, whose magnitude markets cannot know until well into 2008.
To steal a quote from a by gone era, “… our long national nightmare of easy credit is over…†However, that doesn’t mean you can’t get a mortgage. My advice to consumers is not to buy into media’s assertion that you can’t get a mortgage anymore. The bottom line is if you work with the right mortgage pro and are willing to put a few months of work you can get yourself into a position to qualify for a mortgage.
In other major news last week Fannie Mae asked for caps on it’s portfolio to be removed and President Bush said no, reiterating the need for major GSE reform. I was impressed by Bush and Bernanke’s refusal to give in to the doom and gloom. A much needed market correction is underway and soon enough things will settle down. Just remember to fasten your seatbelt.