Don't Call It a Comeback

I'm really fascinated by the financial news today.
Countrywide, the biggest lender in the country, is struggling. They've borrowed $11 billion to cover their butts. The analysts are not happy and are downgrading Countrywide's credit rating, and investment-worthiness ratings.

Earlier this week, Yun, the guy that does all of the commenting for the National Association of Realtors, says this is the bottom.
I think we've heard that one before.

All of the mortgage guys I work with are sending out "all clear" type emails to let us know the local firms are doing fine. One called me yesterday, just to chat about it all. I think everyone's a little scared.

One of my mortgage guys sent out an email talking about his take on "the bottom." Here's what Todd wrote:
From my perspective or explanation for the volatility is that we are bottoming out. One major key component or characteristic of a bottom is bouncing off of the floor. In this case I am talking about the bottom of the real estate slump. It is pubic knowledge and all over the newspapers and internet of the collapse of the secondary market for certain types of mortgage products such as sub prime which is no longer around. If this is the bottom now we must start the long climb upward. Granted there is a lot of foreclosures taking place and that will be a lengthy process to filter out. The climb could and should be shortened with some help from the FED regarding rates. This past weeks meeting showed that the FED is starting to take notice of the risk of the credit crunch and they followed quickly by adding liquidity to the markets almost $20 million worth. Many economists now believe that the stage is set for the FED to lower rates more quickly than they thought.

I really hope Todd is right, I really do. However, I just wonder if all of the flailing about is really about uncertainty -- will some of the biggest lenders in the nation topple? Thornburg? Countrywide? Countrywide, really??

Interest rates have also been steady, and some in the mortgage industry think Bernanke is holding rates to pacify the larger market to the peril of the mortgage and real estate industry. (Where does the middle class hold wealth? Real estate.) If the Fed pulls down rates, it may trigger a small, and probably short-lived, rally in buyers of real estate.

How did the mortgage industry get into this pickle? Some say they are a victim of their own success. They sold anyone and everyone a mortgage, in the name of the "American Dream."

I am a Realtor, and bought my first house at 22, and really believe in that "American Dream." However, I once heard someone say, "He's just not cut out to be a homeowner." And I think that's really true. Not everyone has the dedication and financial stability and responsibility to do it.

But in the go-go times of recent years, anyone and everyone could get a mortgage. People with bad credit, people just out of (and probably in) bankruptcy, people with eyes bigger than their stomachs got into big mortgages. Too big. And now they can't pay, and the banks end up getting the properties back.

Much of that property was bought at the height of the market, and the bank now holds a house that isn't worth what it was when it was purchased.

Todd is right -- it's going to take a long time to sell of the foreclosure inventory, and for the banks to tally up the losses they took on those properties. It's going to be huge. And on top of that, the banks have a terrible liquidity problem right now that goes beyond the mortgage industry and into the whole economy.

TheStreet.com has a great article about the lenders today:
http://www.thestreet.com/_mktwrm/s/why-mortgages-blew-up/newsanalysis/realestate/10374658.html