Mortgages Uncovered

Banks have to have the ability to re-market their mortgages. However, now that Fannie Mae and Freddie Mac have cut the number of mortgages they buy from banks, there are fewer mortgages available. Banks make a profit on each mortgage placed; it is a vital part of their monthly revenue stream. If the mortgage placement market were to shrink by twenty percent then that would represent a twenty percent drop in new mortgage placement revenues for the banks. This is a terrible time for banks as they start seeing decreasing mortgage revenues.

Wachovia announced exiting the mortgage market after declaring an 8.9 billion loss which goes to show how bad lending policies are putting some banks in a mess. All this is having a knock on effect world-wide.

Now people are beginning to worry what banks they should and shouldn’t invest in with stocks.
Latest UK house price data released by Rightmove show that the UK housing crash continues to increase by registering a fall of 1.8% for July. The rate of decent on a 12 month basis now extends to -11% and on a quarterly basis to -6.7%, which is far above the originally forecast crash rate of 5% per quarter as per analysis of Nov 2007 for the quarter April to June 08, which came in at -5.8%. The housing market is in full panic selling mode and property owners slashing prices are still met with silence from the potential home buyers.

On the small positive side, quarterly rate of decent of -6.7% is unsustainable as that would imply a 12 month crash of 26.8% which is far beyond anything that Britain has experienced in recorded house price history. Therefore this implies that rate of decent should start to moderate by the end of September 2008. Still there is potential for UK house prices to end the year down by more than 11% which is far more than original forecasts for a 12 month rate of decent of 7.5%, which was predicted before house prices started to drop following the August 2007 peak.

Data suggests though that house price falls will be skewed at the end of September 08, with the pace of decline moderating throughout 2009 and declining at a yearly rate of less than 5% by September 2009 because of the impact of high inflation, as inflation is eroding real terms housing market values whilst it’s supporting nominal house prices.

There is a clear indication that the UK housing market is in crash mode regardless of misleading mainstream headlines during late 07 and early 08.