US Mortgage System Hangs By Asian Thread
The precarious debt situation grows more so by the day as the mortgage beast must be fed. "Freddie Mac, seeking foreign investment in its mortgage securities to build a capital base, is making a concerted effort to appeal to investors in Asia, an executive at a mortgage banking conference said."
"'From our standpoint and mission, our job is to go out and find more buyers for our securities. It's a wealth of opportunity right now' in Asia, he told Reuters late Monday. Roughly a third of agency debt is held by overseas investors. Analysts say foreign investors could hike their holdings of some asset-backed securities to two-thirds of the market."
The debate on this blog regarding the quality of mortgage data is answered here. "Federal Reserve data show constant and heavy demand for federal agency debt, which includes both mortgage and agency securities, but does not distinguish between the two types." So we "implicitly" guarantee the debt that Asia and the GSE's profit from. Who's responsible for this racket?
With the GSE's pulling back, the Asians will have to buy the subprime bonds, because, well, there are no other buyers. "Some analysts think accounts in the Asia-Pacific region are stepping up MBS purchases because of a dearth of new agency debt as Fannie Mae and Freddie Mac have cut agency securities borrowings as mortgage investment portfolios have shrunk."
9 Comments:
You can say bye bye to american sovereignty. That what will be the final result of the debt culture.
Everything is coming together just like we said it would ! Wow. Who needs economists. If you look back in our discussions, we said that Asia had huge exposure to US RE and that there would be a credit crisis if Asia withdrew its support for MBS.
Is it me, or is the housing bubble crash suddenly accelerating ? It is like everyone suddenly woke up and they are talking about it.
I do think we are at the point of the spear in the discussion, primarily because we don't limit our considerations to include only soft landings. This debate should be occurring at a national level and it would reach the same conclusion.
Dave F.
The Housing Bubble actually started slowly back in 1998/1999 base on your location.
By late 2002 it was a very serious problem and should have been put to a stop. I remember posting on all sorts of websites about the Real Estate bubble back then.
There was actually a website devoted to the housing bubble back in 2002 that fell into disuse by late 2003. When the bubble did not burst folks lost interest. Lets face it 2/3 years ago the interest only loans appeared and the boom was given new life.
I am afraid we are a good three years to late to prevent a major economic tragedy.
But we can help prevent the last potential suckers from getting burned and that is important.
price softening is evident now. A friend had his house for sale, and finally sold in 7 weeks with $5k price reduction (asking $540K). No more outrageous bidding among numerous parties. Sure sign of plateau, and downward trend to follow.
Here is Sacramento, the top is definitely in on the high-end stuff. I've mentioned before on this blog that a good friend of mine (a realtor) has been trying to sell her house for about 3 months now and has no offers, and interest has dried up in the last 3-4 weeks. Started out at 850K and is now 795K. She used to get 10 showings a week and now is lucky to get 2.
Here's the house:
http://realtor.com/FindHome/HomeListing.asp?snum=32&locallnk=yes&frm=bymap&mnbed=0&mnbath=0&mnprice=700000&mxprice=800000&js=off&pgnum=4&fid=so&mnsqft=&mls=xmls&areaid=2475&typ=1%2C+2%2C+3%2C+4%2C+5%2C+6%2C+7&poe=realtor&ct=El+Dorado+Hills&st=CA&sbint=&vtsort=&sid=04A5D6B7733EC&snumxlid=1045878981&lnksrc=00002
"Demand for liquidity will also drive an increasingly heavy flow of overseas money into top quality U.S. debt like asset-backed securities, said Jon Voigtman, managing director of principal finance at HSBC Securities USA."
Hmmm... top quality U.S. debt like asset-backed securities. Is Voigtman talking about the same assets that Americans are buying using IO loans, cash-out refi etc. and paying top dollars in bidding wars?
That is only true if people trust MBSs. When MBSs reach junk status and mortgage defaults are rampant, NOBODY will buy them, further exasperating the problem. Who can buy a house (at any price) without a mortgage, especially if they can't sell the house they are living in ?
It'll get tougher and tougher to get money from them when they know dollar will lose 40% of value to yuan. Besides, they know bubble when they see one, The only country that hasn't experienced the burst of RE bubble in the past 10 years is China, excluding Hong Kong that had 60+% decline. Australia is not too far away either.
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