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Is the sky really falling? Just because you hear it from the national press, doesn’t mean it’s accurate. For example, there ARE still no and low money down loans available, contrary to what you hear. While the Bond market was closed last Monday in Observance of Columbus Day, the early part of the week wasn’t short of market-impacting news. Last Tuesday, the Bush Administration, including Treasury Secretary Henry Paulson, Federal Chairman Ben Bernanke, and FDIC Chairman Sheila Bair announced a plan to use $250 billion of the $700 billion financial rescue bill recently passed by Congress to buy directly into American banks. The government will begin by buying stock in nine of the largest banks including Bank of America, JPMorgan Chase, and Citigroup.

Why did the government do this? Because the financial crisis is due to over-leverage...that means the ratio of outstanding loans to capital is too high. If left unchecked, this can lead to the failure of institutions, which has already taken a great toll. The only way to repair this is by reducing the leverage ratio, or “de-leveraging”. This means sell off loans or increase capital. The Fed’s plan helps this on both sides, as they can be a buyer of some loans as well as an investor in some banks.

Another result of the current financial crisis is that economic reports are taking a back seat to market dynamics in ways that have never been seen before. In the past, fund managers or institutional traders would typically contemplate which direction would best favor the market, and position their portfolio in stocks if the outlook was favorable, or bonds if the outlook was cloudy. So we have come to expect bond prices to move in the opposite direction from stock prices much of the time, as money flows out of one and into the other. But the pressure to “de-leverage” has all but removed the thought process, and forced selling of all types of securities to raise capital. While this situation should stabilize and return to normal (which we saw some evidence of last Friday as stocks and bonds alternated going up and down), it is one we will continue to monitor as the weeks and months progress.

For more information on how all of this affects you, attend our free public service information session on what’s going on in the mortgage industry. The meeting will be held at the PEC Auditorium, Monday October 27th at 6pm sponsored by Lone Star Home Loans, Josef T Martin, owner, CPA, CMP, Jean Parker and Missy Jernigan loan officers. If more information is needed, contact us at 868-7080.