It’s a Financial Roller Coaster

September 19, 2008 by Christe Roknich 

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Wall Street is looking and behaving a lot like Knotts Berry Farm lately. Our financial markets have been on a real roller coaster ride this year, but the intensity of the ride increased dramatically this past week.

Earlier in the year, the investment firm, Bear Stearns, was “bailed out” through actions of the Federal Reserve Bank and the U.S. Treasury Department. More recently, and with direct impact upon our real estate market, the Federal Government took control of both Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are (were) what is (was) known as GSE’s, or governement sponsored entities. In other words, these GSE’s behaved like private corporations (badly), but were implicitly backed up by the strength and credit of our Federal Government. So the new owners of Fannie and Freddie are, you guessed it, you and us!

This week brought even more turmoil, and finally, some “resolution” as well, when the Treasury Secretary announced the planned formation of a government entity to purchase and process bad loans, similar to the Resolution Trust Corporation that was formed after the savings & loan debacle in the 1980′s. How does all of this relatively bad news all affect your home’s value?

Inventory of homes for sale on the market is high, but what’s worse, the inventory is dominated by bank-owned foreclosures and properties subject to lender short-payoff (more on “short pays” in a later column). Despite the argument that Uncle Sam (all of us, again) should not be in the business of buying bad debts from dumb lenders, the efficient disposition of these loans and properties should help to lessen their impact on our residential resale market in Orange County. The sooner we get back to a “normal” market of buyers and sellers, helped by lenders who happily make loans to qualified purchasers, the better off we will all be as homeowners.

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Filed under: Market Update

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