As a source of mortgage funds most lenders such as Countrywide, Ditech and all the hundreds of mortgage bankers repackaged the debt to get fresh funds to lend with the help of the big Wall St investment banks. These debt securities were sold to mutual funds, hedge funds, foreign banks, etc. The appetite for CDOs as they are known has dried up for all but the most stellar loan scenarios. The investors that bought these instruments have been burned and are demanding higher rates or are completely done with mortgages altogether. So where do the lenders get more money to lend? Going back to the old school banking playbook, Countrywide is taking the lead on this one and soliciting the highest CD deposit rates in the country. Check for yourself by looking at your local paper or checking bankrate.com under the CD tab.
They need to raise funds ASAP to fund the 40 billion dollar monthly pipeline. You will notice that many large lenders are on the CD tables with very attractive rates for the CD investor. Thinking ahead, won't this result in a dramatic change in the type of loans offered and the rates charged? They can't pass off the risk now, they are not selling these loans. These will stay on the bank balance sheet and must perform. After all, you can't tell grandma that her CD is gone because the bank loaned money to a flipper using a NEG AM. Something about FDIC insurance and bank regulators prevents Countrywide and others from making wild loans when they use their banking centers as a source of funding. Would you deposit money with Countrywide?
4 comments:
Not a chance. But there are probably plenty of folks who will once the CD rate ratchets up. "It's insured so. . . what the hell"
Kwark
http://www.themortgagereports.com/2007/08/randy-woolridge.html
A blogger talks about this, it seems like they are taking a do or die risk but if they die we all pay the bill through the Federal Gov't bailout.
Where I think this logic fails is that the Fed takes collateral for the money they lend, so I dont think we are in as much risk as the blogger on the above link thinks we are.
Cal
Fascinating analysis, that this would force a return to conservative lending.
I'd keep it under $100K, but if T-bills are still paying below 3% I might consider a Countrywide CD.
My credit union has a 9 month multiple-add on (i.e., if I start out with $10,000, I can add on additional $10K during the life of the CD to the balance) CD at 5.31%, just .04% less than the Countrywide product.
Let's see: Countrywide: 10K minimum opening balance, straight CD, OCTFCU: 500 minimum opening balance, add-on feature. I think that I'll stick with the credit union for now.
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