Voltron says: There's a lot of news coming out, so I'll summarize:
MBIA is again on ratings downgrade death watch. Moody's has been putting out all kinds of signals saying that a downgrade might not be so bad and that a downgrade of only one level might actually help. Yeah riiiiiiight. Competitor Ambac may get bailed out by some banks.
Someone has a tongue-in-cheek suggestion for what to do with those worthless "Negative Equity Certificates" . . . Pool them and sell the insure the senior tranches as AAA CDOs. Sound familliar? Using structured finance to solve the problems caused by structured finance. Laugh now then wait a year and see it happen . . .
I don't know how this slipped by me but, the conforming loan limit for Fannie and Freddie as been increased 75% from $417,000 to $729,500. This certainly doesn't help "affordable housing" but it IS EXACTLY WHAT COUNTRYWIDE HAS BEEN ASKING FOR. This could re-inflate the housing bubble.
Bank of America has hired Countrywide's President and Chief Operating Officer, David Sambol, as head of it's mortgage division. (WSJ)
The CEO of Countrywide, Angelo Mozilo, is appear before congress on Thursday to explain, among other things, why he sold $360 million in Countrywide stock while he was publicly saying the company was strong. (WSJ)
The Wall Street Journal reports that the mortgage market is now so reliant on funds from government-related entities that it has been "effectively nationalized," according to Richard Iley, an economist at BNP Paribas. These institutions have kept the credit spigots open for home mortgages, but "potentially there are very large liabilities for the taxpayer," Mr. Iley says.
So it seems that the government is caving in and giving the mortgage industry whatever it wants. This has the potential to re-inflate the housing market for two years or so until the option arms resets and recasts kick in. That's why I STAY AWAY FROM OPTIONS that expire in less than two years.