Mortgage Melt Down
Last week I attended a great seminar put on by First Mortgage Company in Omaha for area Omaha Realtors. One of the keynote speakers was George Akers, Executive Vice President with First Mortgage.
George started off by showing a couple of video clips from Apollo 13. The first clip was when everything started to go wrong up in space. Tom Hanks says "Houston we have a problem". He then looks out the window and says something along the lines of Houston it appears we are venting some sort of gas." This is a great analogy for the mortgage mess. The current melt down in the mortgage market boils down to banks "Venting Capital". Banks need to maintain so much capital/equity based on assets, loans and deposits. They also need to maintain extra capital for "provision for loan loss" i.e. bad loans. Banks in need more capital can borrow it from other banks, hedge funds, or pension funds. However, the market values for bad loans have plummeted over the past several weeks. A bond may have been worth 80 cents on the dollar is now worth 50 cents on the dollar. Investors are worried about injecting more capital into an institution that has a concentration of bad loans or can't properly determine a value of their loans. So until banks either determine the value of those bonds or those bonds are sold or insured by the government, capital will be tight meaning harder to get loans for small businesses and consumers.
The second clip from Apollo 13 was when the engineers go into a room and say we need to make this circle vent fit into this square case by using only the parts on the table. Well, that's what the government needs to figure out to solve this tightening of credit. Should the government provide some sort of a way to purchase bad loans or insure those loans so that banks can go back to making loans to small business and consumers?
Thanks for reading my blog
Steve
STEVE LAUVER
Omaha Realtor
DEEB Realty
www.OmahaRealtyPro.com