A Highly Competitive Crisis. A Retarded Monopoly Reaches for Greatness.

Think of it this way, the same monsters who manufactured the Great Depression, dreamed up Freddie and Fannie. To what purpose? Well, you can rest comfortably in the knowledge that had nothing to do with helping people obtain mortgages, it's more likely they were meant to monopolize the mortgage market. This is from Michael White of "The New Mortgage Company"


"Thank you for giving to me today a monopoly on housing money. THIS IS GREAT. Just give me 75 Years for now. And I Promise I will give you a new breathtaking housing crash. A housing crash equal in many ways to the Housing Crash which justifies your gift to me today -- deep here as we are in the heart of the depression. And with that new crash I Will GET THINGS DONE. I will destroy much, most, or all of the capital of the major banks in the United States. Meaning I will destroy the savings account of all those major banks. Meaning I will destroy the saving account of all the little and big Investors who own the major banks.

"And Then I Will Destroy Myself. Never to Live Again. Unless … the Democrats Win the Election in 2008. In Which Case I Will Do My Best To Delay the Repetition of these Momentous Events for another 75 years.” Michael David White, in a previous incarnation as the government-sponsored entity Fannie Mae, and speaking for the record on that quiet day back in 1934 when the government formed The Monster.

You may not know this yet, but you are witnessing, in the government seizure last weekend of Fannie Mae and Freddie Mac, one of the most catastrophic failures in financial history. You also may not yet know that all of the bad economic news and all of the huge amounts of wealth now burned and gone and sorely lost in the mortgage and housing and stock and banking world – that they all derive from the destructive hyperactive menace which are the awful pigs known as Fannie Mae and Freddie Mac (hereinafter The Monsters).

You may also not yet know that Fannie Mae and Freddie Mac embody in all respects a classic Democratic (capital D-not Republican) liberal economic policy; and that their failure provides yet another definitive these-guys-are-so-dumb-and-don’t-have-any-idea-what-they-are-doing nail in the coffin of said same “policy” makers. And so I hope you will have time for a long letter now in the making about all of this. I promise, if you can read it, you will understand the world and everything in it. And admire the Democrats for their persistence in promoting poverty and misery. And remain confused by the Republicans failure to communicate.

What you can know today is what this means to you. Meaning does it matter at all to you what your mortgage is or is going to be based upon market “disruptions” now in hyperactive mode? The answer is that it may easily leave you stuck with a piece-of-garbage loan. Read on.

The awful pigs, The Monsters, Fannie Mae and Freddie Mac, through their terrible decades-long elimination of competition, have made the loan market for loans which they do not buy, namely, and especially, jumbo loans, unaffordable and terrible and scary. And when I say terrible, I mean truly awful. Like something Vladimir Putin’s brother-in-law’s bank would offer. And once you are approved he will require that you take the loan. Please don’t ask questions.

If you have a large mortgage (greater than $417,000 in most markets), then there are a lot of Guido types out there who want to make you a big loan today. Or maybe they don’t and they’re just pretending. Their names are Chase and Countywide and Wells. They kill the people who don’t repay their loans. And please bring a key to the house when you come to the closing to sign all the papers.

Other than the Guido Banks, there are one or two strange cases out there: call these Lending Banks. Lending Banks lend money, keep ownership of their loans, collect payments, and earn their living on interest income.

These last outposts of banking are making jumbo loans at good rates and reasonable terms. They are bankers and know what they are doing and have money. Here’s the difference in the terms between the Guido Banks and the Lending Banks.

Let’s say the loan amount is $500,000. You have good scores. Good savings. Good income. Good equity. You are a dumb easy deal.

The real bank will give you the money on a 5-year arm for 5.5% as of Friday. And, on the same day, Countywide (which I will refer to as El Capitan Guido), they will give you the money for 6.125%. Does it sound about the same? Well it is.

But did I tell you about the points over there with Countrywide? The Lending Bank charges no points for its mortgage. And El Capitan Guido? He charges 9.5 points for that money. So do you take the 5.5% with no points or the 6.125% with 9.5 points ($47,500 plus title, appraisal, etc.).

Or you might like Wells Fargo? They have a good name. They will do it for no points. Which is nice. And they will charge you 8.25%. How does that sound? Do you want 5.5% or 8.25%? Do you think competition matters?

You and I live in the world Fannie Mae and Freddie Mac created. Thanks to them, the bad mortgages described above are widely available. The good mortgage is not. In fact, it’s about one of two banks away from extinction. And the Lending Banks now take forever to get a loan done because they are experiencing an avalanche of business.

My speculation is that the Guido Banks either don’t have money so they make the jumbo terms ridiculous or they only sell their mortgage-backed securities in Moscow Square. Not all can be known at the time of this writing.

While some think competition is a cliché and over-mentioned and probably unnecessary, the loan world described above is the end result of a monopoly (Fannie and Freddie) which has destroyed competition. Do you want to live in that world? Is competition important? What would you think of paying 8.5% on your $500,000 loan?

Or think of it this way. In the jumbo market, if you X out that one good bank I mentioned, you live in a world where there is only one car manufacturer. The one manufacturer sells only one car model, but you can buy it under many different names. Countrywide and Wells are just two of the names.

Anyway, we only have one car for sale in our country. It’s a full-sized model according to the sales literature. The manufacturer calls it the Pinto. One color is available: A beautiful light blue. The sales literature says this a famous luxury car. Everything on the lot now is a little used. All previous owners are heavy smokers. And every one of these Pintos was a massive rolling piece-of-garbage lemon the day it rolled off the factory floor brand new. Welcome to Fannie and Freddie’s world. Enjoy the ride. I hope the windows work.