LTV, Loan-to-Value Ratio
Posted by Ray on July 1, 2009 under Main, Markets, Politics, The Federal Reserve | 
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Want some stellar news? Here you go, Freddie and Fannie will now allow you to go even deeper into debt, if you so choose. Thanks to new freedoms given to them by an administration that is trying their best to bankrupt all of us you can now, if your mortgage is held by one of the GSE’s, borrow 125% of your homes value!
This is crazy, not only have home values not settled yet now these two firms, who are bankrupt themselves, will allow you to leverage your home even more. Here is the rub, mortgages got us into this trouble because the housing market was too high, so it sold off. Now because housing prices are low Obama wants us to be able to continue to borrow. Therefore, the GSE’s say OK borrow 125% of your homes value and spend that money!
This is what got us where we are today and they think this is a good idea? The administration, or someone, even said that these changes are being made because prices have dropped so low. Hey, dumb-dumbs, homes are down in value for a reason, they were WAY over valued to begin with. The market is correcting the problem by taking values lower, but the government is fighting it. Do you want to bet on who will win?
To further increase the potential troubles ahead, banks are once again buying MBS’s, mortgage backed securities. Their holdings increased 6% in recent months which is substantial given the billions of dollars involved. Why are the banks buying these products? Because depositors are stockpiling cash and the banks are not loaning out the money. This means that banks are not loaning to anyone, unless you are super prime. However, they are buying the “safer” MBS backed up by prime borrowers, you know the former Wall Street guy who just got laid off…
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