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The predicted demise of the American Economy again has proven the soothsayers wrong again. Fannie and Freddie were handed “get out of jail free” cards by the Fed on Sunday, with extended credit lines they can access anytime they want. (I can’t even get my bank to reinstate my $25,000 home equity line of credit) The SEC put a choke hold on “short selling” of Fannie and Freddie stocks. Short Selling is when a trader does not own the stocks. The trader bets that the value of the stock will decrease. So they sell the stock at today’s price and then buy it back when it decreases in value. And they never really owned the stock. When the rumors start flying the stock hags start short selling.

Citibank and J. P. Morgan Chase both reported billion plus dollar losses but they were not near what analysts had predicted and Wells Fargo reported better than expected second quarter results. The stock market loved the news and recovered some of its losses over the past two days. The news was not interest rate friendly, though. The Fed wants us to feel their pain with the decisions that will be forthcoming: leave the Fed rate alone to sustain economic growth or raise the Fed rate to ward off inflation and breathe some life in our dollar. Now back to my credit line….

FYI: The American Economy is the strongest Economy in the world. Over the past 50 years it has sustained catastrophes that individually could have undermined our greatness. In the 1960’s we withstood the assignation of our President, John F. Kennedy, his brother and Attorney General, Bobby Kennedy, our civil rights leader, Martin Luther King, rioting in the streets, the Viet Nam War. Each decade since has been chalk full of intrigue, wars, scandals, greed, presidential impeachment ("I am not a crook") and near impeachment ( "I did not have…. "well, you know. The last time I used the “s” word in our column some people got offended), gut wrenching high interest rates (18%, anyone?), Black Monday (in 1987, when the stock market fell 22.6% in one day), terrorist attacks beyond any Stephen King horror story, Savings and Loan’s debacle, oil busts, tech busts the list goes on. We are strong and evolving. This too, shall pass.

A gentle breeze turned into a hurricane this week with the Wall Street gossip mongers howling that the lending giants Fannie Mae and Freddie Mac are insolvent, sending their stocks into a steep decline. Proof? Wall Street doesn’t need any stinking proof, rumor and innuendo will work just fine thank you. So it must be because of the default rate? Nope. Fannie's default rate as of April was only 1.22% of all their loans up only 00.62% and Freddie's was 00 .81 up from 00.49%. Fannie and Freddie do not originate home loans but they buy the home loans from virtually all banks or lenders that do home loans. When the lenders tell your client, “the guideline says”, it is either Fannie or Freddie’s rules. The banks fund the loans, sell it to either Fannie or Freddie and they replenish the bank’s vaults with Fannie or Freddie's money. (For the sake of this conversation we are omitting FHA and VA) Fannie and Freddie in turn repackage the loans, now called mortgage backed securities and place them “for sale” to investors. Billions of dollars change hands every week. Well, until this week. The gossip put a screeching halt on the confidence of both companies and investors scampered away leaving their stocks in tatters. Wall Street’s memory is not very good. If they could stop talking trash and think, they may recall that Fannie and Freddie are not the only ones responsible for the almost 12 trillion dollars in mortgage debt. Mortgage Insurance companies are also on the line for a portion of all loans with less than 80% loan to value. If Fannie and Freddie do crash and the U. S. government steps in (they say they won’t but they will) it will change the landscape of home loans not just for today but forever.

FYI: Stop fretting on what to get me for my birthday! Maseratis’s sales jumped 20 percent last month. They sell for $115,000 and get 12 miles a gallon. They have already sold 1,353 in the U. S. this year. Want to make 1,354?

DIANE GERDES

Three years ago if any of the above went into a bar the banker would have gotten preferential treatment, paid the tab and taken everyone to the Ocean Club for dinner. Today, the banker, if he has a job,is probably in rehab. The oil rigger and the farmer are too busy to imbibe.

Bankers have been the cornerstone of the economies since the beginning of bartering or exchanging money for goods. Simple bartering morphed into the exchange for money for a home and exchanged again with investors, who exchanged it again and again. The jubilation of the stock market in April and May was slapped back down this week with the realization the mortgage crisis is far from over. The fear of the losses and the hesitation of investors to back mortgages have sent the stock market to its lowest ebb this year. Although many people are chattering about the Bank of America and Countrywide merger and wondering if Ken Lewis, President of Bank of America, has lost his mind or speculating that the Fed is doing a “behind the scenes” handshake, it is for the best. Countrywide’s demise would have had a disastrous, far reaching effect on our economy.

With oil prices continuing to climb it is forcing all of us to rethink our travel plans during the day. The internet has been a source for “mall shoppers” who do not want to make the car trip. More people are car pooling or using public transportation. Sales of scooters have surged. Those of us that are still driving (I drive because I do not look good in a helmet) need to pay attention to the small alternative vehicles that are sharing our roads.

Farmers in the United States are enjoying a change in status (if the fields can dry out to plant). North and South Dakota are quietly emerging as a force in food and oil. The once stagnate and in some areas, dying, economy is booming with the overwhelming need for food and oil. Technology in agriculture has been key in the development of food sources. Countries such as India, encouraged farming in the 1980’s but when there economy become dependant on the sciences, they overlooked the farmers and did not give them allocations or encouragement to utilize newer techniques and equipment. They are now scrambling to try to feed themselves. But if you are looking for cheap food…..grow it yourself.

FYI: The Arizona Senate, in a late night surprise, passed The Licensing Loan Originator Bill. Senate Bill 1020 states that loan originators must have 3 years of loan origination experience or pass a course before being licensed. The Department of Financial Institutions will require an exam with a passing grade. Janet needs to sign it, but she has already stated she is in favor of the bill. Effective date January, 2010. Stay tuned for more information.

If there is a knock on your door today and you are not in the U.S. illegally, it may be the Feds to ask you a few questions about any dubious real estate transactions you may have been involved in between 2004 and 2007. In March “Operation Malicious Mortgage” produced 144 cases nationwide with approximately 400 individuals charged, including real estate developers, brokers, agents, appraisers, lenders, lawyers and so-called straw buyers. Also, 19 companies, including mortgage lenders, investment banks, hedge funds, credit-rating firms are being investigated. Three types of crimes were targeted: lending fraud, foreclosure rescue fraud and mortgage related schemes. The two party guys over at the now defunct Bear Stearns, known for their Vodka toasts when they knew the 1.8 billion dollars in funds were evaporating, are celebrating their first 24 hours after being arrested for various types of fraud. J. P. Morgan Chase bought the 80 year old firm for pennies on the dollar, with a little nudging from the Fed in May. Money Magazine voted Bear Stearns “The Most Admired Securities Firm” in 2005. They were admired for their “quality of management and business innovations”. The two funds the party guys managed were directly tied to the subprime market and affected various retirement and mutual funds from us everyday people. Maybe they should have tried tequila.

FYI: Do you think oil prices will come down? Last week a reader forwarded an interesting link on why oil prices cannot continue their upward hike. (Thank you, Ralph!) The link is as follows:http://moneynews.newsmax.com/david_frazier/frazier_oil_price_slide/2008/06/12/103910.html

Our annual vacation to San Diego and the beach in our SUV with the kids and dogs has been replaced with a sleepover near the pool. As you may remember our SUV is parked in the front yard keeping guard over our neighbor’s gnomes.

Why did the gas prices go up? There are several reasons. Economics 101 (yes, I slept through that class, too) - Supply and Demand: The global population has tripled over the past 72 years and growing by 75 million people per year with 60% of the world’s population residing in Asia. The economy in Asia has exploded and with success comes the need for bright shiny automobiles. Do you think the oil companies control the oil? We should have stayed awake. Governments control the oil. OPEC, consisting of Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela, controls half the world supply of oil. Russia is quickly getting their untapped reserves into production. See anyone there you would want to invite for your sleep over? Inflated oil prices, much like the housing boom in 2005 (stay with me on this) has a negative effect on the economy. We have experienced oil spikes in the past but they always came back down to a manageable cost. Another reason is the “futures trading” on the stock market. For a really good time, instead of going to Gila River and playing the tables, bet the oil prices will continue to rise. It is legalized gambling on the future of oil.

Gas prices affect the overall economy with us spending more money on necessary items and our incomes not keeping up. It is called inflation. The Fed is responsible for keeping inflation down and to accomplish that in the past, they have raised the Fed rate.

FYI: Mortgage News: FannieMae announced earlier in the week they will no longer accept lease agreements on current homes. The borrower will have to be approved with both payments and have 6 months reserves. The timeline is soon and the guidelines are forthcoming. “Buying and Bailing” will be curbed.

Diane Gerdes

The week started out with the stock markets doing the happy dance after May’s surprising increase in retail spending. We were out shopping with our government rebate checks at Wal-Mart and Costco. The markets also loved the hawkish remarks from Ben Bernanke, Fed chairman, about the economy and the dollar, sending the stock market on a three day spree. Today, things got ugly. Stocks took a nasty spill after the employment numbers told the story of the unemployed, the highest level since October, 2004 and the scariest increase in 22 years. Another jump in oil prices had the soothsayers rethinking the Fed statement earlier of raising rates. After a month of quiet time, the financial institutions got back in the news with Lehman Brothers, having lost over 53% of their stock value since last year, whispering the Bear Stearns mantra of bail out.

FYI: The home decorator network has come up with a great idea for our expensive, top of the line SUV, painted horn winged red with the brilliant yellow striping that we can’t sell, and the car dealers will not take on trade for that nifty used golf cart we have had our eye on. Park it in the front yard, plant a tree on the luxurious Italian leather, open the specially designed sparkled oval sunroof, and sit outside in the evenings and listen to the Bose stereo system. Our neighbors only have gnomes in their yard.

No one was sending roses to the U. S. bond markets this week after the 10 year treasuries (30 year fixed rates) were kissed by an ugly stick. The “stick” was the revision of the first quarter Gross Domestic Product (What we are buying; How much are we paying; If the products we are shipping outside of our borders , exports, is balanced with the products we are bringing in, imports) indicating our economy is stronger than originally reported. Investors did the happy dance in their Manolo Blaniks (visual) and left the safe haven of the treasuries for the stocks that would give a bigger pay day. The president of the Dallas Federal Reserve also stated the Fed would raise the Fed rate sooner than later if inflation continues. As a result the 30 year fixed rates went up.

FYI: With the Euro so strong against our dollar, some companies are enjoying the benefits. Tiffany and their little blue boxes filled with not-so-expensive-jewels-if –you-are-from-Europe-and-buy-them-in-the-U.S., is projecting good profits. Also Disneyland and Disneyworld are enjoying a whopping 25% increase of foreign visitors to their theme parks.

A Greasy Spoon story as reported in today’s New York Times: Restaurants last year had to pay to have their left-over grease taken away. Now they have to lock up their cooking oil because of grease thieves that siphon it during the night and trade it to the commodities markets for biodiesel fuel.

Mortgage Note: Fannie Mae, the largest purchaser of conforming loans, is changing guidelines June 1^st. If the loan is not already fully underwritten approved, the loan will have to be resubmitted under the new guidelines. If you contact our office on Monday and hear Carney folk and wild animals in the background, it is because we made the decision that starting our own circus will be easier than doing loans.

This weekend, we will be parking our gas thirsty SUV and walk to the movies to see Indiana Jones. Sticker shock took on a whole new meaning with gasoline in the United States hitting $4.00 a gallon and $9.00 a gallon in Europe (it is not a typo). After our long walk to the theater (since public transportation in Maricopa County is a challenge) we will be watching Indy without our snacks since popcorn prices have increased due to the shortage of corn. That’s okay; we were getting a little chunky anyway.

The markets are absorbing the dramatic increases in oil and food prices with the stock market having a good week overall. The Fed’s released minutes from their April 30^th meeting and the minutes stated that the Fed will probably not reduce the Fed rate any lower this year. Any bets on if they will be able to keep their forecast?

FYI: Civics 101: A bill has to have a majority vote by both the Senate and House before it goes to the President for a signature. The housing legislation bill is still being modified but is likely to pass in the next couple of weeks. One of the proposals is to allow loans to be refinanced for the new appraised value, as long as the existing lender will allow the “short” refinance. The new lenders will call 1-800-Good LuckInFindingTheRightPersonToMakeThatDecision.

Is that the sun peaking through the clouds? Housing resales in some communities are showing signs of recovery, mainly spurred by sales of REO’s. Wednesday’s Consumer Price Index indicated that the prices we are paying are in line with what we are making, therefore keeping the big “I” (inflation) away from the door. Today’s construction starts showed a surprising gain, the strongest showing in two years. New apartment complexes were the cause for the increase, not residential housing. Secretary of Treasury, Hank Paulson, stated that the financial markets are improving. Ben Bernanke, Fed Chair, speaking at a Fed conference in Chicago, is encouraged by financial institutions recent liquidity, and strongly suggested they continue to build up “generous cushions”.

What about those clouds? Oil prices that affect our cars and other products and food prices for our three squares a day are kicking the housing market out of headlines.

FYI: Fannie Mae announced today that they are re-implementing nationally the 95% and 97% LTV loans with a new “risk based” module. Everyone is so excited! The soothsayers are telling us that it means: Only individuals with stellar credit, income, little debt, and are willing to pay the high mortgage insurance monthly fee, will qualify for the 97% LTV. Has Fannie notified the Mortgage Insurance companies to let them in on this “great” news?

The International Money Fund issued a statement today stating the main worries for our globe today is inflation. Food and Energy (oil) costs are at an all time high and it is not just the third world countries that are at risk. The rising costs will affect all of us. Some analysts are predicting that gas will be over $4.00 per gallon to celebrate the summer travel season. Hmmm….coincidence? The U. S. can spend a trillion dollars to start a war in Iraq, send tax rebates to millions, yet we cannot figure out how to lower the cost of gasoline?

The House of Representatives passed the controversial Homeowners Aid Package. The nitty-gritty of the bill is asking current lenders to reduce the principal balance of homeowner’s home loans in declining markets, so they can refinance at a fixed rate with an FHA loan. It now has to go to the Senate and then the President before it becomes law. It has become a “party bill” and not one that serves margaritas. Most Republications are against, the Dems for. Bets are on that as the bill stands now, it will not pass the Senate and President Bush says he will veto. So just so we can understand…. the government can step in and save Bear Stearns, give the banks cheap money to borrow, and the current lenders can still sell the foreclosed homes to recoup a few bucks, yet coming up with a viable solution (quickly) for current homeowners to save their homes in not an option?

FYI: FHA will change the upfront mortgage insurance effective July 14. Currently all FHA homeowners pay 1.50 percent of their base loan amount that is added into the loan. The new upfront mortgage insurance will be a sliding scale from 1.25 to 2.25 percent depending on the loan size, down payment and credit score.