Checking the news stories this morning, I found this little gem:  A refinancing rush as interest rates come down

It’s time for me to call semi-bullsh*t here.  Let’s take a look at some of the specifics behind this flood of new refinances.

Homeowners across the country did the same Wednesday. Mortgage brokers reported a surge of calls from borrowers seeking to take advantage of the Fed’s extraordinary decision. Some brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments. 

(Emphasis add)

A strong credit record, especially in the market, is considered to be over 700.  Unfortunalty the average credit score in the United States is 693.  If you do not fall above this number, good luck at getting a refinance.  Even if you do, you may be out of luck.  Look at that second item – hefty down payments.

A number of lenders are requiring up to 10% down for a refinance.  Others may be able to work with borrowers for less but a higher interest rate.    However, let’s take a worst case situation and assume that there is little equity, that means a large number of people who wish to refinance need to be sitting on a stack of cash.  If you have a 100K mortgage, and the lender requires 10% down to refi, that means a person may need roughly 10K simply to lower their mortgage.

Now what about the people who have lost equity in their house, how will the “refi” boom help these individuals?  If your house value is down roughly 20% and you have little to no equity, you will not be able to refi UNLESS you have that large stack of cash we just spoke of.

Finally, people – and banks – have not learned from the current situation we are in.  

Lisa Wallwork, 37, and her husband, Shawn, are in the process of refinancing the mortgage on the house they’ve owned for five years in Tolland, Conn. They pulled it off the market in September after their house didn’t sell for more than a year.

 

“We wanted to move up to a bigger and better house,” she said.

 

Instead, the couple are refinancing their $185,000 mortgage, pulling out equity to remodel their kitchen and getting a new front door. And they still expect to save up to $300 a month in the process.

(Emphasis add)

What does this remind you of?  People using their homes as credit cards once again.  Pull out equity in order to have cash while increasing your debt.  This is part of what caused the current economic downturn we are facing.

It is critical to question all data that is in the press these days.  Yes, there will be an increase in mortgage related activity but only a small portion of the population will be eligible to reap the benefits. Having 3 requests in one day (making the number up) may seem like a boom if you previously had zero.

This wave of refi’s is helping to establish a new floor in housing prices, true, but there is so much pain in the market that floor may still be years away.

Southwest airlines, one of the few profitable airlines left out there, swung to a loss for the first time in 17 years the company report on Thursday.  Guess what? The loss is due to rising energy costs.  Guess what? it’s because LUV overpaid for their fuel and is now a victim to “mark-to-market” accounting.

Years back Southwest Airlines started to hedge their fuel costs – paying a pre-determined price for a commodity in order to avoid large and often unpredictable shifts in pricing.  This is based on the belief that prices will continue to rise at a predictable rate which allows a service provider the ability to complete energy purchases before the price increases.  Problem is if the price of fuel on the open market falls below your cost paid the company needs to show a loss based on current account rules.

Hello Southwest, welcome to an accounting rule that doesn’t seem to be based in reality.

Another day is upon us, as is another Bailout bill. The Senate will vote this evening (7:30 Eastern) on a bill that is essentially the same except that it includes raising the FDIC insurance limit to $250,000 per account, up from $100,000, as well as the addition of a $8 billion tax cut for hit by natural disasters in the Midwest, Texas and Louisiana. Is this what the bill needs for Republicans to support the effort? If it passes the Senate, will the House pass the bill as well?

Wall Street seems to be asking the same questions as well as volatility is high in this trading session. The DOW is currently down 135 points, off session lows, trading at 10,713. As if the bailout wasn’t enough for traders to be worried about, more “mixed” financial data was released today, which may be adding to the down market.

Mixed, you ask? Yes – mixed. The manufacturing index fell to 43.5% in September, which is mighty close to indicating a recession, and mortgage applications plummeted 23% from the previous week. However, yesterday consumer confidence posted an unexpected rise and only 8,000 jobs were lost in the private sector for the month of September when Economists were forecasting a loss of 60,000.

While the stock market is quite volatile these days, and the credit markets are virtually frozen, I am starting to ask the question if the bailout is truly necessary. The world didn’t end when the first bill failed, business still went on, and there were not long soup lines… Yes, we will see the long term pain by not opening up the credit markets, mass bankruptcies and unemployment could be witnessed in the very near future but maybe that is what needs to happen…

I still view the whole situation as a correction, not a collapse and, as such, I am starting to waiver on the need for the bailout.

UPDATE: a few interesting tidbits

Want to see possible evidence the economy is slowing, the US has higher than expected crude supplies – translation: less oil is being used by consumers.

Investors are skeptical of the vote taking place this evening and they should be!

After the failed vote on Monday, and the major decline with the stock market, the question on the minds of the general public seemed to be “What happens next”.  Well, it appears the next steps have been identified. Wednesday evening, at 7:30 PM, the Senate will vote on a version of the bill.

The next question the general public should be asking is what differentiates what is moving forward in the Senate from what was denied in the House. On first glance – nothing major.  The only thing that really sticks out is the request to raise FDIC insurance limits from $100,000 per account to $250,000 in an attempt to prevent any further runs on financial institutions.  

Let’s assume, for a moment, this will pass the Senate. Why are we to think this will pass the House? Nothing has changed; nothing is significantly different as of yet, so why will 12 more lawmakers vote in favor of passing the bill?

The question I have, if passed, is how are the people who formally voted no benefiting by voting yes?  That is really the question.

So, the world markets have no crashed and the world did not end. Markets are actually mixed the day after the “great sell-off”. Also take into account that DOW futures are 145 points in the positive makes one wonder if the market is OK with the current situation.

For those who blame Republican policy – not greed and poor oversight – please explain to me why Europeans are rescuing banks? Dexia, a large Belgian, wouldn’t be getting a $9.2 billion government bailout if this was simply a U.S. / Republican party issue, would it?

Finally, there is still no word on where we go from here….

I wonder what today will bring.

For the biggest one day drop ever:

There was some concern that the bill was not going to pass the House today and, sure enough, it did not. The Bush Administration, Secretary Paulson, Chairman Bernanke and senior Democratic leadership all supported the bill but the majority of Republicans did not. As a result, the bill appears to be dead in the water.

The DOW was down roughly 700 points after the bill was defeated but this bill is not about the Stock Market, it’s about the credit markets. This bill was designed, fundamentally, to help open up the credit markets. If one looks as at the current Government Bond rates the 3 month yield is at less than one percent – that is to say there is NO MONEY AVAILABLE.

This crisis is about credit, plain and simple. Without credit business cannot spend and growth will stall – if not decrease. Personal credit will dry up and households will not be able to make large purchases such as cars, washers and home improvements. Students may not be able to get loans for college…. and it can go on and on.

What I am not seeing here is leadership on the Republican House side. Where are the leaders making their case as to why they are not passing the bill and what the course of action is? Where is the Republican House leadership and why can they not deliver the votes they need?

For the very, very first time I am truly worried about the financial situation in the United States.

UPDATE: Voting Record

Care to see the AYES/NOES on the bill, you can check it out here.

UPDATE 2

You have to be kidding me – Republican Leadership is blaming Speaker Pelosi for being bipartisan as to why the bill failed. Supposedly she was too negative.

Yes, she hammered the Bush Administration – and I do not agree with what she had stated – but how petty is that if that is truly the case.

Here is the speech (in RealMedia format)

Here is another version – flash player based

So the general feeling is Republicans did not vote due to the fact that she was hammering the current administration. Again, I don’t agree with what she has stated but this is a time to put politics aside and get the deal done.

UPDATE 3

John McCain is shooting back at Barack Obama and Nancy Pelosi. Both sides, no matter what is said, need to wake up.

UPDATE 4

To play politics for a second – the Democrats have the majority in the House of Representatives and could pass the Bill on their own if they truly wanted to.  If that is the case, how come this failed because of the Republicans?

Market consolidation continues.

Citigroup (C) will buy the Wachovia banking assets for $2.2 billion in an all-stock deal. Wachovia was the fourth largest bank in the United States which had about $53 billion debt and a loan portfolio worth more than $300 billion. Due to the purchase Citi will have roughly $42 billion of losses due to bad debt.

Here is the real kicker – let’s say you were a Wachovia share holder. On Friday ever share you owned would have been worth $10 but, as you woke up Monday morning, your shares would have been worth .86 per share.

Ouch.

UPDATE: Why did Wachovia need to sell so quickly?

Be cause it ran out of time. That is to say the bailout did not happen quick enough, it could not get rid of it’s bad loans, and needed to sell before it collapsed.

UPDATE: Shares of National City Pluge 52%

The stock market is wondering who is next to go and, by the looks of it, they are thinking it may be National City.

As of roughly 8:30AM central the House of Representatives began debate on the financial bailout. Roughly three hours of debate/discussion is to be had with a vote expect by noon central.

How are the markets responding? With a sharp drop at the open, the down seems to have found the bottom of the day around 10800.

Updates to come as the day moves forward.

UPDATE: 10:32 AM CENTRAL

Here is the draft of the Bailout, all 110 pages.

UPDATE: 11:05 AM CENTRAL

You can watch the House Debates at C-Span. A final vote is, indeed, expected at 12:30PM Eastern / 11:30 Central but may be later if the debates continue.

UPDATE: 11:15 AM CENTRAL

Just vote already! This is all fluff… Everyone saying how this was politics at it’s best, everyone thanking everyone else… Wait…

Ginny Brown-Waite, Republican Congresswoman, does not like this bill and does not look like she will vote in favor.

UPDATE: 11:17 AM CENTRAL

Congresswoman Marcie Kaptur, Democrate, is voicing her disapproval. She says go back to the drawing board, this is not the right bill.

UPDATE: 11:22 AM CENTRAL

Speaker of the House, Nancy Pelosi, is blaming President Bush for this financial crisis (Let’s ignore the poor lending practices).

Wow – thanks Nancy – I didn’t know that Fed Chairmen Ben Bernanke is a leading expert on the great depression.

The bill does not contain bankruptcy? I wonder what that means….Ah, she wants to help homeowners stay in their home if someone goes into bankruptcy.

UPDATE: 11:31 AM CENTRAL

The vote should be taking place but the debates continue…. Actually, Pelosi continues to slam the Bush administration, is thanking Barney Frank for all that he has done and is asking both sides to vote for the bill.

UPDATE: 11:48 AM CENTRAL

Debate still ongoing – there are a number of very unhappy Republicans suggesting that people vote no.

Late Saturday evening congressional leaders and the current administration reached a deal on the financial bailout which includes a staggered spending rate and is open to companies who deny “golden parachutes” to senior executives leaving the company. A bailout is what Wall Street was looking for, as noted by the drastic swings in the past two weeks, but how is the market reacting to the news?

Rather unimpressed, actually.

As of 12:01 AM Monday, September 29th, DOW futures are down 67 points showing that the market is heading to a lower open. Look at other markets currently open and one can see the rest of the world isn’t too excited about the plan either. The Nikkei is down half a percent and the Hang Seng is two percent in the red.

Maybe the poor performance of the market is due to the fact that the Bill still needs to be signed into law, maybe a poor economy is finally playing into the market, or maybe the stock market is unhappy with what is being proposed.

This week has the potential to be wild, let’ see what happens.

UPDATE: 12:36 AM

Asian markets are heading lower due to an increase in interest rates, sending property and resource stocks lower.  Financial stocks, however, rose – it looks as if the financial markets are reacting in a positive manner to the bailout.