Article contributed by Alfredo Ramirez, The Loan Source 9/17/08
If you pay taxes in the United States you now play a small part in the 79.9% share that the Federal Government has taken last night in failing insurance company AIG. After saying this weekend it would not rescue AIG, the Federal government reversed course Tuesday evening and declared the insurance giant too big to fail. The Fed has thrown AIG an $85 billion loantwo-year term at a rate of 8.5% plus LIBOR (or about 11.4% at current levels). AIG is saying they will sell off assets over the course of the next two years, and plan to pay back the loan in full plus interest. The government has the right to veto any such sales, so basically you are still a private company but Uncle Sam is watching closely. over a
The government will have authority to replace executives at will, and they have already made a move to replace the current CEO. They felt that a bankruptcy of AIG would have created too much damage to the already fragile market. Policy holders will be protected, jobs will be saved," New York Gov. David Paterson said Tuesday night.
In other news, Housing Starts for August were below estimates representing a 17 year low. I would venture to say this is probably a good thing has we don't need additional supply of new homes right now.
Mortgage bonds are all over the place today as the volatility in the stock and bond markets continue. They are currently making a positive rally due in part to the dismal stock market performance currently down 350 points as I type. Overall I think the government bail-out is good for us, but it's amazing what we are getting used to. I think this year will go down in financial history as one of the most volatile ever.
So tell me what's the good news? Well, the government has our best interest at heart of trying to shore up credit, financial, and housing markets and they seem to be willing to do whatever it takes to make that happen. We all just need to hang in there and focus on talking to people who are interested and qualified to buy or sell real estate!
On a side note, the LIBOR rates are spiking huge today. LIBOR stands for the "London Interbank Offered Rate." The rate is based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market. Because banks are now concerned about being paid back by other banks due to instability, they are increasing their rates they charge each other this morning. How this ties into us in the United States is most of the 1 year, 3 year, 5 year, 7 year, and 10 year mortgage ARMs are tied to the LIBOR index. Since 30 year fixed rates are relatively low right now, I think it makes sense for people in adjustable loans to consider switching to something fixed if they can qualify for a new loan.
Feel free to contact me with any questions. Have a good one!
Loan Officer
Alfredo F. Ramirez
The Loan Source
477 S. San Antonio Road
Los Altos, Ca 94022
Mobile: (650) 722-1094
EFax: (650) 887-0424
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