Weekly Economic Update

Weekly Commentary

Thumbnail Sketch: The Pending Home Sales Index, issued by the National Association of Realtors^®, pumped a bit of optimism into the marketplace. But the common buzz today sounds very negative. As always, though, there is much reason to be skeptical of the forecasts of doom.

Even the author of the study for First American CoreLogic predicted that foreclosures “will not break the national economy or the mortgage lending industry as a whole.” This after telling us he expects 1.4 million of the “teaser-rate” ARMs now in existence to go into foreclosure by 2010-nearly a third of them-and 7% of those written at market rate, and 12.2% of the sub-prime loans written with rates above 6%.

These are astonishing numbers, of course, and they imply that we will all be scrambling to repair the ailments being suffered by many thousands of borrowers. (The first step-especially to make certain they don't fall prey to the scams floating around today, disguised as programs to protect people from foreclosure and loss-is to make sure the public knows that lenders DO NOT profit from foreclosures; they DO want to negotiate repayment schedules that will work for ailing borrowers; they DO want to help, most of them.)

The danger to the world's financial markets inherent in any kind of crash among collateralized mortgage obligations-the dollar amount of these securities now in the markets exceeds that of our nation's Treasury securities-is extremely sobering, and the Fed will do all it can to keep the markets calm. Lenders, too, are likely to do all they can to assist borrowers in making their debt service workable. The major brokerage houses that provided most of the funds for high-rate (sub-prime) lending, sadly, seem to simply be abandoning ship. It is a time when we need long-term vision, not just concern about next month's profits analysis.

Meantime, there is much work to be done in the real estate industry, and the industry is anything but dead.

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