How To Get Home

The big sell-off today accomplished a very important thing today. It got investors to take a serious look at their positions and why they carry them. We may see further selling pressure tomorrow or the markets may find a bottom mid-day. Who knows for sure. Trying to call a bottom is pointless. You would be better off trying to pick winning lottery numbers.

There are many other events that have been occuring over the last few weeks that present some even bigger questions going forward with the capital markets as a whole and mortgage rates specificly.

1. The flow of money into the sub-prime market has come to a grinding halt. As most credit and program standards are being tightened, less money means less loans will be made. This will remove a certain percentage of the borrowing public from the home buying market. Freddie Mac announced that it will cease to purchase subprime mortgages that have a high likelihood of excessive payment shock and possible forclsosure.

2. Defaults will continue to rise and foreclosures will follow. Keep a close eye on this trend to see the extent of the subprime meltdown into the A paper market occurs.

3. Housing construction slowdown on commercial bank’s numbers. A lot of the new construction boom has helped fuel the mortgage machine, as that loan volume dries up, what impact is that going to have on the banks.

4. I mentioned in my post below that the economy COULD be headed to a recession. Some people feel that recession has already started.

With the amount of default and foreclosure data out, the residential mortgage market is changing. The change will bring tighter credit requirements as well as more conservative underwriting. No one is calling this the start of a credit crunch, but more of a healthy check-up for the mortgage industry.

Funny how some things just work out when they are supposed to? Just so happens that our fearless leader, Fed Chairman Ben Bernanke is going to be talking to a few politicians on Wednesday. My guess is after today, they and everyone else is going to listen closely.

10:00 AM ET : Federal Reserve Chairman Ben Bernanke to testify about U.S. fiscal challenges to the House Budget Committee, in Washington .
8:55 AM ET : New York Federal Reserve Bank President Timothy Geithner (FOMC voting member) to speak about liquidity and financial markets, at a risk management convention, in New York

Whatever happens tomorrow, remain calm and think about the Big Picture.