It's All About Trust

Tuesday March 23 2010

"We are at the point right now," Stevens said, "where no one trusts the American housing finance system."

One of the reasons America has built large capital markets is trust. Accountants express independent opinions on financial statements. This gives investors confidence that they are reading the truth. Failure to adhere to those standards destroys that fragile trust, the result is that investors shun the markets. 

And so here we are. Read the last sentence in this article, shown above,  about FNM FRE FHA. 
Those three entities package and re sell mortgages. Yet some of their packages rated AAA turned out to be junk, now investors do not want to buy the mortgages. If this happens please understand that means game over, real estate can only turn over if someone can re sell the mortgage, gain new cash, and lend on another mortgage. Absent this cycle, either the buyer pays cash or the seller carries the note, period. 

Otherwise housing prices collapse to what cash people have. This is why audit failures at FNM and Lehman have had such repercussions. 

Comments

[Laura Contreras]

There is no trust anywhere, Stock market, banks and in the hoursing marketing. I know that I nolonger want to invest in the stockmarket even at work. And Banks say that are leading money but there with very high standards not I can't even borrow money right now, the credit card companies are lowering credit limits left and right. No there is no more trust.

[Jessie Trinidad]

Trust will slowly pick up as stiffer regulations and personal accountability are established. I surely hope that history does not repeat itself with deregulation that benefits multi-million corporations, with the aid of a certain political party that supports the elitists.
Angry investors have good reasons for avoiding US mortgage companies. Only time will heal the pain that caused financial injuries to many. And with time the wounds will slowly heal and investors will once again gain confidence and go back to business as usual. I support corporate regulations that will prevent another recession.