Dennis Gartman, commodity trading supremo and author of The Gartman Letter, weighs in on tightening mortgage lending standards:
"We guess the folks at Freddie Mac were lost in committee meetings that went on for hours, and days and weeks and perhaps months, but finally Freddie made the decision that should have been made a year or more ago. Freddie's now famously decided that the various "ugly" loans that have required borrowers not to tell the mortgage banker involved of their incomes, nor divulge their employment history, nor make material downpayments, nor have equity in the house in questions. These "toxic" loans were bad... horrific... ugly... and we think perhaps at times immoral, but the public wanted them; demanded them, and were quite willing to embrace them. Now, the toxic mix is on everyone's radar screen... including Freddie and Fannie Mae's' managements.
"Now, long after a nuclear critical mass of these mortgages are out there in the market place and on the balance sheets of so many banks and other financial institutions, the leadership of the companies that led the underwriting efforts have said that perhaps 'tis better to for everyone involved if they were to tighten underwriting requirements. indeed, it is worse than this. They are not going to require these new underwriting requirements until September of this year. The "dog" has long ago left the yard; the door was long ago left open. Out on the high plains of Texas, which are flatter than any place we have seen in our lifetime, it is an old saying that one can see one's dog running away there for days. The "dog" of poorly underwritten mortgages are out there on the horizon... days out of the barn, and he ain't comin' back."
The change in mortgage lending guidance will most likely decrease the pool of available housing buyers.
All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.
