Realty Check

Jim Cramer's Mortgage Outcry: My Take On It

Let me just preface by saying that I don't make a habit of commenting on what other colleagues at CNBC say. It's neither prudent, nor necessary. I also didn't even plan on blogging this week; I'm on vacation for crying out loud! But my BlackBerry was buzzing off the base this weekend, with housing bloggers begging me to respond to Jim Cramer's outcry on Friday about the Fed and the mortgage market. So let me just blog here respectfully.

I understand Cramer's passion (you can see it again in the clip below.) I do. I'm not out there in the money markets, in the pits. I've never been a trader, I've never worked on Wall Street, but I am a reporter covering real estate. I talk to mortgage brokers every day of the week, and I talk to real estate agents, and I talk to banking analysts, and I talk to economists who cover housing, and I talk to academics who understand historical trends. So let's just say I'm a little more obsessed with it than the next guy.

I agree with Cramer's fear that it's only going to get worse, despite the fact that I have people writing into the realty check box every day telling me that I'm overblowing the situation for my own dramatic benefit, as if I'm going to be a more popular reporter if the housing market crashes. Do reporters in the Midwest pray for tornadoes? I don't think so. Been there, covered that.

The fact is that according to a study by Credit Suisse, the bulk of the adjustable rate mortgages that were sold during the height of the housing boom, that is during the height of the most aggressive lending, will reset this fall, billions of dollars worth, and many many of the borrowers holding those loans will not be able to afford the resets.

Then come the new rates. I reported on Wells Fargo last Friday (see clip below), combining their news with news of American Home Mortgage laying off the bulk of its work force.I never said Wells Fargo was getting out of the mortgage business, I simply said that by raising its rates (rates that brokers offer, not the rate you would get if you went directly to Wells Fargo), the company is pricing many borrowers out. I said they would lose some business, and I stand by what I said. But by midday Friday, Wells Fargo was all po'd at me, calling my bosses in NJ and saying that I was misreporting the facts. Did I have to report their news with American? Yes, that's the time I get, and I have to get it all in. Did they like being in a report with a lender going belly up? NO! What company would be??

But now I'm getting emails about "panic." I'm reading the housing blogs (yes, while on vaca), and they're running quotes of respectable mortgage brokers saying that this week is going to be scary, because no one knows how the lenders are going to respond to Wells Fargo with their rates.

So back to Cramer. I know he's a passionate guy; I know he's prone to meltdowns, but this one was big even for him, and while I've never even met the guy in person, that says something. He claims we have "no idea how bad it is out there." I think we do, I just think no one wants to admit it. I got about 20 emails on Friday from local Wells Fargo brokers berating me for my reports. Should the Fed "open the discount window" as Cramer pleads? I'm not sure.

Clearly the credit market needs some help. The fear factor is overwhelming some of the basic fundamental facts, but not all of them. I just worry that if you lower interest rates you're essentially reversing an important, albeit painful lesson. American homeowners got greedy, bottom line. They saw these low rates, they saw these "exotic" mortgage products, and they bought themselves homes they should never have owned in the first place. Now they're in trouble, and many of the them should be.

Yes, there was plenty of predatory lending and plenty of illegal and immoral practices going on in brokers' offices in every state of the U.S., but the bulk of the boom was driven by straight-up brokers with straight-up documents that just happened to offer very cheap money for a short time. People didn't read their papers, didn't take the time to understand their investments and now they're getting burned.

I have to admit I'm torn. People need relief. The housing market needs relief. The credit market needs relief. But is the answer to open the barn doors again and see the rush of blind bulls say, 'It's all ok again. It's time to buy more house. It's now time to forget what we can all afford again?'

I'm not so sure.

Questions?  Comments?