RFC Official Urges Mortgage Bankers to Prepare for Financial Calamity

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The U.S. deficit is growing so large that the nation is heading toward a “bang moment,” similar to what’s occurring in Europe, and originators should develop a hedge strategy, capitalize on short-term prosperity now, and the long-term travails ahead, said Barry Habib, chief market strategist for Residential Finance Corp.

Speaking at the Northeast Conference of Mortgage Brokers in Atlantic City, N.J., Habib noted that deficit spending in the U.S. is currently at 42% of the budget, a figure that is likely to grow to as large as 65%.

The RFC official predicts that eventually the bond market is going have a “bang moment” and drive up interest rates significantly. Habib believes the bond market collapse does not have to happen, but members of the U.S. government lack the political will to inflict the financial pain needed to turn things around.

In the short term though, he believes rates can go lower than the recently reported record lows. Habib predicted that the long bond will hit 2%, and originators will need a strategy to deal with the increased demand over the next six to eight months.

But in the long term, originators have to create a strategy today in order to survive, he said.

Habib, a well-known mortgage trainer, gave the comparison of the Muhammad Ali-George Foreman fight known as the “Rumble in the Jungle.” Ali, the underdog, successfully used a strategy called “rope-a-dope” where he absorbed the blows Foreman inflicted for six rounds, before knocking Foreman out when he tired.

Habib said in much the same manner, originators have to absorb the punishment coming after the “bang moment” but have created the hedge strategy needed to thrive and come out ahead.

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