Mortgage Rates Soar – Fed Better Buy More

Posted on January 24th, 2009 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

Rates have shot up considerably in the past week and a half from roughly 5% at 1 point to 5.5%-5.625% at 1 point to the borrower. This was despite the Fed in the market buying $19 billion in Agency MBS last week. In the months leading up to the Fed announcing their QE plans, rates got under 6% several times — the mid’s 5%’s really is not that great. One would hope that with the Fed in there buying Agency MBS at the pace it is, rates could hold — but they have not been able to. This spike in rates will have a serious impact on the weekly MBA mortgage applications data that come out each Wednesday. My guess is that they are down this Wed and plunge the Wed after next.

Who is the Fed Really Trying to Help

The rate spike goes along with the thinking many (guilty!) have that the only reason the Fed is in there buying MBS in the first place was not to give you and I the gift of lower rates — rather to provide a bid for the Foreign Central Banks and Bill Gross to hit. Agency MBS are time bombs with the underlying loans imploding like private label. Most think that Fannie/Freddie loans are the cream of the crop…the truth is far from it.

As a matter of fact Housing Wire did a great story on it today. If their 90-day delinquencies are rising at 20bps per month and they are in full loan mod mode catching most prior to the 90-day mark, we got big troubles ahead.

The number of mortgages 90 or more days delinquent continued to rise at Freddie Mac (FRE: 0.68 +3.03%) during December 2008, reaching 1.72 percent of the GSE’s total single-family mortgage portfolio, the company reported Friday morning. That’s a jump of 62.2 percent from year-ago levels, and up 20 basis points from a 1.52 percent level reported for November 2008 — not surprisingly, as the nation’s housing woes have spread, Freddie Mac has posted a monthly rise in delinquencies throughout the entirety of last year.

FCB’s and Gross are the very players needed to buy Treasuries. How does the Treasury make it easy for them to sell their Agency holdings and hopefully buy more Treasuries…the Fed comes in the market with a multi-quarter perma-bid — others front-run or try to chase the Fed — and large MBS holders lighten up into the action. We know they were sellers before the Fed jumped in the market. Now we have made it easy for them.

Agency MBS are still not ‘explicitly’ guaranteed rather ‘effectively’ guaranteed while the firms are in conservatorship. This presents a problem especially with the new cramdown legislation on tap. Large Agency MBS holders better hope that .gov takes a firmer stance because if not, this market could see some considerable widening in short order. Remember, present backing is only $100 billion per GSE. Funny, but if they do stand up and back the entire $4.5 trillion GSE MBS enchilada and the cramdown legislation comes through, .gov (taxpayer) will be cramming themselves. Just think the Treasury yield action if .gov decides to ‘explicitly’ back trillions in Agency MBS.

Wholesale (Broker) Mortgage Rate Expo

Below are wholesale Agency =<$417k conforming rates from a few select large-named lenders. Boxed is the rate level that would cost the home owner 1 point in fee. The numbers next to the rate are the ‘cost’ or ‘rebate’ at that particular rate level. For example from Citi at 5.5% for 30-days, the broker gets paid .109% of the loan amount as a fee.On a $400k loan, that would be a little over $400 to be used as commission, to pay closing costs etc.

To get a popular no-point loan, rates are back over 6%. Remember, the rates below are for a perfect 80% LTV, 740 credit score, full-doc borrower. If the borrower has a second mortgage behind the first, a lower score, is pulling cash-out etc the rate can shoot up considerably.

**PLEASE NOTE – I AM MOVING…please look to the right at the top of this site. Enter your email address in the box above ‘subscribe’ or I may not be able to find you after the end of the month.

Below are the adjusters for anything other than a perfect borrower/loan. If the borrower fits within the outlined red box there are no adjustments. Everyone else gets hit. ‘A’ through ‘H’ are cumulative so it is obvious how quickly the rate and fees can get out of control. Two years ago 80% of these adjusters did not exist.

Below are Agency Jumbo to $625k pricing in the mid 6%. Citi has the best pricing but at 1.5 points, it is likely cost prohibitive for most.

The chart below is the past eight months mortgage rates. The last three months show what happens when a market loses its integrity and the government jumps in. And you thought stocks were volatile. This is a perfect shot of one of the reasons lenders are pulling their hair out – rates are so volatile borrowers keep re-applying with lender after lender trying to get the best rate. They better close one quickly – rates are going up.

**PLEASE NOTE – I AM MOVING…please look to the right at the top of this site. Enter your email address in the box above ‘subscribe’.

The last day my site will be hosted at the one and only ‘Mortgage Lender Implode-O-Meter will be at the end of the month. I will be changing my site address but may not have it up by then so if I do not have your address as a subscriber, you may not be able to find me. Feel free to add as many email address as you want my information delivered to.  Your address will never be sold or used by anyone other than me in order to get research out to you.– Best, Mr Mortgage.

More Mr Mortgage

19 Responses to “Mortgage Rates Soar – Fed Better Buy More”

  1. Hey Mr. M–

    Just reading the headlines of the day, and have to tell you–You had this story first about 6 months ago–(How the bank’s SHADOW inventory was going to effect everything out there)!!

    http://money.cnn.com/2009/01/21/real_estate/ghost_inventory/index.htm?postversion=20090123

    Just had to say THANKS…you have saved me from making a very bad decision to purchase when the time just isnt right!!

    KUDOS to you!!!!

  2. This cramdown legislation sounds kind of scary to me. If bankruptcy judges reduce the principal, that will decrease the value of the MBS and make the Feds pump more money into Fannie and Freddie. This is getting out of control and at some point we need to stop the pump from the taxpayers to the GSEs. Good grief!

  3. Mr. M – great catch there. I’ve mentioned the bond market in several previous postings. Therein lies the key going forward. Real interest rates must rise. They can’t stifle it much longer.

    To get a perspective on this from the 2nd largest financial entity on the globe, check out the link below. Rumblings of discontent and restlessness from parts hither & yon are growing. They will not stay tied down to our debt indefinitely…

    http://www.atimes.com/atimes/Japan/KA23Dh01.html

    -C.C.

  4. C.C.

    Something new backing the Federal Reserve notes as of the last release. They are now backing the USD with MBS LOL! Scroll all the way to the bottom. The USD has reached a new low…

    http://www.federalreserve.gov/releases/h41/

    U.S. Treasury, agency debt, and mortgage-backed securities pledged

  5. great work MM. Thanks again. Where will all this end? Seems like the govt will go to any lengths to prop up the banks.

  6. Wow…I had not looked at Citi and Wells in a long time. Provident just plain kicks butt on everyone. Yes they cherry pick, but the system is easy once you know how it works.

    January 23, 2009
    Rate 12 Day BE January Special 12 D
    4.375% 1.000% -0.250% 0.75
    4.500% 0.500% -0.250% 0.25
    4.625% 0.125% -0.250% -0.125
    4.750% -0.250% -0.250% -0.50
    4.875% -0.375% -0.250% -0.625
    5.000% -0.750% -0.250% -1.0
    5.125% -1.000% -0.250% -1.25
    5.250% -1.125% -0.250% -1.375
    5.375% -1.250% -0.250% -1.5
    5.500% -1.375% -0.250% -1.625
    5.625% -1.500% -0.250% -1.75
    5.750% -1.625% -0.250% -1.875
    5.875% -1.750% -0.250% -2.0
    6.000% -1.875% -0.250% -2.125
    6.125% -2.000% -0.250% -2.25
    6.250% -2.125% -0.250% -2.375

    After pricing out ads

    Loan Characteristics
    Program Code Conf 30 Doc Type Full Doc
    Property State CA Property County Santa Clara
    Interest Rate 5.125% Mandatory Yes
    Loan Amount $417,000 Units 1
    Purpose Rate & Term Refinance Occupancy Owner Occupied
    LTV 90.00% CLTV 90.00%
    Impounds Full Period 30
    Loan FICO 720 Property Type Single-Family Detached
    Adj To Points / Rebate
    Archived Pricing!
    BASE Points / Rebate -1.000%
    Lock Period 0.250%
    Mandatory Lock -0.125%
    FICO/LTV -0.250%
    Agency Adverse Market 0.250%
    January Special (01/01/2009 to 01/31/2009) -0.250%
    FINAL Points / Rebate -1.125%

    Just shows you how much the big guys are trying to screw US and consumers. They are not even close…Obviously the buy-up rates don’t make sense for 0 cost, but that is understandable.

    Thanks again for all your hard work and info.

  7. I have banked with BofA for over 20 years, but will choose to pull all accounts with these GREEDY S.O.B.s and transfer my money to a good local CREDIT UNION!!

    Our country is being extorted and run by the BANKSTERS, and I say, enough is enough!!

    You don’t deserve my trust or my MONEY any longer Ken Lewis!!

  8. MM Said:
    Just think the Treasury yield action if .gov decides to ‘explicitly’ back trillions in Agency MBS

    Joan Said:
    What does he mean?

  9. Joan:

    It means Monetization of the debt.

    It means (or could mean) a flight from our debt by foreign creditors – a measured exodus or a run. We don’t know yet. It won’t filter down to the proletariat until already in progress.

    – Keep low debt load
    – Keep hard assets
    – Save what ever you can
    – Don’t spend a dime on what you don’t need

    That’s about all the average man/woman has going to steer clear of this tsunami.

    -C.C.

  10. Thanks C.C.. Again, great advice too.

    Staying on topic of Mortgage Rates Soaring (which is bad for me and those waiting to buy) how would the Government allowing principal reductions affect interest rates?

  11. Joan –

    I’m not certain of the direct mechanism by which the government allowing PR would drive interest rates up.

    This is what I do know: The banks do not want any part of this. They are hoarding funds at present. This in turn is putting political pressure on representatives to mitigate an impending mortgage debt-disaster with their constituencies.

    In essence, it is pitting the homeowner against Wall Street – much as Susan has suggested. The monied interests however run the political structure in DC behind the scenes, don’t ever kid yourself of that. They will always come first, up to and until Marie Antoinette loses her head for the second time.

    I’m looking at this from a slightly larger perspective however. The sheer amount of money – both already spent and currently allocated, is going to drive up interest rates – across the board. It has to. It’s only a matter of time. The $64k question is: When it starts, how quickly will they begin to run up?

    Unfortunately, the government (that includes us, as we are the government) is in a corner of which there is no painless alternative. In that corner are two escape routes.

    1. Raise interest rates to cover the losses – past, present and future and by doing so, immediately collapse what’s left of our economy into a severe Depression. Of which, we would again recover and build upon reality, but not without much interim pain & suffering.

    2. Quantitative easing – i.e., printing money with no backing to cover the losses and by doing so, create an inflationary firestorm that would ruin both the economy and the Republic.

    *3. Default. Which would in essence, bring about both aforementioned scenarios simultaneously.

    This is where we’re at. It’s not hopeless, but don’t count on a painless turn-around of the status-quot anytime soon.

    -C.C.

  12. CC:

    There is a fourth option:

    Have the government enforce capitalism with my proposal or one similiar to it. Yes,some banks will fail based on their own past business decisions and actions. But you know, that is okay. There is no need for so many banks (8500), lending and borrowing will be contracting to correct the “phony ” economy we have experienced. You, yourself stated cash is king.

    There is still pain involved, but it is less than what is still to come.

    Especially without the creation of more jobs here in the USA.

  13. For what it’s worth, our Citi correspondent pricing is about 1.0 discount points better than the wholesale pricing shown above. And that’s about 3/4 point “out” from our best pricing. My best pricing at the close of 1/24/09 (with overnight price protection) is 100.814 @ 4.875% for a 30 day DELIVERY of an 80LTV, 741 score. Any broker relying on Citi whlsl pricing like that is a good 160 bps out.

    Nevertheless, Mr. Mortgage has a good point about the Fed’s MBS manipulations accruing to the benefit of PIMCO. If I were Bill Gross, though, I would not be buying Treasuries. If the Fed needs someone to buy treasuries, they can print money & do it themselves. Welcome to Zimbabwe!

  14. […] is a link to Mr. Mortgage blog. He writes well about this recent increase in rates and why this will cause mortgage […]

  15. Again, Mr. Mortgage was screaming about this story months ago!!

    The mainstream press is FINALLY catching on….

    http://www.inman.com/news/2009/01/26/banks-unleash-flood-reos

  16. I am still amazed at how many people across this nation don’t still understand:

    WHEN YOU ARE LOSING MONEY FROM LENDING, YOU DEMAND HIGHER RETURNS, not lower!!!

    Mortgage rates have to go up in the long run, no matter what the outcome of all these socialist attempts are.

  17. I offer this up for your reading pleasure – and cautionary defense measures. In case anyone out there still thinks that a Bank Holiday is something from the barbaric past – and that we have ‘mechanisms’ in place to prevent such a situation here, you might want to take a look at some of your deposit/checking accounts and consider what you might do if the orderly wind-down now taking place, decides to get ‘dis-orderly’.

    We’re not that far removed here from actions happening in the U.K. now.

    http://www.dailymail.co.uk/news/article-1127278/Revealed-Day-banks-just-hours-collapse.html

  18. The timing on this is amazing; they’re not even trying to hide it anymore. Last year I heard from friends at Freddie that they were “requested” to hold back their REO until AFTER the election…

  19. […] any legal “limits” to the debt of the US Treasury. The road is then open to unlimited debt. MR. Mortgage: Rates have shot up considerably in the past week and a half from roughly 5% at 1 point to […]

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