Mortgage Market Update: The Bailout's Affect on Rates
Who would ever think that one day, these two would fail?
Although the bailout wasn’t a huge surprise to many people, it is still shocking to see just how many bad loans were written causing the entire US economy to crumble.
Here are my thoughts on the bailout:
Yesterday, the first business day after the bailout, almost all conforming rates saw at least a 50bps movement in rate, and after a $1 Billion capital cash infusion it sure does show. Thanks Mr. Paulson!
1. Whenever the government steps in, they usually impose some guidelines of their own - usually not anything good for the consumer. Variables such as down payment, reserves after closing, and saving trends will probably be more closely looked at.
2. Higher premiums will most likely be charged for all future loans. These will be passed on to the borrowers and will increase the cost to borrow money.
3. A requirement for a combination of lower Debt-To-Income and Loan-To-Value ratios in order for the loan to be sold to either Fannie or Freddie. This will be done to manage risk as well as to bring in more revenue, via a higher premium, for the “riskier” loans.
4. An introduction of a program for international/foreign borrowers that will allow for the loan to be sold off to Fannie and Freddie. Currently international borrower loans are held on the bank’s portfolio as the GSE’s would not buy them.
5. LOWER RATES.
Here is what I am quoting as of today on conforming loans:
30 Year – 5.75% @ 0 points, 60 day lock.
5/1 ARM – 6.00% @ 0 points, 60 day lock.
5/1 ARM I/O – 6.00% @ 0 points, 60 day lock.
Jumbo rates actually increased due to the lack of trading and the illiquidity with the MBS.
Here is what I am quoting on jumbo loans, as of today:
30 Year – 7.50% @ 0 points, 60 day lock.I would like to leave off asking all of you a question that’s been on my mind for the past week:
5/1 ARM – 7.125% @ 0 points, 60 day lock.
5/1 ARM I/O – 7.625% @ 0 points, 60 day lock.
With the current state of the economy, would you agree that since commodities such as oil and metals such as gold, are coming off their highs, that investors will consider looking back into the Mortgage Backed Securities market as a place for lucrative investment?
Granted there is still major uncertainty, not to mention a huge amount of risk in mortgages, but it sure doesn’t look like equities and currencies are that attractive right now either…
What do you think?
Posted by Noah
Tue Sep 9th, 2008 03:34 PM
money has to go somewhere. everything seems to be reversing these days and so far Ive heard 5-7 bottom calls already from the experts.
Posted by uwsider
Tue Sep 9th, 2008 06:45 PM
If loan standards are really enforced (primary residence, 20% down, 3 times income) then I don't see any reason investors would not start looking...
but with congress wanting to actually 'loosen' standards.. I wouldn't go anywhere near them..
Posted by anonymous
Tue Sep 9th, 2008 11:28 PM
In a de-leveraging environment (especially for banks), there is no way that jumbo loan rates are going down.
Posted by Real Estate Internet Marketing with Peter
Wed Sep 10th, 2008 02:44 PM
Good insights. It will be very interesting how all this is going to pan out. You are right, when government steps in, consumers usually don't come out as well.
So, now we have Gov. Mae and Gov. Mac, huh?
Peter
Posted by LJ
Wed Sep 10th, 2008 03:46 PM
What about jumbo conforming loans- do you think those rates will go any lower than they are now. I'm looking at locking a jumbo conforming $440K loan at 6.375. Do you think jumbo conforming loans will go lower than 6.2%. How does the bailout impact jumbo conforming loans
Posted by MortgageMan
Thu Sep 11th, 2008 09:03 AM
LJ:
Jumbo-Conforming Loans are sold off to Fannie Mae/Freddie Mac as they are securitized by them. The cash infusion that was placed into both GSE's, as well as the Government buying the Fannie/Freddie MBS, has a strong impact on Jumbo-Conforming rates.
Fannie Mae/Freddie Mac charge 50bps to take in loans over $417,000, read more about that here:
http://www.urbandigs.com/2008/04/raised_limit_conforming_loan_e.html
That said, if conforming rates go down any further, the Jumbo-Conforming rates will follow will always have 50bps built into the rate.
In my honest opinion, I think you should lock-in especially if you have a contract. Also, I would ask your lender if they have a re-negotiation policy. This policy will allow you to take advantage of a lower rate, should they drop, even if you are already locked-in.
This usually comes at no cost to you and is only allowed an X amount of days before closing.
Good luck!
Posted by April
Wed Oct 1st, 2008 11:07 AM
I am in college the other day one of my teachers had an email from a friend that he shared with the class. I like to think this really makes alot of sense. If the congress would pass a bill to split the 700 hundred billion between all Americans over 18, with all the houses and cars and things they would buy that would restimulate the economy. Also you would have some that would start new businesses that would help with the unemployment delima as well. Gives you something to think about, instead of throwing money to people who show they can't handle the responsibility.