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Thread: long weekend commentary ... Now Start Watching Interest Rates

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    Default long weekend commentary ... Now Start Watching Interest Rates

    from

    (snip)"In the US, perception management is now the key to public policy. Which means the latest round of money creation and bond buying will only “work” if consumers and investors fall for what is essentially a con — the idea that fiat currency is the same thing as wealth.

    If they instead figure out that their savings are being destroyed while their government’s indebtedness explodes, they won’t invest in stocks and bonds or buy new houses and cars.

    So everything depends on the marks not catching on, and all eyes are on stock prices, the dollar exchange rate, and long-term interest rates. Any of these, by gapping in the wrong direction, can cancel out the psychological impact of the Fed easing. And then everything falls apart.

    How’s the con going? Not so well. The dollar’s holding up. Stocks are choppy but remain above their pre-QE2 levels. But interest rates are departing from the script. It seems that even with all the prospective bond buying, not everyone is convinced that lending money to the world’s most indebted government for 30 years is a “risk free” strategy. Long rates are starting to move up, enough to warrant two Wall Street Journal articles in one day,"(snip)

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    Banned Melonie's Avatar
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    Default Re: long weekend commentary ... Now Start Watching Interest Rates

    and speak of the devil ... from


    (snip)"Freddie Mac Bulletin

    Inquiring minds are reviewing the November 22, Freddie Mac Explanation of Service Bulletin 2010-30.

    Effective date: March 1, 2011

    In this Single-Family Seller/Servicer Guide (“Guide”) Bulletin, effective for all Mortgages sold to Freddie Mac with Settlement Dates on or after March 1, 2011, we are revising our postsettlement delivery fees (“delivery fees”).

    For certain Mortgages, we are:

    * Increasing the Indicator Score/LTV delivery fee rates by 25 or 50 basis points for Mortgages with certain Indicator Score/LTV ratio combinations

    * Increasing the Secondary Financing delivery fee rate by 25, 50, or 75 basis points for Mortgages with certain LTV/total LTV (TLTV) and Indicator Score combinations

    * Adding a new Secondary Financing delivery fee for Mortgages with LTV ratios less than or equal to 65%, and TLTV ratios greater than 80% and less than or equal to 95%

    * Revising TLTV parameters for Mortgages with Secondary Financing and LTV ratios greater than 65% and less than or equal to 75%


    Freddie Mac Fees




    Why Your Credit Score Matters

    Looking to buy a house or refinance? Take a look down that table and see what happens.

    * In the 75%-80% LTV column, you are hit by an extra .50% if your credit score is 699 instead of 700.

    * The difference between 679 and 680 is a a full 1.0%.

    * The difference between a credit score of 679 and 741 is a whopping 2.5%.


    Both people I talked to today said these values are rigid. If you are looking to refinance or buy, and you are close to a major cutoff, small differences in credit scores can be a big deal."(snip)


    The bottom line here seems to be that Freddie Mac policy is FINALLY recognizing which 'segment' of mortgage borrowers is causing their gargantuan losses. In response, Freddie has now officially 'slammed the door' on future subprime borrowers by boosting their mortgage interest rates by 3.25% compared to prime borrowers. Of course, both rates are tied to long US treasury interest rates plus some adder. This basically means that, come next March, the de-facto new mortgage interest rates charged to subprime borrowers will be on the order of 7.5-8.5%+, while the new mortgage interest rates charged to prime borrowers will be on the order of 4-5%. And this assumes that existing 2.5-3.5% long term US Treasury Bond interest rates don't get catapulted upwards by the Chinese / Japanese / Euroland in the meantime.

    This of course also implies as a secondary effect that REO and other distressed properties that are located in inner cities and other areas that aren't very desireable to prime borrowers, or that are in the downscale price range re size / age / condition that also aren't very desireable to prime borrowers, will be even LESS likely to be salable at current price levels ( if at all ).

    As a matter of logical consequence, this is also likely to mean that banks will be stuck with REO and other distressed properties that simply can't be liquidated without the banks eating gargantuan losses. Combined with 'putbacks' from Freddie / Fannie, this is likely to significantly expand the 'failed banks' list / FDIC depositor liability / US gov't debt.

    On the flip side, this may also mean that a year from now any cash buyers looking for inner city / small size / older / handyman's special houses may find unbelievable bargains available !!!

    But this may also mean that, as subprime homeowners are evicted from their delinquent mortgage properties, and as subprime would-be buyers are priced out of new mortgages, that the demand for rental housing and thus rent prices may increase substantially.
    Last edited by Melonie; 11-24-2010 at 04:22 PM.

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    Default Re: long weekend commentary ... Now Start Watching Interest Rates

    Very Helpful Forum and quite an interesting topic as well !!!
    Keep It Up !!

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    Default Re: long weekend commentary ... Now Start Watching Interest Rates

    deleted for shameless promotion !
    Last edited by Melonie; 12-23-2010 at 03:15 AM.

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    Default Re: long weekend commentary ... Now Start Watching Interest Rates

    Freddie has now officially 'slammed the door' on future subprime borrowers by boosting their mortgage interest rates by 3.25% compared to prime borrowers.

    I disagree with this conclusion. As long as subprime borrowers can be accepted no matter the rate, they will continue to apply. I see it happen daily. Even when I beg people to work on their credit score first, many wont. They are still under the "I want it now" mentality.

    If the base base rate is 5% that added 3.25% equals 8.25%. Subprime borrowers are used to higher rates. Many think they have done good even at that rate. Where the FHA really hits subprime borrowers now is that they have to pay pmi on the life of the loan now. The terms buried in the paper work are insane. They have pre payment penalties for life of the loan as well. Meaning if they pay it off one month early they are hit with that fee.

    Bottom line is that Freddie has NOT slammed the door on anyone. They have just made sure they insured their losses.
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: long weekend commentary ... Now Start Watching Interest Rates

    ^^^ Technically true. However, I would point out that with the new regulatory requirements of income verification, plus evaluation of 'future ability to repay' in various economic scenarios ( i.e. loan payment amount including imputed property taxes and PMI can't exceed 31% ? of verifiable income ), plus 8%+ mortgage interest rates applying ( thus vastly increasing the monthly mortgage payment amount versus the amount of borrowed mortgage principal), an ongoing ability of would-be subprime borrowers to file loan application requests with Freddie is now almost totally divorced from would-be subprime borrowers actually being approved for new mortgages by Freddie !!! In my book that constitutes 'slamming the door' !!!

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