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July 23, 2008
Mortgage Rates on the Rise
Mortgage rates are rising, according to the Times, in the wake of the troubles surrounding Fannie Mae and Freddie Mac. While rates continue to be low by historical standards, they're high compared to the levels they've been at in the past several years: The average yesterday was 6.71 percent for 30-year, fixed-rate mortgages, up from 6.44 percent on Friday, and 7.8 percent for jumbo loans. Rising rates primarily threaten to affect borrowers who have had loans with an interest-only teaser period, which could deepen the national housing morass. “When we get to rate levels like this, the market just shuts down,” said a mortgage broker based in Colorado. Some analysts argue that the rising rates are a temporary blip. Do any readers have first-hand experiences to report from the last few days?
Woes Afflicting Mortgage Giants Raise Loan Rates [NY Times]
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6.71% interest for Brooklynites will have no affect for the NYC area. 85% of all families in prime Brooklyn neighborhoods make close to $400 K a year. A couple points up, will not stop Brooklynites from buying up a brownstone or condo. We are talking pocket change for the majority of these families.
Posted by: turcod at July 23, 2008 9:19 AM
turcod..."85% of all families in prime Brooklyn neighborhoods make close to $400 K a year"
Please cite your source for this tidbit of information. Or did you just pull it out of somewhere??
Secondly..."A couple points up, will not stop Brooklynites from buying up a brownstone or condo." I'm assuming that the Brooklynites that you are referring to already own a brownstone or a condo!!!!
Get another cup of coffee before posting again
Posted by: daveinbedstuy at July 23, 2008 9:26 AM
Yes Turcod, I'm curious about where you are pulling your stats. We are in the market for a family-sized property in prime bklyn and don't make anywhere near that income, nor do many friends of ours in these neighborhoods. Only reason we can afford to buy is from sales of past real estate (here and elsewhere) so our purchase will be largely cash with a modest mortgage. There are plenty of people who work in arts & non-profit in these neighborhoods who are not pulling in huge money. And before you say, well they have all cash, that's not quite true either. We have enough cash to be in the game, but we are actually sensitive to our mortgage payments, and if interest rates get too high, it will impact how much we stretch for a given property.
Posted by: Miss Muffett at July 23, 2008 9:36 AM
Turcod:
"85% of all families in prime Brooklyn neighborhoods make close to $400 K a year. "
Source please? And if you don't reply, I'll just assume its your ass.
Posted by: Prodigal_Son at July 23, 2008 9:37 AM
By historical standards, 6.71% is a very reasonable rate for a 30 year mortgage.
Posted by: Boerum Hill at July 23, 2008 9:39 AM
You're right Boerum Hill but what's different this time is the spread. These rates are being kept high by the lending institutions compared to their cost of money. The reason is so that they can shore up their balence sheets and become more profitable. The 5 year Treasury rate is about 3.5% and the 10 Year is about 4.1%.
Mortgage rates are higher now than when the Fed began its easier policy (not easier rates). The Fed lowered the benchmark rate 3.25 percentage points to 2 % since September. These are historically high spreads.
All of the institutions are acting in concert in order to increase profitability. Their lending criteria are tight too so they are getting better borrowers at an even higher spread. Eventually the balance sheets will look better and they will cut the spreads...and the mortgage rates.
Posted by: daveinbedstuy at July 23, 2008 9:45 AM
Boreum Hill - you are right 6.71% is not high by historical standards - BUT $1000 a sq ft apartments and 2.5M brownstones in Brooklyn is very high by historical standards.
Economics effects EVERYONE and even if you make 200k or 400K or 1M - i it costs more to borrow then it has a downward pressure on home prices.
Posted by: fsrg at July 23, 2008 10:06 AM
6.71 is the average rate for ALL mortgages and 7.8 is the average for jumbo mortages. Since most mortgages for bkln are jumbo (at least for the neighbs that are driving bkln growth), that is a HUGE increase since last summer (I got a 6.6 then on a jumbo) and seems to me will have a big big impact on prices.
Posted by: gkw at July 23, 2008 10:09 AM
"Mortgage rates are higher now than when the Fed began its easier policy (not easier rates). The Fed lowered the benchmark rate 3.25 percentage points to 2 % since September. These are historically high spreads."
For the last time, The FED does NOT set interest rates! The Bond market determines interest rates. The Fed follows the 44, 13, 26 week treasures.
Do any one know why rates are going up? Let me help you out. There is a Mortgage rescue bill coming down the pike.
Fannie, Freddie Rise After Lawmakers Agree on Bill
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQurXvcpzmI4&refer=home
Fannie Mae and Freddie Mac rose after U.S. lawmakers reached a deal on legislation that authorizes Treasury Secretary Henry Paulson to bail out the mortgage-finance providers while placing few restrictions on the companies.
Thats 800 Billion dollars Paulson can do what ever he wants! He's going to hook up his Homeboys! The treasury is going to protect the wealth of some rich people at the taxpayer expense. The holders of US Treasuries are saying "Get Bent" and are selling off! They feel if Government wants to backstop this BS them, [pay a higher rate to do so.
The hijacking of America is happing right in front of you face and please don't say I'm hyping things up! These are some "strange days"...
For the clueless! Please keep your eye on the 10 year treasury! This determines 30 year mortgage rates!
http://www.bloomberg.com/markets/rates/index.html
The What ((I told you)
Someday this war is gonna end...
Posted by: what at July 23, 2008 10:35 AM
"The Fed follows the 44, 13, 26 week treasures."
I mean The Fed follows the 4, 13, 26 week treasures. Typo
The What
Someday this war is gonna end...
Posted by: what at July 23, 2008 10:42 AM
Mr. Raines ex-ceo of Fannie Mae was paid 20 million in 2003. Who knows how much Countrywide and all other invetsment banks earned in fees for packaging and selling these mortgage bonds.
Now the goverment is insuring $300 billion of refinanced mortgages with my taxpayer money. I feel pretty angry right now.
Privatize the gains and socialize the losses. Sounds like a free market to me. NOT!
I'm mad as hell and I'm not going to take this anymore.
Posted by: Dora Chica at July 23, 2008 10:48 AM
learn what the benchmark rate is What or STFU. It's set by the Fed. As usual, you are out of your league if you can't read it on a headline.
Posted by: daveinbedstuy at July 23, 2008 10:52 AM
What really happened with Fannie & freddie was that China, Japan and other holders of these securities called in their markers. They also operate on mark-to-market valuations and were watching their balnce sheets and currrent accounts decline because of this mess and they basically all called in and said "do something about this" and the Fed did because these foreign governments own the lion's share of this paper.
Posted by: daveinbedstuy at July 23, 2008 11:03 AM
Hey What, FNM up 20% today!
Dave, I have to agree halfway with the what, and half with you. Long-term rates are set by the bond market, short-term by the Fed.
30year rates may be rising cuz of inflationary expectations.
Posted by: denton at July 23, 2008 11:04 AM
It's the benchmark rate at the Fed discount (lending) window for banks that's set by the Fed. ST rates (Treasuries) follow that closely in the open market. The current discussion revolves around whether to allow other than commercial banks to borrow there...like Lehman et al.
LT rates have actually fallen. They were as high as 5.40 for 30 year Treasuries about a year and a half ago and they are now 4.65% or thereabouts...just eyeballing the charts
Posted by: daveinbedstuy at July 23, 2008 11:09 AM
"earn what the benchmark rate is What or STFU. It's set by the Fed. As usual, you are out of your league if you can't read it on a headline."
Take a look at those rates Dave 4, 13, 26 The Fed follows the Bond market..
"What really happened with Fannie & freddie was that China, Japan and other holders of these securities called in their markers."
This event has not happen yet. The Chinese are waiting until after the Olympic to dump, same with the Japanese.
The spike are due to the Mortgage Bailout that Bush will sign. This protect Fannie Mae and Freddie Mac assets. I'm been harping on this issue for months.
"Hey What, FNM up 20% today!"
Plenty of people are short coving! Their balls are getting squeezed!
"Dave, I have to agree halfway with the what, and half with you. Long-term rates are set by the bond market, short-term by the Fed."
Nope! Overnight lending is set by the Fed and the Bond Market takes care of everything else. When the short end of the curve rises you will see these Asshats talk about raising rates because of inflation! The Fed will have to "Follow the market"
This is the greatest rip off in history! Wall Street sold everyone a dream and now you will have to pay for that dream.. RIP MREB!
The What
Someday this war is gonna end...
Posted by: what at July 23, 2008 11:20 AM
"It's the benchmark rate at the Fed discount (lending) window for banks that's set by the Fed. ST rates (Treasuries) follow that closely in the open market."
No!http://www.financialsense.com/Market/wood/2007/0907.html
Will the Fed Continue to Cut Rates?
The charts tell the story..
The What
Someday this war is gonna end..
Posted by: what at July 23, 2008 11:25 AM
This discussion is over. He's reverted back to the old bullsh!t.
I should have known better. There's a big difference between ignorant and stupid and The What is the latter.
Good bye.
Posted by: daveinbedstuy at July 23, 2008 11:28 AM
Dora - you might be mad (and probably have a right to be) but if U.S. Government didnt backstop Freddie and Fannie then the world as we know it would cease to exist - if the GSEs collapsed the only thing that would protect you would be diamonds shoved up your a$$ and a gun.
That being said - I predict now that not 1 dime of Treasury $ will be spent to shore up Freddie or Fannie - they bought mostly good loans - it was the Merrill Lynch's, Bears, et al. that bought up all the real crappy stuff. Regardless of what the mark-to-market is today, the assets held on their books are preforming and will continue to perform.
Posted by: fsrg at July 23, 2008 11:38 AM
Mr. What. The short term bond market is less sensitive to inflation expectations. It is greatly influenced by the Fed. But you are right, it is not 'set' by the Fed.
But the Fed does not have to 'follow the market'. We've had periods of negative real interest rates in the past 10 years and it looks like Bernanke and Co. are willing to repeat the mistakes of the very recent past, with different but an equally less desirable outcome (i.e general inflation vs. an asset bubble).
Posted by: lincolnlimestone at July 23, 2008 11:46 AM
"I should have known better. There's a big difference between ignorant and stupid and The What is the latter.
Good bye."
Hey Dumdassinbedstuy are you really going to leave me alone? Please go away and don't ever mess with me again.
Buh bye...
The What
Someday this war is gonna end...
Posted by: what at July 23, 2008 11:50 AM
"But the Fed does not have to 'follow the market'. We've had periods of negative real interest rates in the past 10 years and it looks like Bernanke and Co. are willing to repeat the mistakes of the very recent past, with different but an equally less desirable outcome (i.e general inflation vs. an asset bubble)."
Do me a favor, go find the chart of the 4, 13, 26 T-Bills and the Fed chart. You will see what I'm talking about. Plus don't worry, The Bond Market is going to kill the Mutant Real Estate Asset Bubble!
Dora Chica! The What salutes you! You should be mad as heel about the Mortgage Bailout bill! Government is taking care of their Homeboys at the taxpayer expense and most people are too God damn dumb to figure it out! You should call your representatives and tell those Asshats not to vote for this crap!! You are the first person on this blog that get it! You see Dora there are Retards like this "That being said - I predict now that not 1 dime of Treasury $ will be spent to shore up Freddie or Fannie -" All of the Treasury's money will shore up Fannie and Freddie until Bush leaves office!
The What
Someday this war is gonna end....
Posted by: what at July 23, 2008 11:58 AM
But the government has to help Taggart Transcontinental! We need trains!
Posted by: deadnancy at July 23, 2008 12:43 PM
The What - do you understand how the backstop works?????
Yes all of Treasury will be pledged to backup the GSEs but the $ will not need to be SPENT.
I know you are rooting for the end of the world and this hurts the cause but the "taxpayer" will be hurt much more by the devaluation of all their assets, massive unemployment and social collapse - then by the Gov't pledging to backstop the entities they created and have tasked to expand homeownership to every man women and child.
I agree however - more oversight and less compensation to run a quasi govt entity is appropriate.
Posted by: fsrg at July 23, 2008 12:50 PM
What. That's assuming that the primary concern of the Fed is to stamp out inflation. Generally, this is the case and follow the 'Taylor Rule', which is a formula that describes how the fed fund rate is set in response to deviation in US inflation from the Fed's implicit inflation target and in U.S output from estimated level of potential output. Given their concern's about the fragility of the financial system, they have pushed their target levels far below the level prescribed by the Taylor rule. (4% verses 2%).
As the economy continues to be weak, there is a likelihood that they yield on your "4, 13, 26" week bills can come down, meaning that the Fed will not have to 'follow the market'.
My point is that the Fed does not follow the yields on the T-bills lockstep, there are short term deviations. You cannot claim to know the future of inflation and say that the "4, 13, 26" are going to go through the roof.
But if consistent inflation picks up, then the Fed will have no choice.
Also, the 'mutant real estate bubble' is bursting. Just not too badly in most urban cores, and apparently not too badly in Brooklyn as well. Your doom and gloom predictions need to realize that there's a paradigm shift going on.
http://www.businessweek.com/lifestyle/content/jul2008/bw20080711_257959.htm?campaign_id=rss_daily
http://www.csmonitor.com/2008/0521/p01s04-usec.html
Maybe if oil ever gets back to $15/barrel you finally will be right.
Posted by: lincolnlimestone at July 23, 2008 1:02 PM
Chica, it's very easy to say you're not going to take it anymore or that there should be no more bailouts but consider this. If we fail to shore up Fannie and Freddie the Sovereign Debt Rating of the United States Government will be diminished. Foreigners have invested in Fannie and Freddie bonds with the belief that they are guaranteed by the US government. The implications of the US government's Sovereign Debt rating getting cut are enormous because of the budget defecit and our need to continually borrow money to pay our bills. The national debt will be about 10 trillion when Bush leaves office (thank god) and everyman woman and child owes roughly $30,000 to pay it off. If our Sovereign Debt rating goes down, that means the interest we pay to continually borrow to fund our budget will go up. It's like the credit card companies raising your interest rates because your credit score has gone down.
There's only two ways to lower our budget defecit cut spending or raise taxes. Our budget is roughly 3 trillion. Of that budget, roughly two thirds goes to the following - Defense, Social Security, Medicare, and interest on the National Debt. You can't touch any of these programs and no one is even suggesting cutting these. Everything else, everything, is the remaining one third of the national budget. There really isn't a lot to cut if you eliminate these sacred cow programs. So we can't cut spending, will we raise taxes to pay off the national debt? Highly unlikely especially considering the economic downturn.
So, what's the solution, there really isn't one, not one that won't cause massive pain and no one gets elected promising that. So we'll keep trying to stick our fingers in the dike and hope that the whole thing won't collapse. It eventually will, but the to forestall that, we must "rescue" fannie and freddie and keep the interest rates down of our national government.
Posted by: Brooklynnative at July 23, 2008 1:06 PM
This is actually a good conversation. The What you are mostly on the right track. Here’s the thing, a bail out is NOT going to stop homes from depreciating nor will it stop job loss. So ask yourself what is the real reason for this bailout? Like all financial and political equations, you could probably find the answer by following the money.
Who ‘s going to make money or stop losing money? Dave, you’re assessment is wrong. Foreign holders of FNM are not calling in their markers. Just the opposite they’re buying more! The US has guaranteed the investments on these bonds, so no need to call the money in just yet. China could wait and actually make a run on these entities. Not in the traditional sense of when a run is made on a bank. But holding enough governments bonds that by default have control. Dark days ahead people. Start increasing those savings ‘cause a rainy day is very near
Posted by: 7andfive at July 23, 2008 1:14 PM
" Just the opposite they’re buying more! The US has guaranteed the investments on these bonds, so no need to call the money in just yet. China could wait and actually make a run on these entities. Not in the traditional sense of when a run is made on a bank"
Ding Ding Ding Ding!!!!! Yes we have a winner! Thank GOD Yes!!!!!! They are setting the Jux on US Assets and when the implosion happens they will get American Assets pennies on the dollar!!!!!!
Thank you 7andfive!
The What
Someday this war is gonna end....
Posted by: what at July 23, 2008 1:28 PM
BTW 7andfive This bailout is about saving their Buddies, Homeboys and Cronies! They could care less about the Asshat homedebter!
The What
Someday this war is gonna end....
Posted by: what at July 23, 2008 1:32 PM
Brooklynnative - Not to get sidetracked here - but why cant we cut Social Security - what sense does it make now that life expectancy is approaching 80 to offer retirement benefits (far in excess of what was payed-in btw) to people who are 62 (or even 65) -
Of course I know you are right that it can't be touch - in a political sense.
Posted by: fsrg at July 23, 2008 2:15 PM
Fsrq- Wiki has an exhaustive discussion of soc sec that you might find interesting, including how it fits into the national budget. http://en.wikipedia.org/wiki/Social_Security_debate_%28United_States%29
I don't profess to understand all of it but take a look at how it is set up and the projections, and interpretations.
Posted by: bxgrl at July 23, 2008 2:57 PM
We can't touch social security because the AARP - American Association of Retired People is THE most effective lobbying group in the United States. It's ridiculous that the program is not means tested - that would be the way to cut it. Why is the government sending retired millionares a check every month? Ross Perot and Warren Buffet receive checks every month. Guess which age cohort is the most wealthy in the US - that's right over 65. Guess which age group is the poorest - below 18. Which group do you think we should be investing in? The country is so screwed in so many ways it can make your head spin.
Posted by: Brooklynnative at July 23, 2008 4:23 PM
"What really happened with Fannie & freddie was that China, Japan and other holders of these securities called in their markers."
Yup. Been anticipating this for 2-3 years. It was just a matter of when.
Posted by: DOW8000SP800 at July 23, 2008 4:30 PM
dow8000sp800...that doesn't mean they are selling them. In fact the issue that was sold on Monday was 80% bought by foreigners, mostly governments.
Are you addding to your shorts or capitulationg and going to change your login to dow15000sp1500
Posted by: daveinbedstuy at July 23, 2008 4:51 PM
Call Citibank and ask what their rate would be on a jumbo $2mm property with 25% down. It will be way higher than 6.71% (even with a FICO of 700+). The "couple points up" comment is too funny. I'm used to worrying about bps (200 bps = 2 points) and that is a huge movement.
My point is the rate quoted in the paper is an average based on "published" rates. In reality- rates are actually much higher than the average and it is a problem- even if you make $400K a year. Banks just down want to lend anymore.
Posted by: panda10 at July 23, 2008 5:12 PM
"Are you addding to your shorts or capitulationg and going to change your login to dow15000sp1500"
Neither. An outsider shorting a rigged market is a dangerous game. I'll short NYC housing and change my login to bedstuybrownstone350K. Good luck and good night.
Posted by: DOW8000SP800 at July 23, 2008 11:55 PM
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