Key Rates: 12/17/08
The FOMC Speaks (And Not In Tongues): It Ain’t Pretty Out There [SocketSite]
U.S. Stocks Fall on Concern Fed Is Running Out of Ammunition [Bloomberg]
Banks Show No Signs of Easing in Step With Fed’s Cuts [Bloomberg]
Mortgage Rates Left in Dust by Treasuries, Failures [Bloomberg]

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Comments from “Plugged-In” Readers

  1. Posted by Bernie Lomax

    Where you pulling this from, Wells Fargo on Cal St. is offering 4.85% as of yesterday. FIO.

  2. Posted by ex SF-er

    Many of us said many times that lowering the Fed Funds rate would do little to change the mortgage rates, and we see this is clearly true. it is similar to 2003-2006. the Fed Funds rate went from 1% to 5.25% and mortgage rates only increased about 1-2%
    thus, I’m not sure why people expected that dropping from 5.25% down to near zero would drop rates lower than where they were in 2003.
    however: don’t underestimate governmental intervention, such as the Govt run 4.5% mortgage program. I still doubt it would be offered for the levels needed to keep SF RE aloft, but who knows.
    the fed is clearly now in quantitative easing mode. they have signalled that they will buy Mortgage debt and agency debt. who knows how low they will try to push rates going forward.
    obviously, there is no free lunch. so before you cheer them buying up all this debt, you must ask what the consequences are. a hint: they are severe.
    it’s similar to when many cheered raising Fannie and Freddie’s conforming limits. lotta good that did us. or when they created the “Jumbo conforming” loans and so on. there is no free lunch
    I have no idea where mortgage rates will go. too much depends on the actions of one man (Ben Bernanke). how far will he take us? and do we want to go there?

  3. Posted by dub dub

    Regardless of these short-term rates, I do believe hypersavers will be rewarded with free money “soon”, as long as they are willing to part with their cash (e.g., a “hyper conforming loan”).
    It’s the only thing that makes sense, but of course that’s hardly relevant :)

  4. Posted by scurvy

    Quantitative easing includes buying treasuries to hammer down intermediate and long yields. Mortgage rates are going to come down in the future.
    I wouldn’t even think about shorting treasuries yet. Are they overblown? Yes, through artificial demand. Should you even think about shorting them now? No way.

  5. Posted by anonno

    I think those rates are overstated. When the gov’t took over FNM/FRE this fall rates dipped and I did a refi on a 524K mortgage and got a 5.38% rate with BofA. Rates now are slightly lower than what was published by Bankrate then as well. It looks like sub 5% mortgages are going to be a reality with Fed action.
    I think if rates are low and no foreclosure intervention is tried (or works) it could be a great thing: first time buyers who have been priced out for years can get in at low prices with low rates.

  6. Posted by #23

    Pretty significantly lower rates per Julian Hebron’s newsletter from yesterday:
    Conforming ($200,000 – $417,000) – NO POINTS
    30 Year: 5.0% (5.11% APR)
    15 Year: 4.875% (4.99% APR)
    5/1 ARM: 6.375% (6.49% APR)
    Super-Conforming ($417,001 to $625,500 cap by county) – NO POINTS
    30 Year: 5.5% (5.61% APR)
    Jumbo ($625,500 – $1,000,000) – NO POINTS
    30 Year: 6.65 % (6.76% APR)
    10/1 ARM: 6.35% (6.46% APR)
    7/1 ARM: 6.05 % (6.16% APR)

  7. Posted by Jake

    The new 625k conforming limit will still make it difficult to get these rates for a lot of people who are otherwise qualfied (sufficient downpymt, equity, income, credit, etc.)

  8. Posted by poor owner living in potrero

    ex SF-er
    no one said the drop in the overnight rate had anything to do with mortgage rates (those paying attention realize the effective fed funds rate has been below .33 for a few months now…)
    on the other hand, then ten year at: 2.1% (quote as I post this)
    yeah, that will make a difference.
    The big issue, as noted above, is not these falling mortgage rates. It is the problem of qualifying for a loan, and then, having that loan be priced at the lower mortgage rate.
    A jumbo conforming loan, of up to 625k is quite cheap, but really, in SF, at present, unless you have 3-400k lying around for a downpayment, you still can’t get all that much with a 625k mortgage.
    So, unless the conforming limits are raised again, or some other program comes down the pike, what is the net effect of all of this?
    Simple – outlying areas might start to steady, San Francisco will begin its real first leg down.
    SF – now its time to say welcome to the world of the East Bay circa 2007-2008. Its going to be a rough ride down.

  9. Posted by tipster

    I assume Hebron’s rates are for people with high down payments, massive documentation of income, monthly income not less than 500x the monthly payment, no debt, 860 credit score, sufficient reserves to pay off the mortgage, twice, at least one rich uncle, and at least one relative who is Barney Frank or Warren Buffet.
    For everyone else, except for the one guy in the bay area who qualifies, you can expect to may much higher rates.
    A teaser ad? It can’t possibly be!

  10. Posted by Chris.

    I am in a 5/30 ARM, that started out in 2003 at 4.75%. My recent adjustment bumped that a pinch to 5%. If it adjusted again today, the rate would be only 3.75% (weekly 1-year T-bill linked)! So, still no temptation for me to re-finance as yet…. When I took an ARM, I seriously never considered that I would still be holding the same mortgage when the adjustments started, let alone that I would be paying less than the original rate!

  11. Posted by ex SF-er

    no one said the drop in the overnight rate had anything to do with mortgage rates
    you’re kidding, right?
    this was the exact logic of many people when the Fed started lowering rates last year. I just heard it said like 50 times on CNBC as well.
    From October 2007:
    http://www.socketsite.com/archives/2007/10/the_federal_reserve_cuts_benchmarkdiscount_rates_by_025.html
    “The big unknown(s): will the cuts help revive our national housing market? And of course, what impact (if any) will the cuts have on mortgage rates closer to home?”

  12. Posted by poor owner living in potrero

    ex SF-er
    not kidding. I know you are way to smart to be listening to CNBC to get your financial ‘news.’
    “The big unknown(s): will the cuts help revive our national housing market? And of course, what impact (if any) will the cuts have on mortgage rates closer to home?”
    just for the record – that was a question – not a statement.
    It is absolute insanity to think that lowering the overnight fed funds rate will pass straight through to a 30 year fixed.
    it is, however, true, that massive QE by the fed (or signaling as much) can drive down 30 year mortgages. Also, in our current liquidity trap, the long bond yields have fallen so drastically precisely b/c the drop in the overnight rate has forced down the rate on shorter term investments to near zero – forcing buyers out to the long end, reducing yields on the long end, and thereby by ripple, lowering the rates (very slightly) on the long term fixed mortgages.
    But unless, the MBS market is revived (fat chance), or unless banks get serious about servicing and holding their loans with conservative guidelines, the rates on the 30 year fixed won’t drop much more than they already have (around 5.5-5.75 on up to 725k from national credit unions like penfed).
    Instead, the banks will likely hold mortgage rates where they are, and make the spread. That was the point wasn’t it? Make the banks stronger right? Too bad if the consumer doesn’t get the trickle down…

  13. Posted by ex SF-er

    just for the record – that was a question – not a statement.
    I know, but if you read the thread you can see that others considered it possible as well. you can go through all the threads from that time period and see that others did think that Fed easing would translate to lower mortgage rates
    I was just too lazy to go through all the posts.
    I agree with the rest of your post, except that the Fed may use Quantitative Easing and focus it on the MBS market creating a “floor”. this would revive the MBS market to some extent, but likely only the “guaranteed” securities. (with many side consequences).
    what do you think dear old Fannie and Freddie are there for!
    ===
    I listen to CNBC all the time. IMO it is important to see what the bulls and cheerleaders are saying so I don’t cloud my own judgement. Once one understands the source of information and its inherent biases and limitations, one can appropriately integrate the importance of said information.
    they’ve got some people I resonate with such as Rick Santelli and Mark Haines. plus they get interviews with some pretty interesting people.

  14. Posted by DataDude

    When you consider that the average duration of a 30-year fixed mortgage is probably between 5 and 10 years (people move, refi, get foreclosed upon, win the lotto and pay off their balance…), the relevant treasuries to look at are the 5-10 years, currently yielding between 1.34%-2.27%.
    If the Fed can offer 4.5% 30 year fixed loans, my question is will 250 basis points be enough of a risk premium to protect tax payers who ultimately underwrite these loans?
    The Fed will need to offer this product soon, because now it’s in the news, buyers have one more reason to wait.
    To roll out this product, the Fed will most likely need to use existing loan offers at existing financial institutions; there’s no other way they can ramp up quickly enough. I also wonder what kind of compensation incentives will be given to these loan officers so they focus on borrower quality not quantity. Otherwise, we’ll just get a bunch of bad borrowers who will go in to foreclosure in a few years, and this entire problem will repeat itself.
    By reducing the 30 year fixed rate from 5.53% to 4.5%, on a $625,000 loan a new home owner would pay $3,167 each month, or save about $393, which the government is hoping will be spent on cars, TVs, etc. That monthly savings is worth waiting for.

  15. Posted by #23

    @tipster
    Julian’s fine print below. When I got my mortgage through him, we actually did better than his published rates at the time.
    Loans shown have no points, no prepayment penalties. Better rates available for select profiles. Better rates are also available using tax deductible points. Scenarios assume full doc pricing on purchase or rate/term refi (but not cash-out refi) loans for borrower with 720 FICO score or greater, at least 20% equity, and 6-12 months reserves left over after close (retirement assets counted at 70% of value for reserves).

  16. Posted by Mystery Realtor

    BofA will do a conforming re-fi at 4.75% for a 30 fixed, or so I was told yesterday by their top lender.

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