I gotta chime in and defend my boy HLS. FFR does not translate into 30 yr rates, we all know that but if the fed abandons the inflation fight, higher interest rates will result. Adjustables may look better but their popularity is declining and should prove to be a horrible decision in about two years. Even greenspan today said he thinks the 10 yr will settle at 8% in the near future because foreign investment will dwindle. Here’s a little story quoting three guys regarding todays rate cut, the former head of the FDIC, the Mort bankers economist and a frmr HUD official, some fairly bearish quotes from guys who should be bullish.
“If credit is bad, rates don’t count. I don’t care if you lower the rate 100 basis points. It may improve some of the profits of those institutions that lost a lot of money due to bad credit, but it does not address itself to the real problem, which is bad lending” Bill Seidman/Fmr. Head of FDIC
“The Fed rate cut has already been priced in. Usually a Fed rate cut has little to do with consumer mortgage rates except to the extent that it signals an outlook on inflation. Greenspan’s famous conundrum was that he kept raising short term rates and long-term rates did not move.” Jay Brinkmann/Mortgage Bankers Assoc
“The underlying problems that have made investors skittish about buying mortgage-backed securities are not addressed by a rate cut”
“And the Alt A/Subprime markets will not be affected at all by a rate cut. Subprime will drop from 700 billion in the first half of the year to 300 billion in the second half of the year (FBR) and nothing will stop that. The loan types that made that volume possible simply can’t be made today (due to regulatory changes)—you could lower the rate to zero and those loans are still not coming back.”
