50 point cut

[HLS]

What do you think I’ve said earlier today!!
Many caps are at 2%, but 5% is possible.

As far as ELOAN goes, do they charge extra for Title-Escrow etc ??
Any idea what it takes to qualify ??

Most people haven’t got a clue what it takes, but always want to assume that they can get the best rate, only some qualify for the best rate and very few people have an 800 score.

At today’s rates, a Full Doc 30 YR Fixed loan up to $417K, with a credit score of 680+, and LTV of 80% or less for a purchase or no cash out refi (70% LTV for cash out) I can do at ZERO points at 6.25% IF THEY QUALIFY.
Title-Escrow & Lender Underwriting is about $2,000 more, so .50% would take care of it on a $400k loan.
The par rate today is 5.875%.

Your 5YR ARM is way off though. PAR rate today is 5.75%, so a monthly interest only payment on $300k would be $1437
It hardly pays to get a 5 YR ARM today.

Getting loans funded is all about knowing what you actually qualify for, not just looking for the lowest rate.

[temeculaguy]

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.

http://www.cnbc.com/id/20834638

“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.”

[LA_Renter]

Gold is up over $730, oil is still rising, the dollar is hovering in the low 79’s and the long end of bonds are down pushing yields up. A quick look a Bankrate show mortgage rates going up including the Jumbo. The rate cut could exacerbate the housing slump if it sustains market fears of inflation. It is too early to tell but early indications are not looking good.

This was a risky move by the FED. If we see an increase in measured inflation what are they going to do then?? Keep an eye on oil if it stays elevated the markets will react especially as we get closer to big heating bills in the midwest and east coast.

[kev374]

Why are you so bitter?

lol, I just got done watching Peter Schiff and was charged 🙂 I guess it irritates me when the government is not acting in the long term interest of the economy but may want to temporarily skew things and put more pain in our future because they want to act like they did something!

[cr]

The DOW is up again today, which just makes me wonder how long this feel good rally will last until the reality sets in the people are still up to their ears in debt, still can’t pay off their mortgages, and still don’t have incomes keeping up with even core inflation, much less food and energy costs. Anything over 1% in one day to me is a sign of irrationality, regardless of the news. Our economy is simply not growing at that rate.

As far as the rate cut, the LA times had mixed articles. I pasted them because after today they will require a subscription, so I apologize for the length:

“THE ECONOMY
Cut will aid homeowners
The Fed’s action will result in lower rates on certain loans. Savers, however, will see a drop in their earnings.
By Tom Petruno, Los Angeles Times Staff Writer
September 19, 2007
The Federal Reserve’s interest-rate cut will help many people save money on home-equity credit lines and adjustable-rate mortgages — but whether it will revive the troubled housing market is far from clear.

One risk is that the Fed’s move Tuesday could ignite inflation fears, which could drive up conventional mortgage rates and make matters worse for housing.

“If the Fed does revive inflation it’s going to put a damper on housing and other activity in the economy” by pushing up long-term rates, said Gregory Hess, professor of economics at Claremont McKenna College in Claremont.

In the short term, there will be some definite winners — and losers — as a result of the central bank’s half-point cut in its key short-term rate, to 4.75%.

Savers will lose as their interest earnings decline. But homeowners who have home-equity credit lines will see their interest costs reduced almost immediately, said Greg McBride, senior analyst at BankRate Inc. in New York. That’s because the majority of those credit lines are tied to banks’ prime lending rate, he said.

Major banks including Bank of America, Wells Fargo, Citibank and others quickly reduced the prime Tuesday to 7.75% from 8.25%. They typically keep it three percentage points above the Fed’s rate.

Many banks also link credit card rates to the prime, but card rates tend to be adjusted more slowly than home-equity loan rates, McBride said.

Some homeowners with adjustable-rate mortgages that will reset soon already were expecting a bit of relief, and the Fed’s cut may ensure that they get it.

Many ARM loans are tied to an index of one-year Treasury bill rates. That index has fallen since midyear; it was 4.15% on Monday, down from 4.99% on July 23, according to the Fed.

Rates on Treasury securities have slumped because some investors have rushed into those issues as a haven amid global financial market turmoil, and because others bought Treasuries betting that the Fed would be forced to ease credit.

“The bond market was far ahead of the Fed,” said Rick Keller, head of Keller Group Investment Management Inc. in Irvine.

Now, if the market anticipates more Fed rate cuts, it’s possible the one-year Treasury index will fall further, experts say.

Paul McCulley, a bond fund manager at Pacific Investment Management in Newport Beach, said his firm expected the Fed to continue paring its rate to at least 3.75% in 2008 because of the threat the sinking housing market poses to the economy.

“This is not a one-and-done type of world,” McCulley said of the rate-cut outlook.

But homeowners who have sub-prime ARMs with very low teaser rates, and who are facing a rate reset soon, may still be facing a new rate that’s far more than they can afford — 8%, say, instead of 8.5%, depending on how the loan is structured.

New home buyers and homeowners who want to refinance into a 30-year loan face the biggest question mark, because it isn’t certain that the Fed’s reduction in its short-term rate will translate into lower long-term mortgage rates.

That’s because long-term interest rates are set by the marketplace, not by the Fed. And one key consideration of investors in determining long-term rates is what inflation rate they expect, because inflation eats away at bonds’ fixed returns.

If investors think the Fed’s credit-easing move could stoke the economy and boost inflation pressures in 2008, that could result in long-term rates rising, analysts warn.

For the beleaguered housing market, that would mean “putting it in a worse bind” than it already faces, said George Goncalves, Treasury-market strategist at brokerage Morgan Stanley in New York.

On Tuesday, the 10-year Treasury note yield inched up to 4.47% from 4.46% on Monday, even as short-term rates fell. Thirty-year mortgage rates tend to track the 10-year T-note.

Still, because the 10-year T-note yield has tumbled from 5.05% in mid-July, 30-year home loan rates also have fallen. They averaged 6.31% nationwide last week, down from 6.73% in mid-July, according to mortgage finance giant Freddie Mac.

Keith Gumbinger, vice president at loan tracker HSH Associates in Butler, N.J., said there may be another obstacle to lower mortgage rates: Some struggling lenders, he says, “won’t be in any great hurry to pass along their savings” from cheaper money because they’re trying to fix their own battered finances.

For savers, meanwhile, the Fed’s rate cut is almost certain to mean that banks will trim the yields they pay on savings certificates, experts say. So some savers may want to lock in yields on longer-term CDs, depending on their income needs.

Those yields already have been drifting lower since mid-August as rates on Treasury securities have come down, in part anticipating the Fed’s move.

The average annualized yield on a one-year, $25,000 bank CD nationwide now is 4.16%, according to rate tracker Informa Research Services.

The key is to shop around, BankRate’s McBride said. Banks set their CD rates based on their funding needs, he noted, which means some may trim their payouts much less than others.

By contrast, yields on money market mutual funds are expected to fall across the board, assuming the Fed’s move has the intended effect of lowering rates on the short-term corporate IOUs that many funds buy.

Money fund yields should decline by about half a point over the next eight weeks or so, said Deborah Cunningham, chief investment officer at Pittsburgh-based Federated Investors. The average seven-day annualized yield on money funds was 4.69% last week, according to IMoneyNet Inc.

[email protected] ”

AND –

“Fed’s rate cut may be bad news for some
7:13 PM PDT, September 18, 2007

If Tuesday’s larger-than-expected cut in interest rates makes it cheaper and easier for people to get loans, that could be bad news for Yusupha Touray.

By his estimate, Long Beach resident Touray, 27, owes about $93,000 in credit card, phone, utility and hospital bills. “When my bills come, I know I don’t have any money to pay them,” he said. “So I don’t bother anymore.”

Nevertheless, Touray said he gets pitches from credit card issuers in the mail almost every day. If those pitches become a smidge more attractive because of lower interest rates, he said he may just be tempted to go even deeper in the hole.

“It’s amazing,” Touray said. “You keep saying no, and they just keep making more offers.”

The Federal Reserve said its decision to cut short-term interest rates by half a percentage point was intended to ease the credit crunch in the housing market. That’s another way of saying the main beneficiaries are heavyweight financial institutions that got slammed by investments in sub-prime loans.

For consumers, the rate cut will mean lower mortgages for some, but also lower credit card rates and lower rates for auto loans. And for those who aren’t careful, it could result in even more debt for a country that’s already drowning in consumer debt.

“There’s definitely a danger that people will be tempted to take out too much credit,” said Linda Sherry, a spokeswoman for Consumer Action in Washington. “They’ll use it for things they want rather than things they need.”

Since consumer spending accounts for about two-thirds of the U.S. economy, that’s not necessarily a bad thing. But unless managed prudently, it can spell trouble for many households.

According to Fed statistics released last week, U.S. consumers are carrying a record $2.456 trillion in debt (not including mortgages).

The amount of revolving credit, such as credit cards, carried by consumers rose in July at an annual rate of 6.6%, or by $5 billion — the third straight month of significant gains. Revolving credit was up 6.4% in June and a whopping 10.9% in May, the Fed reported.

Nonrevolving credit, which includes auto loans, registered only a modest 1.9% gain in July. That compares with 5.6% in June and 5.5% in May.

With lower interest rates, it’s possible that revolving and nonrevolving credit will shoot higher. And with it, consumers’ debt load.

Sima Azim knows all about that. The windows and display cases of her downtown L.A. jewelry store drip with bling — gold chains, gold bracelets, gold watches.

Azim, 45, said that with the economy the way it is, she’s seeing more people using plastic instead of cash to buy baubles.

“People love the gold,” she said with a shrug. “So they use their credit.”

Prowling the downtown area, I had no trouble finding people with debt problems.

Frank Banueloz, 44, works as a legal analyst for the state Department of Justice. He said he tries to manage his finances wisely. Even so, he and his wife are carrying about $10,000 in credit card debt.

“I’m trying to use cash more instead of credit,” he said. “It’s hard to do.”

The flip side of consumers’ record high debt level is a pathetically meager personal savings rate. According to the Commerce Department, the nation’s savings rate for all of last year was minus 1%, the worst showing since the Great Depression.

That means people were spending every last penny they earned, and then were dipping into savings, stocks or other resources to spend just a little bit more. The savings rate crept up to 0.7% in July from 0.5% a month earlier.
load during the first three months of the year, according to the liberal-minded Center for American Progress. That’s up from 13% in the first quarter of 2001.

Toluca Lake resident Daryl Sanchez, 40, is typical of many middle-class Southern Californians. He’s well educated, works hard, yet still struggles to ease his debt burden. Yet with student loans, credit cards and other bills, Sanchez said he’s more than $50,000 in the hole.

“Everything’s so expensive,” he said. “Just the basics, like gas. It’s so easy to get into debt.”

Sanchez said he’s trying hard to reduce his debt. “It’s challenging,” he said. “There’s only a finite amount of income coming in.”

The experts advise consumers to limit themselves to only one or two credit cards, and to pay off the balance each month. Resist the temptation to make minimum payments, which can trap you in an endless cycle of debt.

And throw away all those solicitations from card issuers spilling into the mailbox, no matter how attractive the terms may appear, especially with lower interest rates.

John Barnes, 76, works as a construction inspector. On Tuesday, shortly after the Fed slashed rates, Barnes was watching as a power shovel dug a trench in a downtown street.

Credit card debt? Nah. He said he doesn’t even carry plastic.

“If I can’t pay for it, I don’t get it,” Barnes said.

Such simple advice. And it can make all the difference.

Consumer Confidential runs Wednesdays and Sundays, and frequently in between. Send your tips or feedback to [email protected].”

[HLS]

Thanks temec,, I got your back too !~

I’m not sure that others disagree, some (still) just don’t understand.
When you have an ARM that is going to move 300 to 500 bps on the first adjustment, your rate is so obscene anyway.

It’s usually not explained properly, but an ARM shouldn’t be intended as a long term loan. An adjustment during your fixed period isn’t going to happen, and most people should get out of them (if they can) at reset if they are keeping the property.

The indexes are sometimes AVERAGES or lagging so the 50 bps cut isn’t reflected in an index immediately.

The 10YR is UP 8 bps at the moment today.
30 YR fixed conforming loans are 5.875% at PAR today.

There is historical and statiscal data from Federal Reserve
at this site http://www.federalreserve.gov/releases/h15/Current/

Find an index that you like!! Daily updates are available.

If one reads their loan docs, a scary event is when the index that you are tied to no longer exists, and a replacement is used. (FNMA LIBOR no longer exists)

Looks like BBA LIBOR dropped 25 bps today.

[CarlsbadMtnBiker]

Here’s an idea.. All you bearish doomsdayers post your short plays and let’s see both how your short plays do, and also how well you put your $$ where your mouth is …

Post em’ for all to see…

[HLS]

CMB,
This is all in fun. It’s a BEARISH site!

Let’s get past that and admit that anyone with an understanding of market forces and the emotions of fear and greed absolutely KNEW that this local property market was going to crash. The older you are, the easier it is to understand my statement.

We’re here sharing opinions and ideas about the way we think. If someone wants to post relevant FACTS and figures that support bullishness, they are welcome to.
The problem is, their AREN’T any bullish signs.
It’s not a matter of doomsday, it’s a matter of being realistic and understanding what is going on and how to be positioned defensively to the best of your ability to survive hard times.

Saying that they aren’t making any more land AND everybody wants to live here is poppycock.

It’s not all doom and gloom. I can tell you with absolute certainty the following things:

a)This country is going to have a major depression that will make 1930’s look like it was booming.
b) The stock market will crash and millions of people will be devastated psychologically and financially.
c)Terrorism will continue and a huge attack on US soil will occur.
d) A major earthquake is going to happen in CA
e) A high ranking politician will be caught in a major lie
f) A CEO will go to jail for corporate fraud
g) Interest rates will change
h) The cost to mail a letter will go up
i) The Rolling Stones will stop touring

I just cannot tell you WHEN any of the above things will happen………..

I am pretty sure of the following also:
1) Paris Hilton isn’t going to graduate college with an MBA
2) Oprah is not going to be on welfare
3) McDonalds isn’t going out of buisness
4) Shania Twain isn’t going to move in with me
5) The internet isn’t going away
6) People aren’t going to stop dying
7) The weather is San Diego is good year round
(That’s why EVERYBODY wants to live here)
8) Disneyland isn’t closing down
9) There won’t be peace in the middle east

As far as you wanting “short plays” do you want exact addresses or will neighborhoods and zip codes do ?
OR
Are you trying to turn this into a stock market site so that you can tell us how well your returns have been and you are bullish cuz you have made a few bucks on paper in a few years ?? (That are still subject to losses)

I’m guessing that your are under 40, and possibly under 30 and think that you know it all about long term investing and trends and economics.

I already know that there are others that post on this site that could chew you up in minutes. They have forgotten things that you will never know or understand.

Feel free to correct anything that I an incorrect about, I will humbly correct my post, gladly.

When I was younger, I was also brash and thought I knew it all.
When I was 20 my mother told me that I had all the answers, but she also said that I wouldn’t know the questions until I was at least 30. She was right.

[CarlsbadMtnBiker]

that was a great post HLS… i enjoyed it. My simple point was that putting some hard examples of what some of you bearish piggingtons are doing to hedge all your dire predications would give all of you more credence.

Trust me, although I believe in the power of positive thought as the 1st domino of making positive change individually or as a group (very lacking on this site by the way and it is supposed to remain unbiased .. correct?), I am not naive enough to ever think I know too much. My very simple act to provoke the bears on this site supports my constant desire to learn.

So, in spirit of the site’s motto “In God we Trust, Everyone else bring data,” I ask for data….. (vs. just sobbing and bitching on each others shoulders)

all in fun of course.

[stockstradr]

Here’s my spin.

I avoided getting burned on my short positions by selling ahead of the fed rate cut. I don’t bet against the fed.

I believe the FOMC inspired Fool’s Rally (the last two days) has already run out of steam.

So today I moved over half my portfolio back into aggressively bearish market positions (“SDS” inverse fund). I saw that QQQ puts and SPDR puts were well priced so I bought some of those also.

I found these attractive after running spreadsheets across strike prices, maturity dates:

QQQQ Jan-09 $55.00 Put (OZCMC) looks cheap, offering a 50% profit for only a 10% market correction.

The QQQQ Mar-08 $51.00 Put (QQQOY) also looks cheap, doubling your money for a 10% NASDAQ correction.

The SPDR DEC 20, 2008 $ 160.000 PUT (CYYXD : OPRA) also looks tasty.

An earlier entertaining post in this thread mentioned a list of “What I’m certain will happen”

Personally, I’m certain you WILL make money if you buy puts offering a 50% profit return in response to a 10% market correction over the next 12 months from current (overpriced) levels

We will probably end up with a 30+ percent market correction across all the US indexes.

[HLS]

CMB,
As I advise my closest friends, at this time, I tell them to get cash in the bank that is FDIC insured to weather whatever storm might be brewing. As much as possible. When you have liquid cash available you can withstand financial curveballs that get thrown at you.

I know people with 2 years (or more) of liquid living expenses in cash, and they still have income streams today.
They have a ton of equity and dont care if home prices go up or down, they aren’t moving away (yet)

I think that people who cannot get into a similar situation are just living beyond their means, and will be “a slave to the man” most of their lives. Living paycheck to paycheck and planning for “retirement” doesn’t work for me. It never did.

Most people never know the joy of financial freedom, some learn it too late in life. If the storm doesn’t come, you still have YOUR money in the bank, plus some interest.

Better to be prepared than be caught off guard.

Having toys, possessions, stocks, cars, equity etc. won’t pay the bills, allow you to buy food, travel, or enjoy life until it’s turned in to CASH.

Do you know what I think the governments biggest fear is ?
I’d say it’s that people stop spending money. Lowering interest rates sole purpose is to get people to spend money TO STIMULATE THE ECONOMY… Does it really “keep people in jobs” ??

If the govt REALLY wanted to be helpful,
They would let the housing market collapse without intervention. we need an economic cleansing and entire generation or two to understand pain & reality. Reward the people who didn’t buy because they knew they couldn’t afford to.
They would encourage saving by raising interest rates so there was an incentive to save, not spend.
Let people save most of their income and tax them when they spend money on CRAP.
They would rewire the social INsecurity system that is broke like many pensions funds.

Approximately 4% of San Diego homes are on the market today and are virtually unsalable at what people “think” their homes are worth. The other 96% are fooled about their “equity”. Imagine if 10% of homeowners want to cash out at the same time, it impossible as there are nowhere near enough buyers UNLESS the prices are in line with affordability and/or it is attractive to an EDUCATED investor so that they get a return commensurate with their risk.

So as long as there are people afraid of missing out and willing to pay more than someone else, there is a market.

At an auction an unlimited number of people can watch while 2 (two) bidders push a price to the moon.
Does it REALLY eastablish a value that the rest of the world has to agree with ?

The stock market is a legalized pyramid scheme. On a micro scale, you would be thrown in jail for “trading stocks”.
On a macro scale, “everyone’s doing it”

The stock market defies logic. Bad news can make stocks rise, good news can make them fall. It’s all about “Wall Street expectations” Can they beat the street.

That being said, people can definitely make money from the market, EXACTLY like in houses, but not everybody can make money all the time.

No tree grows to the sky. There is a forest fire once in awhile and ALL trees burn down.

It’s a game. Not everybody wins. People end up broke for one reason or another, or in a state of health that money cannot fix.
Play the game if you wish, but if you don’t define your own rules, you are just in with the sheep, following the herd, soaking in the propaganda.

AS A DISCLAIMER, If you got this far, I’m not sure that I believe all of the above, but I enjoyed writing it.
Just think about what COULD happen, and be prepared.
I welcome any rebuttals 😉

[CarlsbadMtnBiker]

HLS,

I really appreciate the time put into your response and words of wisdom. I do have further response and commentary on this, but unfortunately I am out the door/office until Mon. I did want to take the time to send a quick response to let you know I actually read your post and to thank you. You make some very good points, especially your final point about thinking about what could happen and be prepared. I agree there is great wisdom in that. You have made me think a little differently about all this. I may even lighten up on trying to provoke you bears all the time … (probably not) I really do hope we fair ok economically is all.

Surely, I will respond again soon HLS. Have a good weekend. I heard we may get rain.

Respectfully,

CMB

P.S. I am 35 yrs. old by the way. You nailed me on that.

[hipmatt]

10 year and 30 year treasury yields rose again a bit today.. hmm..foreclosures are up ALL over CA big time. I just heard on KFI 640 that in the San Fernando Valley they are up 400% and rising.

Its almost getting trendy to foreclose. Inventory is really high and getting higher. The media is reporting lots of bad housing news all over the country. Temecula /Murrieta is getting absurd. I’m starting to see declines, but still homes are way overpriced. I very confident that the housing recession is still ON despite a big rate cut, weak bailout legislation, and the blind optimism and blatant lying from the spinners on wall street and in the RE industry.

Morgan Stanley and CarMax had really bad news today. All of this combined with the high inflation risk and falling dollar remind me that there is only so much that the gov. can do to save things. Equities markets may be strong for a while, but I can’t see any possibility of an RE turnaround.

[HLS]

Thursday update
10 YR is up 15 bps right now. FIFTEEN.

30 YR mortgage rates are now the same or higher than before the “miracle cure~kool-aid” FF cut TWO days ago.

Didn’t take long.

[patientlywaiting]

The dollar is at a 30 year low.

Saudi Arabia is set to break the dollar peg. Will oil go to $100/barrel. We might see $4/gallon gas next year.

Oh, well,there goes our Christmas trip to London. I guess our family will have to cut back to take a car trip to Solvang instead.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aA14lYfIaUho&refer=home

Saudi Arabia may drop its currency’s link to the dollar. The nation is likely to keep the peg, an adviser to King Abdullah said. The euro rose above $1.40 for the first time since its introduction. The Canadian dollar earlier equaled its U.S. counterpart.

http://calculatedrisk.blogspot.com/2007/09/saudi-arabia-refuses-to-cut-rates.html

The Greenspan conundrum was that long rates didn’t rise at the Fed Funds rate was increased. Bernanke’s conundrum may be that long rates don’t fall (or maybe even increase) as he lowers the Fed Funds rate!

[Author]

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