effect of lower interest rates on home prices

[kev374]

Merill Lynch is now forecasting 2% fed funds rate by 2009 Q2. If this turns out to be true would it prevent home prices from contracting? Opinions?

[JWM in SD]

No, because long term rates don’t necessarily correlate to the Fed Funds rate. Besides, foreign lending to USA would dry up completely at that point and the dollar would lose even more than it already has. At that point, you’ll see mass layoffs because companies won’t be able to predict their expenses with a high degree of certainty. I.E. the inflation won’t make into wages.

[(former)FormerSanDiegan]

No, because long term rates don’t necessarily correlate to the Fed Funds rate.

However, the reset rates DO correlate with the Fed Funds rate. Mortgage resets over the next 12-18 months have been cited as the next wave of downward pressure. These are primarily alt-A and prime borrowers.
The rates over the next 24 months WILL have an impact on these resets and WILL have an impact on whether or not foreclosure rates will continue to trend higher or start to flatten.

For example, ALT-A and Prime mortgages tied to the 1-year LIBOR with the typical 2.25% margin would rest currently at 6.75%.

[(former)FormerSanDiegan]

No, because long term rates don’t necessarily correlate to the Fed Funds rate.

However, the reset rates DO correlate with the Fed Funds rate. Mortgage resets over the next 12-18 months have been cited as the next wave of downward pressure. These are primarily alt-A and prime borrowers.
The rates over the next 24 months WILL have an impact on these resets and WILL have an impact on whether or not foreclosure rates will continue to trend higher or start to flatten.

For example, ALT-A and Prime mortgages tied to the 1-year LIBOR with the typical 2.25% margin would rest currently at 6.75%.

[(former)FormerSanDiegan]

No, because long term rates don’t necessarily correlate to the Fed Funds rate.

However, the reset rates DO correlate with the Fed Funds rate. Mortgage resets over the next 12-18 months have been cited as the next wave of downward pressure. These are primarily alt-A and prime borrowers.
The rates over the next 24 months WILL have an impact on these resets and WILL have an impact on whether or not foreclosure rates will continue to trend higher or start to flatten.

For example, ALT-A and Prime mortgages tied to the 1-year LIBOR with the typical 2.25% margin would rest currently at 6.75%.

[(former)FormerSanDiegan]

No, because long term rates don’t necessarily correlate to the Fed Funds rate.

However, the reset rates DO correlate with the Fed Funds rate. Mortgage resets over the next 12-18 months have been cited as the next wave of downward pressure. These are primarily alt-A and prime borrowers.
The rates over the next 24 months WILL have an impact on these resets and WILL have an impact on whether or not foreclosure rates will continue to trend higher or start to flatten.

For example, ALT-A and Prime mortgages tied to the 1-year LIBOR with the typical 2.25% margin would rest currently at 6.75%.

[(former)FormerSanDiegan]

No, because long term rates don’t necessarily correlate to the Fed Funds rate.

However, the reset rates DO correlate with the Fed Funds rate. Mortgage resets over the next 12-18 months have been cited as the next wave of downward pressure. These are primarily alt-A and prime borrowers.
The rates over the next 24 months WILL have an impact on these resets and WILL have an impact on whether or not foreclosure rates will continue to trend higher or start to flatten.

For example, ALT-A and Prime mortgages tied to the 1-year LIBOR with the typical 2.25% margin would rest currently at 6.75%.

[Raybyrnes]

Interest rates Hit historical lows not so long ago and the economy did not collapse. I would tend to think that the rest of the world would continue to devalue our currency which would have the effect of increasing demand for our exports.

Long term rates and short term rates are not always correlated but the majority of people bought homes using a first and second mortgage. A 2 point reduction in the Fed Funds could potenially lower payments on 2nd loans by enough to help some homeowners skate by for a longer period of time. This would work against non homeowners at lease in the short term.

With additional time there is additional opportunities for government to conimue to step in to help these people or I should say hurt those on the sidelines.

[Raybyrnes]

Interest rates Hit historical lows not so long ago and the economy did not collapse. I would tend to think that the rest of the world would continue to devalue our currency which would have the effect of increasing demand for our exports.

Long term rates and short term rates are not always correlated but the majority of people bought homes using a first and second mortgage. A 2 point reduction in the Fed Funds could potenially lower payments on 2nd loans by enough to help some homeowners skate by for a longer period of time. This would work against non homeowners at lease in the short term.

With additional time there is additional opportunities for government to conimue to step in to help these people or I should say hurt those on the sidelines.

[Raybyrnes]

Interest rates Hit historical lows not so long ago and the economy did not collapse. I would tend to think that the rest of the world would continue to devalue our currency which would have the effect of increasing demand for our exports.

Long term rates and short term rates are not always correlated but the majority of people bought homes using a first and second mortgage. A 2 point reduction in the Fed Funds could potenially lower payments on 2nd loans by enough to help some homeowners skate by for a longer period of time. This would work against non homeowners at lease in the short term.

With additional time there is additional opportunities for government to conimue to step in to help these people or I should say hurt those on the sidelines.

[Raybyrnes]

Interest rates Hit historical lows not so long ago and the economy did not collapse. I would tend to think that the rest of the world would continue to devalue our currency which would have the effect of increasing demand for our exports.

Long term rates and short term rates are not always correlated but the majority of people bought homes using a first and second mortgage. A 2 point reduction in the Fed Funds could potenially lower payments on 2nd loans by enough to help some homeowners skate by for a longer period of time. This would work against non homeowners at lease in the short term.

With additional time there is additional opportunities for government to conimue to step in to help these people or I should say hurt those on the sidelines.

[Raybyrnes]

Interest rates Hit historical lows not so long ago and the economy did not collapse. I would tend to think that the rest of the world would continue to devalue our currency which would have the effect of increasing demand for our exports.

Long term rates and short term rates are not always correlated but the majority of people bought homes using a first and second mortgage. A 2 point reduction in the Fed Funds could potenially lower payments on 2nd loans by enough to help some homeowners skate by for a longer period of time. This would work against non homeowners at lease in the short term.

With additional time there is additional opportunities for government to conimue to step in to help these people or I should say hurt those on the sidelines.

[JWM in SD]

No, because long term rates don’t necessarily correlate to the Fed Funds rate. Besides, foreign lending to USA would dry up completely at that point and the dollar would lose even more than it already has. At that point, you’ll see mass layoffs because companies won’t be able to predict their expenses with a high degree of certainty. I.E. the inflation won’t make into wages.

[JWM in SD]

No, because long term rates don’t necessarily correlate to the Fed Funds rate. Besides, foreign lending to USA would dry up completely at that point and the dollar would lose even more than it already has. At that point, you’ll see mass layoffs because companies won’t be able to predict their expenses with a high degree of certainty. I.E. the inflation won’t make into wages.

[JWM in SD]

No, because long term rates don’t necessarily correlate to the Fed Funds rate. Besides, foreign lending to USA would dry up completely at that point and the dollar would lose even more than it already has. At that point, you’ll see mass layoffs because companies won’t be able to predict their expenses with a high degree of certainty. I.E. the inflation won’t make into wages.

[JWM in SD]

No, because long term rates don’t necessarily correlate to the Fed Funds rate. Besides, foreign lending to USA would dry up completely at that point and the dollar would lose even more than it already has. At that point, you’ll see mass layoffs because companies won’t be able to predict their expenses with a high degree of certainty. I.E. the inflation won’t make into wages.

[alarmclock]

If you felt that mortgage rates were going to rise, is there a product that lets you “lock in” a desirable mortagage rate several years before the real estate purchase? It would be trivial for the lender to calculate and charge the interest difference between the mortgage rate and the current rate of interest on a CD on the to-be-lent money.

[SD Realtor]

Alarmclock no you cannot lock any mortgage rate in advance. You need to send in the fully executed purchase agreement on a home to get the loan process started.

I am by no means a mortgage expert however I was under the impression that many of the resets were to the Libor rather then the Fed Funds. Not that it makes a whole lot of difference…

The 10 year treasury yield is still the best vehicle IMO to track long term mortgage trends. However the premium for underwriting these has increased. Once upon a time I used to use about 1.25% as a fudge factor off of the 10 year to guestimate a fully amortized (conforming) 30 year fixed rate mortgage at 1 point. Now I am not so sure what value to use.

I actually do believe that if we ever enter a point where mortgage rates are depressed to ridiculous values (say 5% for a fixed 30 year jumbo) then yes IMO that will help prop up sales as long as there is not a wholesale recession. Now I don’t see those rates ever happening… but ya never know. Wall Street and our government may do anything to hold off the big bang.

SD Realtor

[(former)FormerSanDiegan]

I am by no means a mortgage expert however I was under the impression that many of the resets were to the Libor rather then the Fed Funds. Not that it makes a whole lot of difference…

True. But LIBOR rates tend to correlate with the FED funds rate. Currently the 1-year LIBOR is about 0.9% less than a year ago. Most of the drop has been since the FED dropped rates.

[Arty]

One comment: All historic correlations will be obsolete if US dollars are no longer the world currency.

[(former)FormerSanDiegan]

One comment: All historic correlations will be obsolete if US dollars are no longer the world currency.

Nice snarky one-liner. But devoid of facts

FACTS :
1. The LIBOR index is a rate based on dollar-denominated deposits.

2. Even as the dollar sinks to unprecedented lows against the euro, the relationship I pointed out still holds.

3. The British Bankers Association publishes LIBOR rates in 10 currencies. At least 8 of these are not the world’s reserve currency.

OPINION:
The loss of dollar’s role as the world’s currency will likely put upward pressure on interest rates in US dollars, but it will not likely significantly impact the relationship of these rates measured in London versus the US.

[(former)FormerSanDiegan]

One comment: All historic correlations will be obsolete if US dollars are no longer the world currency.

Nice snarky one-liner. But devoid of facts

FACTS :
1. The LIBOR index is a rate based on dollar-denominated deposits.

2. Even as the dollar sinks to unprecedented lows against the euro, the relationship I pointed out still holds.

3. The British Bankers Association publishes LIBOR rates in 10 currencies. At least 8 of these are not the world’s reserve currency.

OPINION:
The loss of dollar’s role as the world’s currency will likely put upward pressure on interest rates in US dollars, but it will not likely significantly impact the relationship of these rates measured in London versus the US.

[(former)FormerSanDiegan]

One comment: All historic correlations will be obsolete if US dollars are no longer the world currency.

Nice snarky one-liner. But devoid of facts

FACTS :
1. The LIBOR index is a rate based on dollar-denominated deposits.

2. Even as the dollar sinks to unprecedented lows against the euro, the relationship I pointed out still holds.

3. The British Bankers Association publishes LIBOR rates in 10 currencies. At least 8 of these are not the world’s reserve currency.

OPINION:
The loss of dollar’s role as the world’s currency will likely put upward pressure on interest rates in US dollars, but it will not likely significantly impact the relationship of these rates measured in London versus the US.

[(former)FormerSanDiegan]

One comment: All historic correlations will be obsolete if US dollars are no longer the world currency.

Nice snarky one-liner. But devoid of facts

FACTS :
1. The LIBOR index is a rate based on dollar-denominated deposits.

2. Even as the dollar sinks to unprecedented lows against the euro, the relationship I pointed out still holds.

3. The British Bankers Association publishes LIBOR rates in 10 currencies. At least 8 of these are not the world’s reserve currency.

OPINION:
The loss of dollar’s role as the world’s currency will likely put upward pressure on interest rates in US dollars, but it will not likely significantly impact the relationship of these rates measured in London versus the US.

[(former)FormerSanDiegan]

One comment: All historic correlations will be obsolete if US dollars are no longer the world currency.

Nice snarky one-liner. But devoid of facts

FACTS :
1. The LIBOR index is a rate based on dollar-denominated deposits.

2. Even as the dollar sinks to unprecedented lows against the euro, the relationship I pointed out still holds.

3. The British Bankers Association publishes LIBOR rates in 10 currencies. At least 8 of these are not the world’s reserve currency.

OPINION:
The loss of dollar’s role as the world’s currency will likely put upward pressure on interest rates in US dollars, but it will not likely significantly impact the relationship of these rates measured in London versus the US.

[Arty]

One comment: All historic correlations will be obsolete if US dollars are no longer the world currency.

[Arty]

One comment: All historic correlations will be obsolete if US dollars are no longer the world currency.

[Arty]

One comment: All historic correlations will be obsolete if US dollars are no longer the world currency.

[Arty]

One comment: All historic correlations will be obsolete if US dollars are no longer the world currency.

[SD Realtor]

FSD agreed, which is why I wrote, “not that it makes much of a difference”

SD Realtor

[(former)FormerSanDiegan]

SD R – got it, thanks.

[(former)FormerSanDiegan]

SD R – got it, thanks.

[(former)FormerSanDiegan]

SD R – got it, thanks.

[(former)FormerSanDiegan]

SD R – got it, thanks.

[(former)FormerSanDiegan]

SD R – got it, thanks.

[SD Realtor]

FSD agreed, which is why I wrote, “not that it makes much of a difference”

SD Realtor

[SD Realtor]

FSD agreed, which is why I wrote, “not that it makes much of a difference”

SD Realtor

[SD Realtor]

FSD agreed, which is why I wrote, “not that it makes much of a difference”

SD Realtor

[SD Realtor]

FSD agreed, which is why I wrote, “not that it makes much of a difference”

SD Realtor

[JWM in SD]

“True. But LIBOR rates tend to correlate with the FED funds rate. Currently the 1-year LIBOR is about 0.9% less than a year ago. Most of the drop has been since the FED dropped rates.”

But you are ignoring the spread between the Fed Funds Rate and the Libor rate. It is not headed in a favorable direction.

Second, how does the interest rate help an FB if their LTV has passed certain thresholds already? Especially given current lending standards.

[(former)FormerSanDiegan]

But you are ignoring the spread between the Fed Funds Rate and the Libor rate. It is not headed in a favorable direction.

Not really. The two have dropped by about 0.75% since summer.

Second, how does the interest rate help an FB is their LTV has already passed certain thresholds already? Especially given current lending standards.

Their existing loan is not impacted by current lending standards. Only those with Neg-am loans are impacted by LTV thresholds and those folks are likely F’d no matter what.

But, you’ve seen those loan reset charts, right. The next wave of resets are primarily Alt-A and prime borrowers. The idea is that many have teaser rate loans that reset in the next year or two and that because these rates will result in much larger payments these guys will toss the keys to the bank and provide a fresh source of REOs for us in 2009-2010.

Let’s consider those who could afford (perhaps barely)their original 3- or 5-year ARM at the original 5.5 – 6% rate, but who are facing resets in the next 2 years.

6 months ago, these folks would have been facing a 7.75% or higher loan upon reset, based on the 1-year LIBOR and a margin of 2.25%. That’s why the loan reset schedule seems so scary.
Today, they are looking at about 6.75%.

Another 0.75 to 1 point drop in the LIBOR index and their reset rate will be about the same as their original teaser rate.

So you see, rates matter for those who have loan resets coming. These are the terms of their current loan irrespective of current lending standards.

[DaCounselor]

Agreed, FSD. It’s going to be very interesting to see how many of the so-called Alt-A and prime loan resets actually end up as foreclosures. If the Fed rate/LIBOR continue their downward trend, these folks are looking at a minimal increase in payments (and possible decrease – crazy to think it but certainly possible). Even with payment increases, by definition these folks have solid credit and I would guess that it would take a drastic and truly unaffordable payment shock to drive them to mail in the keys. I think mailing in the keys is easier bantered about than actually done, when it comes down to brass tacks, particularly if you have great credit.

These folks are also probably better candidates for loan mods – very good credit histories, and if the intro rate is in the 5-6% range as opposed to a subprime 2% teaser rate, they should be able to qualify for a reasonable mod rate that will appeal to both sides of the deal. I would expect mods to increase in this demographic.

The problem these people face, however, is ultimately being upside down and strapped into increasing payments as the Fed/LIBOR tightens, which is inevitable. The current movement is in their favor, but the tide will most certainly turn eventually. These folks may very well not find themselves in trouble immediately after their impending resets, but instead further down the road.

[hipmatt]

Interest rates(mortgage rates) are one of many factors that help determine housing values. Right now.. supply and demand are much more powerful factors in determining home prices. Another factor is credit availability, and loan standards.

Prices got absurdly high due to a lack of lending standards, massive availability of credit, and low interest rates. … you can bring the rates down to wherever you want… but lending standards are back, and credit is much harder to come by.

If the fed does lower the finds rate by another 2% over the next 2 years, we will probably have had much bigger problems than just housing to prompt such a drastic reduction.(I agree this is possible and even likely).. but there would most likely be a recession and more unemployment in this scenario(again likely)… the effects of this on housing will do more harm than good done by any rate cut… not to mention the massive inflation that would be caused by such rate cuts.

To answer your question KEV .. NO, if the fed lowers interest rates by another 2% on the next 2 years, there will be much worse problems in USA than a housing bubble popping. The fed wouldn’t lower rates that much unless we are REALLY hurting. If we are hurting, how are we gonna buy homes anyways?

[paramount]

The banks will use the lower interest rates to minimize losses – they will keep the cheap $$ for themselves and not pass the savings on to consumers.

That’s why mortgage rates have not really dropped recently.

Well, that’s what I heard on CNBC this morning.

[paramount]

The banks will use the lower interest rates to minimize losses – they will keep the cheap $$ for themselves and not pass the savings on to consumers.

That’s why mortgage rates have not really dropped recently.

Well, that’s what I heard on CNBC this morning.

[paramount]

The banks will use the lower interest rates to minimize losses – they will keep the cheap $$ for themselves and not pass the savings on to consumers.

That’s why mortgage rates have not really dropped recently.

Well, that’s what I heard on CNBC this morning.

[paramount]

The banks will use the lower interest rates to minimize losses – they will keep the cheap $$ for themselves and not pass the savings on to consumers.

That’s why mortgage rates have not really dropped recently.

Well, that’s what I heard on CNBC this morning.

[paramount]

The banks will use the lower interest rates to minimize losses – they will keep the cheap $$ for themselves and not pass the savings on to consumers.

That’s why mortgage rates have not really dropped recently.

Well, that’s what I heard on CNBC this morning.

[hipmatt]

Interest rates(mortgage rates) are one of many factors that help determine housing values. Right now.. supply and demand are much more powerful factors in determining home prices. Another factor is credit availability, and loan standards.

Prices got absurdly high due to a lack of lending standards, massive availability of credit, and low interest rates. … you can bring the rates down to wherever you want… but lending standards are back, and credit is much harder to come by.

If the fed does lower the finds rate by another 2% over the next 2 years, we will probably have had much bigger problems than just housing to prompt such a drastic reduction.(I agree this is possible and even likely).. but there would most likely be a recession and more unemployment in this scenario(again likely)… the effects of this on housing will do more harm than good done by any rate cut… not to mention the massive inflation that would be caused by such rate cuts.

To answer your question KEV .. NO, if the fed lowers interest rates by another 2% on the next 2 years, there will be much worse problems in USA than a housing bubble popping. The fed wouldn’t lower rates that much unless we are REALLY hurting. If we are hurting, how are we gonna buy homes anyways?

[hipmatt]

Interest rates(mortgage rates) are one of many factors that help determine housing values. Right now.. supply and demand are much more powerful factors in determining home prices. Another factor is credit availability, and loan standards.

Prices got absurdly high due to a lack of lending standards, massive availability of credit, and low interest rates. … you can bring the rates down to wherever you want… but lending standards are back, and credit is much harder to come by.

If the fed does lower the finds rate by another 2% over the next 2 years, we will probably have had much bigger problems than just housing to prompt such a drastic reduction.(I agree this is possible and even likely).. but there would most likely be a recession and more unemployment in this scenario(again likely)… the effects of this on housing will do more harm than good done by any rate cut… not to mention the massive inflation that would be caused by such rate cuts.

To answer your question KEV .. NO, if the fed lowers interest rates by another 2% on the next 2 years, there will be much worse problems in USA than a housing bubble popping. The fed wouldn’t lower rates that much unless we are REALLY hurting. If we are hurting, how are we gonna buy homes anyways?

[hipmatt]

Interest rates(mortgage rates) are one of many factors that help determine housing values. Right now.. supply and demand are much more powerful factors in determining home prices. Another factor is credit availability, and loan standards.

Prices got absurdly high due to a lack of lending standards, massive availability of credit, and low interest rates. … you can bring the rates down to wherever you want… but lending standards are back, and credit is much harder to come by.

If the fed does lower the finds rate by another 2% over the next 2 years, we will probably have had much bigger problems than just housing to prompt such a drastic reduction.(I agree this is possible and even likely).. but there would most likely be a recession and more unemployment in this scenario(again likely)… the effects of this on housing will do more harm than good done by any rate cut… not to mention the massive inflation that would be caused by such rate cuts.

To answer your question KEV .. NO, if the fed lowers interest rates by another 2% on the next 2 years, there will be much worse problems in USA than a housing bubble popping. The fed wouldn’t lower rates that much unless we are REALLY hurting. If we are hurting, how are we gonna buy homes anyways?

[hipmatt]

Interest rates(mortgage rates) are one of many factors that help determine housing values. Right now.. supply and demand are much more powerful factors in determining home prices. Another factor is credit availability, and loan standards.

Prices got absurdly high due to a lack of lending standards, massive availability of credit, and low interest rates. … you can bring the rates down to wherever you want… but lending standards are back, and credit is much harder to come by.

If the fed does lower the finds rate by another 2% over the next 2 years, we will probably have had much bigger problems than just housing to prompt such a drastic reduction.(I agree this is possible and even likely).. but there would most likely be a recession and more unemployment in this scenario(again likely)… the effects of this on housing will do more harm than good done by any rate cut… not to mention the massive inflation that would be caused by such rate cuts.

To answer your question KEV .. NO, if the fed lowers interest rates by another 2% on the next 2 years, there will be much worse problems in USA than a housing bubble popping. The fed wouldn’t lower rates that much unless we are REALLY hurting. If we are hurting, how are we gonna buy homes anyways?

[DaCounselor]

Agreed, FSD. It’s going to be very interesting to see how many of the so-called Alt-A and prime loan resets actually end up as foreclosures. If the Fed rate/LIBOR continue their downward trend, these folks are looking at a minimal increase in payments (and possible decrease – crazy to think it but certainly possible). Even with payment increases, by definition these folks have solid credit and I would guess that it would take a drastic and truly unaffordable payment shock to drive them to mail in the keys. I think mailing in the keys is easier bantered about than actually done, when it comes down to brass tacks, particularly if you have great credit.

These folks are also probably better candidates for loan mods – very good credit histories, and if the intro rate is in the 5-6% range as opposed to a subprime 2% teaser rate, they should be able to qualify for a reasonable mod rate that will appeal to both sides of the deal. I would expect mods to increase in this demographic.

The problem these people face, however, is ultimately being upside down and strapped into increasing payments as the Fed/LIBOR tightens, which is inevitable. The current movement is in their favor, but the tide will most certainly turn eventually. These folks may very well not find themselves in trouble immediately after their impending resets, but instead further down the road.

[DaCounselor]

Agreed, FSD. It’s going to be very interesting to see how many of the so-called Alt-A and prime loan resets actually end up as foreclosures. If the Fed rate/LIBOR continue their downward trend, these folks are looking at a minimal increase in payments (and possible decrease – crazy to think it but certainly possible). Even with payment increases, by definition these folks have solid credit and I would guess that it would take a drastic and truly unaffordable payment shock to drive them to mail in the keys. I think mailing in the keys is easier bantered about than actually done, when it comes down to brass tacks, particularly if you have great credit.

These folks are also probably better candidates for loan mods – very good credit histories, and if the intro rate is in the 5-6% range as opposed to a subprime 2% teaser rate, they should be able to qualify for a reasonable mod rate that will appeal to both sides of the deal. I would expect mods to increase in this demographic.

The problem these people face, however, is ultimately being upside down and strapped into increasing payments as the Fed/LIBOR tightens, which is inevitable. The current movement is in their favor, but the tide will most certainly turn eventually. These folks may very well not find themselves in trouble immediately after their impending resets, but instead further down the road.

[DaCounselor]

Agreed, FSD. It’s going to be very interesting to see how many of the so-called Alt-A and prime loan resets actually end up as foreclosures. If the Fed rate/LIBOR continue their downward trend, these folks are looking at a minimal increase in payments (and possible decrease – crazy to think it but certainly possible). Even with payment increases, by definition these folks have solid credit and I would guess that it would take a drastic and truly unaffordable payment shock to drive them to mail in the keys. I think mailing in the keys is easier bantered about than actually done, when it comes down to brass tacks, particularly if you have great credit.

These folks are also probably better candidates for loan mods – very good credit histories, and if the intro rate is in the 5-6% range as opposed to a subprime 2% teaser rate, they should be able to qualify for a reasonable mod rate that will appeal to both sides of the deal. I would expect mods to increase in this demographic.

The problem these people face, however, is ultimately being upside down and strapped into increasing payments as the Fed/LIBOR tightens, which is inevitable. The current movement is in their favor, but the tide will most certainly turn eventually. These folks may very well not find themselves in trouble immediately after their impending resets, but instead further down the road.

[DaCounselor]

Agreed, FSD. It’s going to be very interesting to see how many of the so-called Alt-A and prime loan resets actually end up as foreclosures. If the Fed rate/LIBOR continue their downward trend, these folks are looking at a minimal increase in payments (and possible decrease – crazy to think it but certainly possible). Even with payment increases, by definition these folks have solid credit and I would guess that it would take a drastic and truly unaffordable payment shock to drive them to mail in the keys. I think mailing in the keys is easier bantered about than actually done, when it comes down to brass tacks, particularly if you have great credit.

These folks are also probably better candidates for loan mods – very good credit histories, and if the intro rate is in the 5-6% range as opposed to a subprime 2% teaser rate, they should be able to qualify for a reasonable mod rate that will appeal to both sides of the deal. I would expect mods to increase in this demographic.

The problem these people face, however, is ultimately being upside down and strapped into increasing payments as the Fed/LIBOR tightens, which is inevitable. The current movement is in their favor, but the tide will most certainly turn eventually. These folks may very well not find themselves in trouble immediately after their impending resets, but instead further down the road.

[patientrenter]

Thanks FormerSanDiegan, for chiming in with facts to replace impressions.

Patient renter in OC

[patientrenter]

Thanks FormerSanDiegan, for chiming in with facts to replace impressions.

Patient renter in OC

[patientrenter]

Thanks FormerSanDiegan, for chiming in with facts to replace impressions.

Patient renter in OC

[patientrenter]

Thanks FormerSanDiegan, for chiming in with facts to replace impressions.

Patient renter in OC

[patientrenter]

Thanks FormerSanDiegan, for chiming in with facts to replace impressions.

Patient renter in OC

[(former)FormerSanDiegan]

But you are ignoring the spread between the Fed Funds Rate and the Libor rate. It is not headed in a favorable direction.

Not really. The two have dropped by about 0.75% since summer.

Second, how does the interest rate help an FB is their LTV has already passed certain thresholds already? Especially given current lending standards.

Their existing loan is not impacted by current lending standards. Only those with Neg-am loans are impacted by LTV thresholds and those folks are likely F’d no matter what.

But, you’ve seen those loan reset charts, right. The next wave of resets are primarily Alt-A and prime borrowers. The idea is that many have teaser rate loans that reset in the next year or two and that because these rates will result in much larger payments these guys will toss the keys to the bank and provide a fresh source of REOs for us in 2009-2010.

Let’s consider those who could afford (perhaps barely)their original 3- or 5-year ARM at the original 5.5 – 6% rate, but who are facing resets in the next 2 years.

6 months ago, these folks would have been facing a 7.75% or higher loan upon reset, based on the 1-year LIBOR and a margin of 2.25%. That’s why the loan reset schedule seems so scary.
Today, they are looking at about 6.75%.

Another 0.75 to 1 point drop in the LIBOR index and their reset rate will be about the same as their original teaser rate.

So you see, rates matter for those who have loan resets coming. These are the terms of their current loan irrespective of current lending standards.

[(former)FormerSanDiegan]

But you are ignoring the spread between the Fed Funds Rate and the Libor rate. It is not headed in a favorable direction.

Not really. The two have dropped by about 0.75% since summer.

Second, how does the interest rate help an FB is their LTV has already passed certain thresholds already? Especially given current lending standards.

Their existing loan is not impacted by current lending standards. Only those with Neg-am loans are impacted by LTV thresholds and those folks are likely F’d no matter what.

But, you’ve seen those loan reset charts, right. The next wave of resets are primarily Alt-A and prime borrowers. The idea is that many have teaser rate loans that reset in the next year or two and that because these rates will result in much larger payments these guys will toss the keys to the bank and provide a fresh source of REOs for us in 2009-2010.

Let’s consider those who could afford (perhaps barely)their original 3- or 5-year ARM at the original 5.5 – 6% rate, but who are facing resets in the next 2 years.

6 months ago, these folks would have been facing a 7.75% or higher loan upon reset, based on the 1-year LIBOR and a margin of 2.25%. That’s why the loan reset schedule seems so scary.
Today, they are looking at about 6.75%.

Another 0.75 to 1 point drop in the LIBOR index and their reset rate will be about the same as their original teaser rate.

So you see, rates matter for those who have loan resets coming. These are the terms of their current loan irrespective of current lending standards.

[(former)FormerSanDiegan]

But you are ignoring the spread between the Fed Funds Rate and the Libor rate. It is not headed in a favorable direction.

Not really. The two have dropped by about 0.75% since summer.

Second, how does the interest rate help an FB is their LTV has already passed certain thresholds already? Especially given current lending standards.

Their existing loan is not impacted by current lending standards. Only those with Neg-am loans are impacted by LTV thresholds and those folks are likely F’d no matter what.

But, you’ve seen those loan reset charts, right. The next wave of resets are primarily Alt-A and prime borrowers. The idea is that many have teaser rate loans that reset in the next year or two and that because these rates will result in much larger payments these guys will toss the keys to the bank and provide a fresh source of REOs for us in 2009-2010.

Let’s consider those who could afford (perhaps barely)their original 3- or 5-year ARM at the original 5.5 – 6% rate, but who are facing resets in the next 2 years.

6 months ago, these folks would have been facing a 7.75% or higher loan upon reset, based on the 1-year LIBOR and a margin of 2.25%. That’s why the loan reset schedule seems so scary.
Today, they are looking at about 6.75%.

Another 0.75 to 1 point drop in the LIBOR index and their reset rate will be about the same as their original teaser rate.

So you see, rates matter for those who have loan resets coming. These are the terms of their current loan irrespective of current lending standards.

[(former)FormerSanDiegan]

But you are ignoring the spread between the Fed Funds Rate and the Libor rate. It is not headed in a favorable direction.

Not really. The two have dropped by about 0.75% since summer.

Second, how does the interest rate help an FB is their LTV has already passed certain thresholds already? Especially given current lending standards.

Their existing loan is not impacted by current lending standards. Only those with Neg-am loans are impacted by LTV thresholds and those folks are likely F’d no matter what.

But, you’ve seen those loan reset charts, right. The next wave of resets are primarily Alt-A and prime borrowers. The idea is that many have teaser rate loans that reset in the next year or two and that because these rates will result in much larger payments these guys will toss the keys to the bank and provide a fresh source of REOs for us in 2009-2010.

Let’s consider those who could afford (perhaps barely)their original 3- or 5-year ARM at the original 5.5 – 6% rate, but who are facing resets in the next 2 years.

6 months ago, these folks would have been facing a 7.75% or higher loan upon reset, based on the 1-year LIBOR and a margin of 2.25%. That’s why the loan reset schedule seems so scary.
Today, they are looking at about 6.75%.

Another 0.75 to 1 point drop in the LIBOR index and their reset rate will be about the same as their original teaser rate.

So you see, rates matter for those who have loan resets coming. These are the terms of their current loan irrespective of current lending standards.

[JWM in SD]

“True. But LIBOR rates tend to correlate with the FED funds rate. Currently the 1-year LIBOR is about 0.9% less than a year ago. Most of the drop has been since the FED dropped rates.”

But you are ignoring the spread between the Fed Funds Rate and the Libor rate. It is not headed in a favorable direction.

Second, how does the interest rate help an FB if their LTV has passed certain thresholds already? Especially given current lending standards.

[JWM in SD]

“True. But LIBOR rates tend to correlate with the FED funds rate. Currently the 1-year LIBOR is about 0.9% less than a year ago. Most of the drop has been since the FED dropped rates.”

But you are ignoring the spread between the Fed Funds Rate and the Libor rate. It is not headed in a favorable direction.

Second, how does the interest rate help an FB if their LTV has passed certain thresholds already? Especially given current lending standards.

[JWM in SD]

“True. But LIBOR rates tend to correlate with the FED funds rate. Currently the 1-year LIBOR is about 0.9% less than a year ago. Most of the drop has been since the FED dropped rates.”

But you are ignoring the spread between the Fed Funds Rate and the Libor rate. It is not headed in a favorable direction.

Second, how does the interest rate help an FB if their LTV has passed certain thresholds already? Especially given current lending standards.

[JWM in SD]

“True. But LIBOR rates tend to correlate with the FED funds rate. Currently the 1-year LIBOR is about 0.9% less than a year ago. Most of the drop has been since the FED dropped rates.”

But you are ignoring the spread between the Fed Funds Rate and the Libor rate. It is not headed in a favorable direction.

Second, how does the interest rate help an FB if their LTV has passed certain thresholds already? Especially given current lending standards.

[(former)FormerSanDiegan]

I am by no means a mortgage expert however I was under the impression that many of the resets were to the Libor rather then the Fed Funds. Not that it makes a whole lot of difference…

True. But LIBOR rates tend to correlate with the FED funds rate. Currently the 1-year LIBOR is about 0.9% less than a year ago. Most of the drop has been since the FED dropped rates.

[(former)FormerSanDiegan]

I am by no means a mortgage expert however I was under the impression that many of the resets were to the Libor rather then the Fed Funds. Not that it makes a whole lot of difference…

True. But LIBOR rates tend to correlate with the FED funds rate. Currently the 1-year LIBOR is about 0.9% less than a year ago. Most of the drop has been since the FED dropped rates.

[(former)FormerSanDiegan]

I am by no means a mortgage expert however I was under the impression that many of the resets were to the Libor rather then the Fed Funds. Not that it makes a whole lot of difference…

True. But LIBOR rates tend to correlate with the FED funds rate. Currently the 1-year LIBOR is about 0.9% less than a year ago. Most of the drop has been since the FED dropped rates.

[(former)FormerSanDiegan]

I am by no means a mortgage expert however I was under the impression that many of the resets were to the Libor rather then the Fed Funds. Not that it makes a whole lot of difference…

True. But LIBOR rates tend to correlate with the FED funds rate. Currently the 1-year LIBOR is about 0.9% less than a year ago. Most of the drop has been since the FED dropped rates.

[SD Realtor]

Alarmclock no you cannot lock any mortgage rate in advance. You need to send in the fully executed purchase agreement on a home to get the loan process started.

I am by no means a mortgage expert however I was under the impression that many of the resets were to the Libor rather then the Fed Funds. Not that it makes a whole lot of difference…

The 10 year treasury yield is still the best vehicle IMO to track long term mortgage trends. However the premium for underwriting these has increased. Once upon a time I used to use about 1.25% as a fudge factor off of the 10 year to guestimate a fully amortized (conforming) 30 year fixed rate mortgage at 1 point. Now I am not so sure what value to use.

I actually do believe that if we ever enter a point where mortgage rates are depressed to ridiculous values (say 5% for a fixed 30 year jumbo) then yes IMO that will help prop up sales as long as there is not a wholesale recession. Now I don’t see those rates ever happening… but ya never know. Wall Street and our government may do anything to hold off the big bang.

SD Realtor

[SD Realtor]

Alarmclock no you cannot lock any mortgage rate in advance. You need to send in the fully executed purchase agreement on a home to get the loan process started.

I am by no means a mortgage expert however I was under the impression that many of the resets were to the Libor rather then the Fed Funds. Not that it makes a whole lot of difference…

The 10 year treasury yield is still the best vehicle IMO to track long term mortgage trends. However the premium for underwriting these has increased. Once upon a time I used to use about 1.25% as a fudge factor off of the 10 year to guestimate a fully amortized (conforming) 30 year fixed rate mortgage at 1 point. Now I am not so sure what value to use.

I actually do believe that if we ever enter a point where mortgage rates are depressed to ridiculous values (say 5% for a fixed 30 year jumbo) then yes IMO that will help prop up sales as long as there is not a wholesale recession. Now I don’t see those rates ever happening… but ya never know. Wall Street and our government may do anything to hold off the big bang.

SD Realtor

[SD Realtor]

Alarmclock no you cannot lock any mortgage rate in advance. You need to send in the fully executed purchase agreement on a home to get the loan process started.

I am by no means a mortgage expert however I was under the impression that many of the resets were to the Libor rather then the Fed Funds. Not that it makes a whole lot of difference…

The 10 year treasury yield is still the best vehicle IMO to track long term mortgage trends. However the premium for underwriting these has increased. Once upon a time I used to use about 1.25% as a fudge factor off of the 10 year to guestimate a fully amortized (conforming) 30 year fixed rate mortgage at 1 point. Now I am not so sure what value to use.

I actually do believe that if we ever enter a point where mortgage rates are depressed to ridiculous values (say 5% for a fixed 30 year jumbo) then yes IMO that will help prop up sales as long as there is not a wholesale recession. Now I don’t see those rates ever happening… but ya never know. Wall Street and our government may do anything to hold off the big bang.

SD Realtor

[SD Realtor]

Alarmclock no you cannot lock any mortgage rate in advance. You need to send in the fully executed purchase agreement on a home to get the loan process started.

I am by no means a mortgage expert however I was under the impression that many of the resets were to the Libor rather then the Fed Funds. Not that it makes a whole lot of difference…

The 10 year treasury yield is still the best vehicle IMO to track long term mortgage trends. However the premium for underwriting these has increased. Once upon a time I used to use about 1.25% as a fudge factor off of the 10 year to guestimate a fully amortized (conforming) 30 year fixed rate mortgage at 1 point. Now I am not so sure what value to use.

I actually do believe that if we ever enter a point where mortgage rates are depressed to ridiculous values (say 5% for a fixed 30 year jumbo) then yes IMO that will help prop up sales as long as there is not a wholesale recession. Now I don’t see those rates ever happening… but ya never know. Wall Street and our government may do anything to hold off the big bang.

SD Realtor

[alarmclock]

If you felt that mortgage rates were going to rise, is there a product that lets you “lock in” a desirable mortagage rate several years before the real estate purchase? It would be trivial for the lender to calculate and charge the interest difference between the mortgage rate and the current rate of interest on a CD on the to-be-lent money.

[alarmclock]

If you felt that mortgage rates were going to rise, is there a product that lets you “lock in” a desirable mortagage rate several years before the real estate purchase? It would be trivial for the lender to calculate and charge the interest difference between the mortgage rate and the current rate of interest on a CD on the to-be-lent money.

[alarmclock]

If you felt that mortgage rates were going to rise, is there a product that lets you “lock in” a desirable mortagage rate several years before the real estate purchase? It would be trivial for the lender to calculate and charge the interest difference between the mortgage rate and the current rate of interest on a CD on the to-be-lent money.

[alarmclock]

If you felt that mortgage rates were going to rise, is there a product that lets you “lock in” a desirable mortagage rate several years before the real estate purchase? It would be trivial for the lender to calculate and charge the interest difference between the mortgage rate and the current rate of interest on a CD on the to-be-lent money.

[Author]

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