effect of lower interest rates on home prices

[(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.

[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

[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?

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