Rate Watch #738 A Suggestion for a Stimulating Mortgage
September 3, 2010
by Dick Lepre
dicklepre@rpm-mtg.com
www.loanmine.com
| Product | Rate | Points | Est. APR* | |
|---|---|---|---|---|
| CONFORMING LOAN PRODUCTS (Loans less than $417,000) | ||||
| 30 Year Fixed conforming | ||||
| 4.25% | 1.00 | 4.28% | ||
| 4.5% | 0.00 | 4.57% | ||
| 15 Year Fixed Conforming | ||||
| 3.75% | 1.00 | 4.01% | ||
| 3.875% | 0.00 | 4.00% | ||
| High-balance CONFORMING LOAN PRODUCTS (Loans greater than $417,000 and less than Hi-Balance amount for your county) | ||||
| 30 Yr Fixed Hi-Balance | ||||
| 4.875% | 0 | 4.97% | ||
| 4.5% | 1.0 | 4.66% | ||
| 15 Yr Fixed Hi-Balance | 4.25% | 0 |
4.38%
| |
| 3.975% | 1 | 4.15% | ||
* conforming loan limits for 2010 are:
1 unit $417,000
2 units $533,850
3 units
$645,300
4 units $801,950
Note that the above table now means something different than it used to. "Conforming" now means "traditional conforming" (<$417,000 for SFR is the new jumbo-conforming which depends on county.) You can find the new High-Balance Conforming limit for your county here. That page says "FHA" but those amounts also pertain to FNMA & FHLMC.
You must not read these as quotes because the rate and price which you will get depends on your precise situation and is affected by, but not limited to, the following factors: credit scores, property type, occupancy, income, value of property, length of time of the rate lock, whether of not values in your area are declining, and cash out (if refinancing).
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II) Fundamentals
First a couple of housekeeping things. I am working almost exclusively from my home office lately so those of you with old phone numbers should note my cell phone number (415) 244-9383. Also, please pass along to anyone whom you know who may be interested is staying informed the link to get added to this distribution: http://www.loanmine.com/ratewatch
The BLS Employment Situation Report is mixed. It shows -54,000 jobs overall (expectation was -100,000), +67,000 private sector jobs, Unemployment Rate up to 9.6%, Hourly Earnings +0.3% and a flat work week. The report is indeed better than expected but this is a picture of a jobs market going nowhere and is hardly a sign of economic growth. Many people reentered the jobs market last month. That is why the Unemployment rate was up. That could be because of that temporary end to extended unemployment benefits so I would not read anything into last month's change in the Unemployment Rate. The real story for me is this: if we regard -54,000 jobs (overall) and +67,000 private jobs as good then that really says how terrible our expectation of the economy is.
ISM Manufacturing was stronger than expected on Wednesday which led to equity buying and Treasury selling. Initial Jobless Claims were 472,000 last week, consensus was 475K, previous was 478K. The jobs market is still weak. Productivity (GDP/hr. worked) was -1.8%. Unit Labor Costs were +1.1%. Pending Homes Sales were +5.2% which is a rebound from the previous -2.8%. ADP jobs was weak. ADP showed large companies adding jobs and small companies not adding jobs. Most job creation is done by small, new companies (less than 1 year old). If small companies not creating jobs becomes a trend it will be a substantial concern.
The SurePayroll Small Business Scorecard seems to contradict ADP showing small businesses adding jobs in all regions.
III) The Technicals
The daily turned bearish, the weekly is turning bearish, and the monthly is bullish. The Treasury market has been so volatile and fear-driven that it is difficult to know the extent to which techs will drive Treasuries.
For those who are not longtime readers, the basis for these observations about technicals is the work of Jim Grauer which can be viewed at StoMaster.
IV) Analysis
I want to call attention to what I thought was a fine article on Bloomberg regarding the changing role of the Federal Reserve.
Rick Davis of Consumer Metrics has been pondering his ominous data indicating economic contraction and observed, in his newsletter of this week, that what the data is really saying is that the "Great Recession" never really ended but merely that government stimulus caused a spike in GDP which was temporary and that now we are seeing indications that we are still in recession and that it may be a lengthy one. The fact is that we have high unemployment and signs of declining discretionary consumer spending. Those "green shoots" were more like a cocaine rush and may prove a good bit more expensive.
The economy is very complex but unless we are looking at the right data it is darn hard to formulate policy.
While we saw a long slide in Treasury yields we did not see the same happen with mortgages. I treated this last week. Investors is mortgage debt need to be concerned about early payoffs. It they incorrectly overestimate the life expectancy of mortgages at a give note rate they will lose money. They may also fear that the Fed will start buying a lot of mortgage debt sometime in the future as a stimulus (lower mortgage payments = more money to spend) which could drive rates lower than they now are. With this week's spike upward in Treasury yields the concern about early payoffs of mortgages will abate.
Instead of the Fed simply buying more GSE paper the Fed might consider a radical plan such as suggested in the next section.
V) This Ought to Scare Them
Since it is the start of a 3-day weekend and heaven knows how many of you are really going to read this, I am going to simply revisit a notion I had last year regarding how to stimulate the economy with mortgage financing.
Note that this mortgage does not exist. It is merely a suggestion or an attempt to get someone pointed in the right direction.
We could have a new mortgage which could create real economic stimulus:
- 30 year amortization
- this would have the same high underwriting standards which FNMA has at present
- it would be fixed for the first two years at 2%
- it would go to 3% for years 3 and 4
- it would be 4% for year 5
- it them goes to 5% for the remaining term
- underwritten at 5% to qualify.
All of this debt would be purchased by the Fed.
What does this do? It gives homeowners more disposable income. It decreases deducted mortgage interest putting more money into Treasury.
This assumes that the Fed's shift from buying Treasury debt to buying mortgage debt will not have a significant adverse affect on Treasury yields. The Treasury market is a lot deeper than the market for mortgages so it can better survive on its own.
By usurping the lion's share of conforming mortgages incentive to securitize jumbo mortgages might return.
If you have something to add to this discussion please post a comment on the blog.
Dick Lepre
RPM - SF
1400 Van Ness Avenue
San Francisco, CA 94109
DRE License # 01143973
dicklepre@rpm-mtg.com
Web site: www.loanmine.com
Blog: economy.typepad.com
(415) 244-9383
(866) 488-2051 fax
California Department of Real Estate - real estate broker license #01201643
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