MBS yields have dropped below 4.0%, and mortgage rates are likely to follow them down (tho not that far).

The spread between the two averages about 15 bps,  but with the quantitative easing, rates have been forced much lower — and the spread has widened out to 131bps.

If this persists, expect to see mortgage rates below 5%!

chart courtesy of Peter Boockvar, Bloomberg

Category: Credit, Politics, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

34 Responses to “Mortgage Rate Spreads”

  1. leftback says:

    It’s all over… let the MBS write-ups begin. King Henry has saved the banks.
    A new bull market is born… housing will boom again.

    ….just kidding.The low rates will only boost refis and foreclosure sales in CA.
    Supply still growing and there is a lot of juice to be squeezed out of housing prices in other places.

    in other Bailout Nation news, Henry to Congress:
    “my friends at GS/AIG are out of caviar and need more TARP money”
    the fleecing continues….

  2. Mannwich says:

    @lb: The “other half” (which is just the beginning, obviously) of that TARP money should come in handy just in time to payout bonuses. It’s good to be King.

  3. dead hobo says:

    BR noted:

    If this persists, expect to see mortgage rates below 5%!

    Smugly, I said: Already there on my 5/1 ARM. It repriced under 5% this year and will reprice in the 2% range next year if things continue. The biggest problem I have is that I think the max yearly adjustment is 2%. Thus, I will be maybe 1/2% above where I otherwise would be. Hopefully, I am wrong on this. I plan to start bringing down the balance aggressively, since almost all of the payment will go to principal.

  4. Myr says:

    Even if I could get a no money down 4.5% 30y loan I still wouldn’t buy a house until prices reach a sustainable level.

  5. leftback says:

    @ Dead hobo: don’t bet on it unless you live in an area where there was no bubble in home prices. Low rates are a mirage. When lending actually begins again it will be at much higher rates than these. This TARP money isn’t going to loans, it is simply ensuring there are $ in the ATMs so that the world continues to function.

    In an acute credit crisis like the one in Argentina, 2001 vintage, the banks hoard all the currency and there simply is none available for the population, and nobody can make payroll. There were mass layoffs and people had to scavenge for food. Of course their printing ability had been crimped by the IMF after their debt default. I am not sure what will happen with the US debt but it isn’t going to grow infinitely. Infinite US debt and low interest rates would involve a form of math with which I am not familiar.

  6. karen says:

    well, AT did say he was able to refinance. here in 92672, i’ve heard loans are tight… however, i’m not sure that the borrowers are deserving. there is a nasty ripple effect, though. contractors not getting paid, etc.

    i dare say the TARP money was used to keep the bank doors open (and all that entails: dividends, salaries, bonuses, interest on deposits (hahaha))

  7. dead hobo says:

    leftback,

    You misunderstand. I am now at 4 7/8% My rate is based on the 6 month T-bill, which is now close to zero. 2% + zero is 2%, unless I have a +/- 2% maximum adjustment. Unless things change materially by early next year, I will be even more smug than I am now. I was going to pay off my house if rates went through the roof last Spring. Just the opposite occurred at the nick of time. Instead, I plan to go on a three or five year payment plan by making larger payments with almost no interest cost. On top of that, I have a CD at the same bank that is paying about 3%. So, after repricing, the bank will be paying me more than I am paying them.

    Maybe this will qualify me as a commercial bank since I am making money off the spread. I can get me some of that TARP money and invest it in good works with grandfatherly looking financial wizards.

  8. Pool Shark says:

    Too bad those lower interest rates are going to refinances rather than purchases

  9. Mannwich says:

    Maybe a good to be a mortgage broker/banker again for the re-fi fees. Maybe that’s where all the unemployed will go?

  10. Who cares what interest rates are if people don’t have jobs? I still don’t hear the talking air-heads on CNBC talking about that. All I hear is those bastards whining about the UAW. I’d like to see each one of those hosts take UAW wages. I’d bet they whine about that for months. Anyone have any idea what people like Leisman and Caruso-Cabrera make?

  11. BG says:

    Me….., I am thinking of buying a distressed property on the lake and finance the whole damn thing. Fuck it!

  12. ckstevenson says:

    Someone please tamp down my “refinancing remorse”. I just went from 6.25% on a 30 year loan (one year into it) to 5%. I sign the paperwork tonight.

  13. BG says:

    Even though, you would be hard pressed to sell anything in this cockey-mammey economy we are currently in. It doesn’t matter. If you are blue-collar (and had not one damn thing to do with wrecking our economy), you are dog-shit my friend.

    Frankly, I don’t understand it. It’s like the elitists are worried/pissed that you may have a better life than their sorry asses. Again, I don’t understand the apparent resentment coming from people who are being paid well with little to show for it in many cases. While at the same time bitching/complaining at anybody being paid 2 cents above minimum wage!! I don’t get it. It’s a bunch of elitists who will never be happy until we are all working for slave-wages. It’s just plain selfishness and greed coming from the same people that got us into this mess in the first place.

  14. JustinTheSkeptic says:

    I’m going after whores and expensive cigars with my re-fi money. Going to enjoy all the best that Ben can afford! What the hell it will have about the same amount of value left in the end.

  15. Mannwich says:

    @ckstevenson: It’s simple. Don’t sign the paperwork and push for a lower rate. Everyone else breaks their word nowadays and banks certainly don’t have any problem breaking any type of “contract”. Dog eat dog out there. Time for you to go get yours……

  16. karen says:

    I’m with Jeff. Also, are you using a bank or a broker? what are the points? origination and discount fee? make sure there is no pre-payment penalty, too. If rates go down to 4%, you’ll want to do it again. Hope this isn’t a cash our re-fi, unless you plan to pay of credit cards… the goal is no debt… (just thots! NOT investment advice.)

  17. Mannwich says:

    @karen (and ckstevenson): If there’s EVER a time to play hardball with these crooks, it’s NOW. If I’m you, I don’t even ASK, I demand it and I they don’t comply, I go down the street and find someone who will. Hold out for the best deal. I guarantee you, they’d do the same in less than a heartbeat.

    We’ll probably re-fi (currently have 5.25% rate) if we can get 4% or lower once we get some clarity about whether we plan to stay in the North Pole for at least a few more years. Until that point, it makes zero sense to rush into a re-fi at this point and pay those fees. In the meantime, hopefully some dope will come along and overpay for our house based on the illusion/shell game of cheaper interest rates so we can take our equity and scram for a while.

  18. leftback says:

    I think there are dopes who will buy at low rates instead of waiting for prices to NORMALIZE.
    I am tired of reading MSM articles about how 100% price increases are normal but 20% declines are “turmoil”…

    Belgian government just resigned over a bailout… it’s all going pear-shaped in Europe.
    Larry will be on about “King Dollar” again tonight.

    I guarantee you Michelle “Big Cans” Cabrera makes more than a UAW assembly line worker.
    Which of them is more useful depends upon your point of view.

  19. bernandoo says:

    @Leftback: there are a lot of other factors other than worrying about whether prices are going to drop 10%. You can never call a bottom, so buying now when prices are already off a huge % and interest rates are at historical lows seems like a fairly decent idea if you have a solid income and plan on living in the house for awhile.

  20. harrad says:

    There are already a couple of blogs where people have refinanced for less than 5%. http://www.mymoneyblog.com/archives/2008/12/good-time-to-ask-about-refinancing-your-mortgage-i-might-save-50000.html

  21. @ckstevenson…you can sign the paperwork and cancel–you have three business days, unless it’s not your primary residence. All you’ll be out is the appraisal/credit report fees, which you’d be out anyway. Usually they’ll make you wait 30 days to re-lock a new, lower rate w/ the same lender.

    Of all the things I’d never believed would happen, I never believed that refi’s would have a resurgence, and I’m in the business. The answer to a credit crisis caused by interest rates being too low and distorting beyond pale the amount of resources allocated towards housing, is, well, to juice interest rates lower. I fucking live in bizarro world.

  22. Moss says:

    I have a variable HELOC which is now less than 2%. I will borrow from that to pay off my conventional 15yr fixed which is at 5.74. Once I can get 4.5 on a 15yr I may refi.

  23. karen says:

    one might conclude from the above anecdotes and observations that the system is completely f***** up…
    and here we go into the weekend…

    anyone else feeling a little ill on today’s roller coaster? maybe that’s the plan; frustrate us until we give up on everything…

  24. Winston Munn says:

    It is rather a bizzare response to the situation – the Fed in essence is adopting the position that house valuations are normal but current interest rates are not and must be forced lower to make the normal valuations affordable. This has a Ben in Wonderland feel to it.

  25. gardenofideas says:

    Just locked in 4.5% fixed, 1 point. Can hardly believe it.

  26. Mike in Nola says:

    Home sales here in Houston have dropped by almost third over last year. Based on what I’ve read throughout the year, almost all of the drop has come here in the past couple of months. Because of the oil boom and generally inexpensive housing, Houston had been pretty insulated from the crash. Seeing more and more for sale signs in the better neighborhoods.

    Home sales, prices drop sharply in Houston
    http://www.chron.com/disp/story.mpl/hotstories/6167609.html

    leftback: Here’s an article from the Houston Chronicle backing up what you said:

    http://www.inman.com/buyers-sellers/columnists/loubarnes/the-45-mortgage-myth

  27. ottovbvs says:

    It’s conceivable you’re going to see the 30 year fixed in the high fours. There’s already been a bit of spurt in refis and it’s going hot up some more if we see a 30 year at say 4.75. I’d refi at this level or maybe even contemplate a move. BR or someone was pooh poohing refis yesterday but overall they will do some good in freeing up income, stemming some foreclosures, lubricating the general market, and mopping up some inventory. It’s not the silver bullet but overall its a mitigation so why complain.

  28. Mike in Nola says:

    otovbvs:

    Trouble is, those who need the refi’s to avoid foreclosure still won’t qualify for the good rates.

  29. Winston Munn says:

    There are a couple problems. Without an MBS market, banks have to hold their own mortgage
    loans.

    With rates so low and holding all the risk, a bank will – if it does lend – only lend to the best of the best credit risks.

    For the less-than-perfect-creditor, why should the bank take any risk at all and lend on a still potentially overvalued asset for 30 years at 4.5% when the bank can borrow money for virtually nothing from the Fed, buy 24 month treasuries at 0.74 yield, hoard the notes, and collect the extra 0.25% the Fed pays on excesss reserves for a totally risk free return of 0.99%?

  30. wunsacon says:

    >> the Fed in essence is adopting the position that house valuations are normal but current interest rates are not

    Winston, I don’t think that’s it. Whatever they might say publicly so as not to sound alarmist, I infer that they’re just trying to soften the crash as much as possible.

    No matter how bad things are or are going to be, Ben&Co. are softening the blow by reducing rates.

    At least, that’s my interpretation…

  31. ottovbvs says:

    “Mike in Nola Says:

    December 19th, 2008 at 8:59 pm
    otovbvs:

    Trouble is, those who need the refi’s to avoid foreclosure still won’t qualify for the good rates.”

    It’s better to light a candle than curse the dark. This is not going to end foreclosures but it’s going to make it easier to refi some marginal borrowers who are in trouble. As I said it’s not a silver bullet but a mitigation and on the basis of that a positive move.

  32. Clay says:

    Yesterday, my real estate broker in Cleveland County, NC told me she saw 30 yr fixed mortgage rates in the mid to upper 4% range just recently. Cleveland County is 2 counties west of Mecklenburg County (where Charlotte, NC is located and where I live).

  33. Winston Munn says:

    Wunsacon,

    I am not condemning Ben and Co. However, what they are doing is trying to create inflation to fight the threat of deflation. Inflation is defined as a general rise in prices. Therefore, their manipulations are defined as an attempt to force prices higher.

  34. Theodore D. says:

    I got about 125K in student loan debt. Does anyone know any way for me to take advantage of these super low rates? How come no one in talking about student loan debt and the cost of higher education now-a-days? It seems like education is still way to overpriced and I imgine now is the time to get into that market so you’d think we’d be hearing more about this.