3.99% Toll Brothers Mortgage Rate
By Barry Ritholtz - January 22nd, 2009, 10:30AM
Builder Toll Brothers is hoping to spur some interest in their homes via an ultra low mortgage rate of 3.99%
To qualify for this rate, buyers need:
• FICO credit score of 720 or higher;
• Down payment of 20% (with no PMI)
• Mortgages of $417,000 or less.
To give you an idea of how aggressive these rates are, Mortgages are at record lows. The 30-year fixed-rate mortgage is 4.96%, down from 5.69% a year ago. The WSJ reports this is the lowest since Freddie Mac began its survey in 1971.
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Source:
Builder Offers 3.99% Rate on Mortgage
DAWN WOTAPKA
WSJ, JANUARY 21, 2009
http://online.wsj.com/article/SB123259465468105115.html
January 22nd, 2009 at 10:52 am
This is sorta like the zero percent financing that began with the carmakers in about 2001 as a gimmick to boost sales into a recession. Hmm. Wonder how that turned out?
January 22nd, 2009 at 10:52 am
Builders and banks still not close to capitulation, huh? Here’s my headline for the next Toll Bros. ad:
Losing your shirt has never been more affordable!
January 22nd, 2009 at 10:55 am
Call me rates hit 0% and a free flat screen and/or pony. Until then, not impressed.
January 22nd, 2009 at 10:55 am
Home values are still inflated. 3.99% is still interest on an overvalued item. Call me when home values are actually in line with inflation adjusted income purchasing power.
January 22nd, 2009 at 11:03 am
Just out oil inventories are up just a tad bit
January 22nd, 2009 at 11:03 am
In the meantime, breaking news: Kudlow just uttered the term “mustard seeds” again. I promptly muted my TV and uttered a few expletives.
January 22nd, 2009 at 11:07 am
Buying the rate to 3.99% is probably costing Toll abut 3 points today. Since it’s not more than 80% of the property value, it’s at worst the equivalent of a 2.5 percent price reduction. Not a bad idea.
January 22nd, 2009 at 11:11 am
I agree with saint above — consensus is that home values will drop at least another 15%, probably closer to twice that.
Just re-consolidated my student loans at 4.00% fixed.
January 22nd, 2009 at 11:14 am
This might look attractive on the surface but it smells of desperation.
Also, if the Toll Bros home drops, maybe 15% in value, the real interest rate is not 3.99%.
January 22nd, 2009 at 11:16 am
@ben22: Toll (and the feds) are counting on the continued ignorance of the masses in this little shell game. The ignorance is still there for the most part, but the $$, the jobs, and confidence are not. Most people smell a rat. These little games won’t likely work.
January 22nd, 2009 at 11:18 am
>> As a renowned new home builder, Toll Brothers goes beyond exceptional value, quality, and customer service to create a lifestyle that is rich in beauty, comfort, and luxury. It’s why we’re the nation’s leading builder of luxury homes.
Not working out so well it would seem…
January 22nd, 2009 at 11:20 am
Mannwich,
Yes I agree, you know it’s funny but around where I live, there aren’t a lot of Toll Brothers homes that wouldn’t require a jumbo, and there aren’t any jumbo’s at 3.99% (I’m in DE, philly suburb area) the toll homes around here are typically 550k and above, and we aren’t seeing huge home price declines here…… yet.
That said, BAC is the largest employer in the state of DE, so they will happen soon enough.
TBT is getting sold by me today. Tidy profit. I’ll hold a little bit of what I’ve got but I can’t stomach holding these ultra’s for very long. Hat tip to Karen for the rec at ~36.
January 22nd, 2009 at 11:22 am
THE CURMUDGEON makes a valid point but Marcus Aurelius is FUNNIER than a drunken cheerleader.
January 22nd, 2009 at 11:23 am
A few years ago now, the Boston Globe did a great expose on how bad all the crap was Toll built in Mass.
January 22nd, 2009 at 11:23 am
@ben22: Agreed. Until many, many more of those Toll homes go below that jumbo level (and thus dragging down the market for homes below it, including mine!), they will remain unsold (sorry for stating the obvious).
January 22nd, 2009 at 11:28 am
Robert Toll and his company represent American business at its worse and have contributed to the blight we see across the country- suburban sprawl. Cities need to change their zoning laws and companies with vision need to be invited to make cities and the surrounding communities a great place to live- not the neutered and sterile subdivisions we see now. Please- I can’t stand the thought of seeing one more community with a dumbass name such as “The Manors at Willow Place” and I just made that up- but I bet there is one somewhere.
January 22nd, 2009 at 11:35 am
PREPARE for the emerging Suburban Ponderosa where challenges are met and comforts are enjoyed!
January 22nd, 2009 at 11:36 am
Mannwich,
It’s sad that it is obvious to us and not Toll, oh well, I’m sure they can get some money from us if things get a lot worse through TARP or something else, who knows. I spend most of my days just angry about this kind of crap anymore. I’m going to lose all my hair!
How about MSFT not even trying to state what earnings will be this year, talk about not instilling confidence, too bad, AAPL could have helped some today. Notice how they came out with that almost right after the claims were announced. I thought that was odd.
January 22nd, 2009 at 11:37 am
What will happen first – 0.01% mortgage rates or foreclosure rate decline? I suspect we will see a 0% mortgage first…
January 22nd, 2009 at 11:39 am
A report from the Daily Citizen. “U.S. Senator Johnny Isakson, R-Ga., spoke on the Senate floor last week and argued that Congress must take steps to jump-start housing demand in order to boost the slumping economy. On Jan.15, Isakson introduced the Fix Housing First Homebuyer Tax Credit Act to expand the homebuyer tax credit passed by Congress last year. The text of Isakson’s remarks is below.”
“‘Looking ahead, we continue to look at suggestions that throw money at the problem rather than getting to the root cause of the problem. In fact, with the best of intentions, I think people are struggling to meet the symptoms of a serious illness rather than treat the illness. The illness, as the Senator from Washington referred to, is the collapse of the U.S. housing market which began in the last quarter of 2007.’”
“‘I was in this business for a long time, and I called 10 people who worked for me a number of years ago last weekend in Atlanta. I talked to a lady by the name of Glennis Beacham. ‘She said: Johnny, I had nine people come to my open house last weekend…Every one of them had the money and they wanted to buy, but they were looking for two things: a short sale, which means somebody selling their house for less than is owed on it and getting a discount from the lender, which means it is a downward price or they are looking for somebody whose house is going into foreclosure that they think they can steal.’”
“‘They don’t want to even make an offer on the 80 percent of people’s houses in this country who are making their payments, aren’t in default, aren’t in foreclosure, but might need to sell. So the marketplace has died.’”
http://thehousingbubbleblog.com/index.html
January 22nd, 2009 at 11:40 am
I don’t watch Kudlow. What the fuck are “mustard seeds”? Is that a reference to the biblical parable?
January 22nd, 2009 at 11:40 am
“‘I was in this business for a long time, and I called 10 people who worked for me a number of years ago last weekend in Atlanta. I talked to a lady by the name of Glennis Beacham. ‘She said: Johnny, I had nine people come to my open house last weekend…Every one of them had the money and they wanted to buy, but they were looking for two things: a short sale, which means somebody selling their house for less than is owed on it and getting a discount from the lender, which means it is a downward price or they are looking for somebody whose house is going into foreclosure that they think they can steal.’”
“‘They don’t want to even make an offer on the 80 percent of people’s houses in this country who are making their payments, aren’t in default, aren’t in foreclosure, but might need to sell. So the marketplace has died.’”
http://thehousingbubbleblog.com/index.html
January 22nd, 2009 at 11:50 am
@The Curmugeon: Good for you. I try not to watch him but every now and then I have it on CNBC he appears. I almost always immediately mute the TV, change the channel, and/or start muttering mulitple expletives.
January 22nd, 2009 at 11:57 am
Help me out here,
Do people really think that rates will go way lower? What mechanism will make that happen?
January 22nd, 2009 at 12:01 pm
@Curmudgeon,
Yes, it’s a reference to the biblical. He’s saying we’re planting seeds that will ultimately bloom into a strong tree (blah blah blah).
I don’t agree with everything he says, *but* if raw materials get cheaper, labor gets cheaper (due to housing prices getting cheaper), rents get cheaper (due to decline in commercial real estate), earnings ought to go up at some point.
January 22nd, 2009 at 12:03 pm
vv111y,
Government doing quantitative easing (printing money) and buying long bonds may increase prices, driving yields down. 30 year fixed rates fall as yields fall (or so I’m told). That’s the theory (we’ll see if it happens).
Mortgage brokers are telling me that the retail rates aren’t falling as fast as the wholesale rates, though, because banks are keeping spreads high. They’re doing this because they hit the limit of the volume they can handle for processing refis, so lowering their rates and getting more business that they can’t handle won’t help them increase profits.
January 22nd, 2009 at 12:04 pm
@Thisson: Not for entities that are leveraged up to their eyeballs.
January 22nd, 2009 at 12:08 pm
John Thain “resigns” from BofA . What’s the over/under on his severance? I’ll place it at $50MM and am taking the “over”.
January 22nd, 2009 at 12:12 pm
From Toll’s last earnings release…
“We currently estimate that we will deliver between 2,000 and 3,000 homes in FY 2009 at an average delivered price of between $600,000 and $625,000 per home.”
Their assumed average selling price is far above the price needed to qualify for this “deal”. It’s more of a PR move than anything else.
OT – Toll built an enormous condo complex on the fringe of Hoboken. It’s a nice building but it’s a 1.5 mile walk to transportation. I wonder how that building is selling (700 Grove St 1bdrm’s $500k+, 2bdrms 500k – $700k)….
January 22nd, 2009 at 12:13 pm
@Mannwich – Are you counting or not counting bonuses handed out before year end? I’ll take the over as well.
January 22nd, 2009 at 12:21 pm
@ I-Man on yesterday’s thread “Worst Dow Drop Since Election Meant Rally in ’33”
“IYM is looking pretty saucy if it can hold up tomorrow for a follow through. I-Man has a buy point at 35.30. Nice price channel up to 43…”
Did you get in at your 35.30 buy point? still in? buying more?
January 22nd, 2009 at 12:21 pm
Thisson Says:
January 22nd, 2009 at 12:01 pm
@Curmudgeon,
“Yes, it’s a reference to the biblical. He’s saying we’re planting seeds that will ultimately bloom into a strong tree (blah blah blah).”
Reply:
So, if I understand this correctly, shoveling money we don’t have to a banking system that couldn’t manage risk, is analogous to planting a tiny mustard seed that will grow to be “the largest of garden plants”, which in turn, is analogous to the kingdom of heaven?
Sheesh. I think I’ll keep not watching Kudlow…
January 22nd, 2009 at 12:24 pm
@The Curmudgeon: He’s actually talking about low energy prices as being “mustard seeds” for growth. Larry’s a one or two trick pony. He gets on a topic (”Goldilocks”, tax cuts, supply, side, blah, blah blah) and he hammers it to death even if he’s not right. Amazingly, he still has a job to spout his nonsense and be dead wrong quite a bit.
January 22nd, 2009 at 12:30 pm
It is a noble effort by Toll Brothers to make the rate so low, but as some have said here it is not going to fix the root issue. No one is buying homes. It doesn’t have anything to do with the interest rate, but rather it is due to the inflated cost of housing. Until prices of homes are low enough to attract buyers that have the option to wait, even an interest rate of zero will not be enough to get them to buy.
January 22nd, 2009 at 12:33 pm
The other day I actually had someone question me on why I would not do extra principle payments on my house. It could be paid off in 22 years instead of 30 was their reason.
It is nearly impossible to try and explain returns on non-performing assets (house) and investing the extra payments someplace else with a higher rate of return. Explaining time value of money, devaluation through inflation, just causes glassy eyes syndrome.
The response was, but the Simple Dollar………..
My response, the simple dollar is for simple people.
Now if I could re-fi at 3.99% I would be all over it, I’m in my house for at least the next 10-15 years. Have to get the kids off the college.
January 22nd, 2009 at 12:33 pm
I like the show though, mainly for the guests. I get a chuckle when he gives one of them a “nobel prize.”
January 22nd, 2009 at 12:34 pm
@Thisson: Can’t watch unless Kudlow is replaced and/or never has idiots like Bowyer and Luskin on again.
January 22nd, 2009 at 12:35 pm
Accounting note: by doing the loans at levels near enough to the current market, if Toll can move a bunch of homes at slightly higher nominal prices, this allows them to spread the loss, if they hold the loans on the balance sheet of their housing company (not inside some sort of bank).
January 22nd, 2009 at 12:38 pm
Even with a good rate, the transaction costs of refis are pretty brutal.
You can’t get the wholesale rates without a broker, and the broker wants 1% in fees. Alternatively, if you go directly to lenders, it’s very hard to find the ones with the best combination of rate and fees. They’re very wishy-washy on what all the fees will ultimately be (they only provide “good faith estimates”), so it’s very difficult to comparison shop.
January 22nd, 2009 at 12:56 pm
The refi boom is on (I’m a closing attorney between BP digressions). I’m seeing all super -A- paper, credit scores above 720, etc. Very few appraisals, though. Just using the last one, I suppose. It’s just a continuation of the fraud that started all this. But I dither, again.
Not talking my book when I say that if you owe money right now on your house, you ought to refi if your rate drops by at least a point (100 bp), and if you aren’t moving in the next couple of years (but then, who is these days?)
I figure this little boomlet will last until the incredible pressures that are building on the dollar and US Treasuries burst the bubble that’s formed. When it does, you’ll be paying back 4.5% money with rapidly depreciating dollars. What’s not to like? Think of it as your own little piece of the TARP.
January 22nd, 2009 at 1:03 pm
@The Curmudgeon: Thanks for the tip. We have an interest rate at 5.25% (and probably 30% equity in the home). Not sure we’re staying here past the next year or two but might rent it out if we leave (might have no choice although we’re below the jumbo loan threshold). I’m thinking we shouldn’t re-fi until it at least gets to low 4’s. Do you agree?
January 22nd, 2009 at 1:07 pm
yeah… it’s clever marketing but in the end……..it’s just a rebate
January 22nd, 2009 at 1:07 pm
whoa, call me ahab…
who are you to tell others how to live their lives? if you don’t like seeing places called “manors at willow place” i’d suggest you don’t move there. i’d argue that cities and their zoning laws are mostly responsible for the entire credit crisis.
let me guess, you think everyone should live in high-density housing, and do all their commuting via mass-transit.
January 22nd, 2009 at 1:12 pm
@Mannwich..
Definitely. Closing costs take at least a year or two to pay back, so I’d wait until 4-ish in your case.
Only someone with an ARM should refi right now that had a 5.25. Fixed, I’d stay w/ it.
January 22nd, 2009 at 1:15 pm
Thanks a lot, TC.
January 22nd, 2009 at 1:16 pm
@Curmudgeon,
I *do* have an arm at 5.25. It resets in October. HSBC’s retail rate is 5.125%.
It’s very difficult to determine whether I should refi. You think the answer should be yes?
The Fed says it’s going to continue buying assets over the next several quarters, so won’t rates continue lower?
January 22nd, 2009 at 1:17 pm
On another note Barry – your book delivery is delayed until the end of the March. What’s up with that? Editing it to ensure that recent events are included?
January 22nd, 2009 at 1:22 pm
@Thisson,
Thanks, appreciate it.
Aside: Kudlow. Epic douche. I’m up in Canada, we have BNN, no epic douche’s.
January 22nd, 2009 at 1:24 pm
I’m long mustard seeds.
January 22nd, 2009 at 1:32 pm
@ Thisson said:
I don’t agree with everything he says, *but* if raw materials get cheaper, labor gets cheaper (due to housing prices getting cheaper), rents get cheaper (due to decline in commercial real estate), earnings ought to go up at some point.
Thisson, I’m not a student of the depression or anything but one thing I understand that happened is that real wages actually rose during the depression which made it worse or in effect made American workers less competitive. I heard recently that data has shown that real wages have actually increased in this country over the last six months or so and I take this as a leading indicator of bad things to come if it is indeed correct. If it costs more to do the same job here than it does to do that job in China or India then unemployment is going much higher and the whole idea of creating or saving 3mm jobs is going to be awfully hard to do. China seems to be going through this now, laying off tons of people, shutting down factories as they lose jobs to places like Vietnam.
I also have a relative that has his own construction business and he told me recently that raw materials have gone anything but down, shingles for example that he had to buy recently were almost three times the cost from two years ago.
Also, not trying to overstep here but if you are wondering whether or not to refi, google mortgage calculators, and you can figure it out for yourself. It’s real easy to do. Plug in your existing mortgage data, get a GFE on closing costs from the bank/lender you are working with and plug the numbers into the refi calculator. It will tell you how long it will take to break-even after closing costs, what the interest savings would be over the life of your loan etc. Then you can find out if you are better doing the refi or just paying extra on your existing.
What I have found as I have run many of these for clients in the last two weeks is that it is not in most people’s interest to do a refi yet. Rates could certainly go lower but right now they aren’t exactly “as advertised”
This way you aren’t guessing though.
Also, so you are aware, a trend I’m seeing with clients is that a lot of the little fees at closing are getting waived or covered by the banks right now, title fees, loan origination fees, etc, this might help shorten your break-even time period.
January 22nd, 2009 at 1:34 pm
one other tip is that many people can appeal re taxes on the house right now as a lot of homes values were assessed back in 07 and thus the taxes are based on a value far to high. I’m seeing lots of that in my area.
January 22nd, 2009 at 1:42 pm
@ben22: Amen — and great advice. Anybody buying a house right now should be getting ready to apply for a tax abatement immediately after taking title.
@ Thisson: I think by “earnings” you were referring to corporate earnings and not wages, correct? The problem with your reasoning is I don’t think you are taking into account the likelihood that these dropping prices are being caused by a deflationary spiral. Barry posted a nice link to an MSN economist a few weeks back giving a good layperson’s explanation of the effects of deflation.
January 22nd, 2009 at 1:47 pm
I agree the boom is on! In fact this massive origination of new paper has been going on since late November:
http://mast-economy.blogspot.com/2008/12/massive-refinancing-boom-seriously.html
And as this comment thread suggests these new notes are not “sub-prime”.
gne
January 22nd, 2009 at 1:48 pm
OT: New jobless claims up to 589k
January 22nd, 2009 at 2:04 pm
Ok, I went to Toll Bros. website, NJ search. Even in the Pine Barrens, there are no under $417k homes for sale (unless you’re over 55). Poconos does not count!
If builders were serious about increasing sales, they would cut the bullshit approach and they would start building reasonably sized homes at reasonable prices. Building still more luxuary homes is a waste of time and materials, IMHO.
Like Grindstone said, in NJ this is nothing more than a PR stunt.
January 22nd, 2009 at 2:05 pm
Winston Munn @ 1:24
“I’m long mustard seeds.”
Maybe you should sell some mustard seed calls.
Those seeds could be in the ground awhile.
January 22nd, 2009 at 2:06 pm
Is there life after debt? DON’T WORRY if you missed out on being “old money” because they’re printing SO MUCH NEW MONEY just about EVERYBODY will qualify for that much-coveted NEW MONEY status. We will ALL be wealthy for 15 MINUTES and then it will evaporate leaving nothing but the residue of debt. ZAP!
January 22nd, 2009 at 2:08 pm
FWIW – A friend of a friend owns a mortgage company and he said early last fall that mortgage rates are going to 4%.
January 22nd, 2009 at 2:12 pm
@ Todd,
Trying to explain to people like that, that home equity doesn’t grow is nearly impossible. Of course, and I’m not saying I disagree, 0% interest, in a deflating environment is techincally a + ror. That is if you believe the $$ is worth anything.
@tagyourit,
exactly
I’m close to you in DE, said the same thing above about TB home’s they are all very expensive around here and the close burbs of philly. What a joke.
This will be like the dumb mortgage program they had in late 07/early 08, it was for people to iron out a deal on arms if they couldn’t pay when it re-set, and something like 200 people across the whole country were able to qualify, this will be no different.
January 22nd, 2009 at 2:57 pm
@ cy
zoning laws made by local jurisdicitions are responsible for many of the reasons why builders build communities the way thet do and why driving is required to do basic tasks such as buying a gallon of milk. In previous generations people walked to conveniently located stores and shops to get basic items and in many cases the store owners lived above the stores they operated. Current zoning laws for the most part forbid this type of arrangement. I think we can do better than how neighborhoods are currently designed. It would be good energy policy a well.
January 22nd, 2009 at 3:09 pm
Mannwich,
I found this site thanks to Kudlow and Co. and his mustard seeds. I think Don Luskin ( or Art Laffer) were on talking their book and I started wondering if I was the only one who thought they were delusional. I googled Don Luskin (or Art Laffer) and moron. I felt better knowing I was in good company. One of the many hits took me to this site.
For the record, I can only take CNBC a few minutes before I switch to Bloomberg.
January 22nd, 2009 at 3:13 pm
Thisson Says:
January 22nd, 2009 at 1:16 pm
@Curmudgeon,
I *do* have an arm at 5.25. It resets in October. HSBC’s retail rate is 5.125%.
It’s very difficult to determine whether I should refi. You think the answer should be yes?
The Fed says it’s going to continue buying assets over the next several quarters, so won’t rates continue lower?
Reply:
Sorry for the delay (closing one of those refi-boom loans—this one was 4.75% fixed for 25 years). Here’s the calculus, IMO: The financial world is very unstable right now. Interest rates might go lower, yes, but they also might turn on a dime and scream higher. For the short run (2 quarters?) I think they’ll hover where they are, or even push lower by maybe a 100 basis points or so. I don’t think they’ll go higher in the short run, but if they did, it would probably be severely higher. In other words, I don’t know when the US Treasury bubble will pop, but it will, and look out for interest rates (and exchange rates) when it does.
If today I had an ARM at 5.125 that can adjust in less than a year, and I could get it fixed at that rate or below, I’d do it now, just because of the possibility that if you wait and the treasury bubble pops, you’ll be in deep shit.
If rates go to zero in a few months, I’d do it again then, and cuss the closing cost waste it represented. But one extra set of closing costs amortized into a loan is not bad insurance to pay against a potential, if somewhat remote, disaster.
This is my most likely scenario for residential interest rates: Lower for awhile–perhaps until TARP II and the stimulus package reallyget rolling–then the treasury bubble pops, and all bets are off. Inflation at 20% with real interest rates negative at about 15%. Borrowing $2 trillion dollars in a year by the feds has got to push down treasury prices somewhat. The magnitude is the question. In any event, a fixed rate will protect you from this madness. The best thing to be in an inflationary environment is a debtor with a fixed rate of interest. It was why the farmers and small-town businessmen wanted silver instead of gold to be the currency of choice at the turn of the century. They were debtors, and as Bryan famously proclaimed the didn’t want their Wall Street creditors to “crucify them on a cross of gold.” A gold currency would have been deflationary, where silver would have been just the opposite. Go get some of that 4.75% fixed silver and you won’t hang on a gold cross.
January 22nd, 2009 at 3:14 pm
call me ahab,
I have been wondering myself if over the longer term we will see a dynamic change in the way communities are set up. It seems to me that this could be a wonderful opportunity to create jobs that accomplish a much needed task and end up resulting in things like lower use of oil for example. This might be my own little pipe dream however.
The person that drives an hour to work has so many problems now here in the states. I have advised several clients that last few years to quit working. Many of them were driving an hour to work, paying a fortune in gas as a result, and paying for very expensive day care as they were wasting close to 2.5 hours a day on the road. Some of these people were part time and by having them stay at home the overall impact of lower taxes as a result of lower household income, lower expenses (gas) and the elimination of day care expenses actually had them ending up with more discretionary income at the end of each month. this was the case even when I factored in things like the match on an employee’s qualified retirement plan.
Sad how the numbers work sometimes.
January 22nd, 2009 at 3:21 pm
@The Curmudgeon
I should have clarified in what I said to Thisson above. He/she should get the hell out of that ARM, I just don’t think people need to jump the gun, that said if you are seeing some people locking in at 4.75% fixed, if you have a fixed rate around 6.5% and are planning on staying there for some time that is awfully attractive. Are you also seeing what I am which is lots of closing costs getting covered/waived, not all but just a good portion of what you normally might pay yourself or wrap up in the new loan.
IMO arms are a bad idea come higher rates or not. Who wants the mortgage interest to be an unkown.
January 22nd, 2009 at 3:38 pm
@ben22:
For now, I’m seeing most of the closing costs being wrapped into the new loan. Some lenders have no closing-cost options, but for now it just adds a quarter-point or so on the rate, so the closing costs are there, just in different form.
Also, that 4.75% had a discount point. I’m seeing lots of that these days. And I think things have bumped up a bit from there. By the time I see the closing, rates have been locked for a month or more.
Still, like you say, this is a great time to ditch the ARM.
January 22nd, 2009 at 3:43 pm
As if the instability of the situation weren’t enough, Geithner proclaimed China to be a “currency-manipulator” in answer to written questions from the Senate Finance Committee, and Bloomberg noted the response:
“Treasuries slid after Geithner’s remarks fueled concern that foreign demand for U.S. debt may ease. Yields on benchmark 10-year notes climbed to 2.63 percent at 12:52 p.m. in New York, from 2.55 percent late yesterday.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aglY3XdKiWp0&refer=home
Things really could turn on a dime.
January 22nd, 2009 at 4:18 pm
I apologize to all for my spelling, it is pathetic.
January 22nd, 2009 at 5:46 pm
How many people nowadays actually buy a house at 20% down and have a score of 720? This seems like a pretty standard marketing routine.
January 22nd, 2009 at 6:08 pm
Thanks for the advice, guys.
January 22nd, 2009 at 6:54 pm
Asking for advice from the experts, what would you suggest to somebody who has a rather high 30yr fixed of 6.5% from home purchased in 2004, with 20% down at the time, if the mortgage inquisition informs you that the current appraisal has you underwater still, despite your 20% down and 4 years of principle contribution. Basically, they told me I can’t refi unless I come up with another 20% of the remaining principle. I did a PV annuity calculation on the amount I would save in payment each month and it came back about 1000 bucks more than the extra down would be, however, I don’t even know if I want to do that due to the ever decreasing value of the home; why put more equity in? My head tells me not to give them another cent and keep the cash in the MM fund currently or dumping it back into 3+% dividend yielding Stocks if the S&P hits about 600. In such a case, if the value keeps depreciating I have the option of having cash on hand to buy a comparable property that I plan to live in for seven years and tell the big bad bankers to GFY! Think I can argue with the bastards to refi the amount with no extra cash in?
January 22nd, 2009 at 9:39 pm
Toll Brothers’ refusal to lower prices (at least in Metro NYC) has simply been compromised with this mortgage rate gimmick – an affordability increase without an actual price cut. It would be interesting to figure out their modus operandi from an accounting or covenants reasoning for this path. The 200-day moving average of their stock is an absolute flat line! This all smells of something.
January 22nd, 2009 at 9:55 pm
@DiggidyDan:
If I lived in no-recourse state (i.e., foreclosure is the sole remedy for default on a residential real estate mortgage–the biggest example of which is California), there is no way I’d throw any more money than is absolutely necessary at a depreciating asset. If you live in such a state, but need the house, stay and pay. If not, walk.
I still would consider walking in a full-remedy state, but wouldn’t sleep as well at night. They might just try to get some money back.
Otherwise I’d just ride this out. Your money (the extra 20%) is not losing value in this deflationary environment, (although I think that will change soon enough). If inflation rears its ugly head, there’s more ways to protect cash (seem’s odd though, doesn’t it) than there are to protect real assets. With cash, you can just figure which real asset is doing well and buy into it. And, in an inflationary environment, it won’t be residential real estate.
My 2cents.
January 23rd, 2009 at 4:28 am
Everybody’s concerned. Here’s my solution.
My Mortgage Rescue Plan
Create a government lender to directly purchase and rewrite a portion of any mortgage where a homeowner is turned down (and is under threat of losing his good credit standing) on his re-finance application.
This refinance denial should be easily documented by the lending institution which turned down the applicant. The lender could check that the applicant has inadequate supporting assets to assure the payment of his debt, but otherwise has acceptable credit scores and a regular income.
Here’s the basic proposal:
The homeowner who applied for, but is turned down for refinancing, (Can’t qualify with stricter lending standards) obtains a ‘qualifying form document’ from his ‘qualified lender’ (who refused the refinance), stating the reason for denying the applicant’s re-finance application. This document would be used to enable the homeowner to seek relief directly from the government.
The Government would create an entity corporation to obtain treasury funds as they are needed and pass those funds directly to that lender for that homeowner who does not qualify for refinancing and who otherwise has good credit standing.
That borrower who ‘qualifies for assistance’ would obtain a second loan from the government that would be spent to also reduce his first mortgage by an equal dollar amount. My thought is that the target amount to be loaned would be 50% of the original loan. In other words the government loan would PAY OFF 1/2 of the homeowner’s mortgage debt. This payoff must be subject to note-holder’s agreement because that first loan would have to be re-written to halve that first loan’s monthly payment. That loan would keep the same interest rate, the same amortization period, but for ½ the amount. (Otherwise of course the minimum monthly payment would not change, as per original contract.)
Simultaneously at that 50% pay-off, the Mortgage Assist Corp. (My fictitious name for the corp. facilitating this new loan) puts a 2nd lien against the property in favor of the MAC, for the amount used to pay down the 1st loan, with proceeds payable to MAC for the Dept. of Treasury. The 2nd lien is to be written, amortized for the same time period as the first, but with the interest at HALF the rate of the 1st (or some other reduction ratio designed to create the effect I’m proposing).
In my example if 50% of an existing 6.6% per annum original note is paid off, then the second, or MAC loan, would be written and recorded at 3.3%.
The 2nd (new additional loan), would be paid, together with the first loan payment, in one payment just as a “wrap-around payment” (a not uncommon real estate practice). I.e. the total of the payment due on the 6.6% loan plus the payment on the 3.3% loan is paid as a single payment. The payment would be paid to the MAC which shall also act as the ‘collection escrow’ for the wrap around mortgage. The result of such a scheme will be that the monthly payment (as outlined) will be approximately 75% of the previous whole 6.6% mortgage payment previously made.
Advantages:
1. The lender who owns the note will receive 1/2 of the remaining balance due, greatly relieving his risk exposure.
2. The homeowner is in a much better financial position as his payment is about 25% lower each month, easing his burden and also contributing to stimulating the economy.
A homeowner paying down a $200,000 mortgage with a remaining 20 years at the rate of 6.6% will be paying about $1,503/month. With my scheme his payment is reduced to about $1,127/month. Homeowners who can refinance 100% of their existing loan through a conventional lender would receive about the same benefit but without government assistance.
3. The Treasury would receive 3.3% interest from the homeowner. That would be paid off at the time the home owner sold his home to a buyer qualifying for a conventional loan. It might even be set up to allow some ‘nearly qualified’ buyers to assume that existing ‘wrap around’ loan if it can be seen as the most opportune practice to effect a sale.
4. The economy benefits if homeowners who would otherwise sell their homes, take those homes off the market. Remember, the MAC rate would last as long as the 1st mortgage. (Such a deal.) My own home is on the market. My mortage is about $815/month. I would ‘qualify for a MAC loan so my payment would be reduced to about $610/month. At that rate I would take my home off the market since I know I wouldn’t find a decent rental for that amount! Reducing the real estate inventory is also a big effect of my solution!
Stopping the foreclosure bleeding is more important than most people realize. I believe it is essential and a remedy like mine is the least expensive and the most direct repair possible. The lender who ‘disqualifies’ the home owner for refinancing would be eligible to earn a ‘lesser fee’ for effecting the 50% pay-off and the paperwork for the 2nd. That paper work should be ‘industry standard’.
The MAC, by handling the collection escrow for all these loans will be perfectly able to adjust (continue) the program as payment success, and foreclosure reduction, can be easily and immediately measured.
Thomas Manning