After the Rate Spike — Mortgage Operations Turmoil…Kick out the Dead Loans Now
Rates are all over the map as lenders assess the damage and price cautiously. Now, it is a mad dash to only focus upon the loans that are locked and have a chance of funding. If the locked loans are not funded quickly and the interest rate complex continues to experience this extreme of volatility, serious losses can occur.
The letter below was just sent by a national bank’s wholesale department this afternoon. This is the mortgage operations nightmare I highlighted in Thursday’s report. In a nutshell, they are kicking aside everything that is not locked or not a purchase in contract.
This is the desperation move that overworked, understaffed mortgage divisions have to make in order to salvage what can be salvaged and fund the loans that can fund in the shortest amount of time possible — preferably before the end of the rate lock.
Kicked aside could be at least half of their past two month’s of unlocked, unfunded originations that may ultimately parish if rates don’t come back quickly…or if the borrower can’t be coaxed into an 3/1 or 5/1 intermediate-term hybrid ARM, which are now at about the same interest rate level as a 30-year fixed was at the beginning of the week. Shortening duration is now an option where two months ago it was not.
GSE Jumbo Loans Were Totally Blown Out – Try 6% – 7%. Not Good for Mid-to-Upper end Market Already on the Ropes
GSE Jumbo fixed rate loans were decimated on Wednesday. This market is highly volatile to begin with — a move like this blows rates out until conditions settle down quite a bit. Anyone with an unlocked GSE Jumbo loan that was hoping for the 5% rate available when the application was taken is out of luck. Jumbo fixed wholesale rates are now 6% to 7% depending upon which lender the loan is with. Even if bond yields and rates don’t come back down, but volatility settles down a bit, GSE Jumbo rates will tighten up to conforming loan rates over the next month offering some relief.
Levering Up on Bubble-Year’s Favorite — the 3/1 & 5/1 Hybrid Intermediate-term Interest Only ARM
Some borrowers with an unlocked purchase or refi that want to go through with the deal — but either find 5.5% unacceptable or can’t qualify at that high of a rate — will migrate to the 3/1 and 5/1 loan products. These are long-term fixed rate alternatives offering much lower pricing than today’s 30-year fixed rates. I highlighted how these programs have made a comeback in my 5-15 report:
5-15 Bringing Back a Bubble-Year, High-Leverage Loan Favorite
Over the past few weeks as 30-year fixed rates have soared, some application volume has moved to a few lenders offering hybrid intermediate-term 3/1 and 5/1 interest only ARMs because of their preferred rates and low monthly payments. Just like during the bubble years, a 5/1 interest only is about 100bps lower in rate than a 30-year fixed. With a spread that large and the benefit of interest only payments, volume will continue to move to this program line if rates stay up. These are the loans that got the housing bubble really going in 2003. From here, the housing bubble was born.
5-15 GSE’s — Re-levering Borrowers Through Exotic Loans as Fixed Rates Rise
Rates this aggressive on this program line are something brand new and not offered by all lenders. The 5/1 ARM was first made mainstream by Wells Fargo in 2003. It quickly became the top high-leverage loan choice and stayed that way until late 2005-2006 when short rates took its pricing to levels that made it cost-prohibitive. From there, the Pay Option ARM took over but that is for a different report.
Although the 3/1 and 5/1 interest only loans of 2003-2006 were on a different level of exoticness than today’s 5/1’s, they didn’t start that way. This re-introduction of ultra-low rates on a favorite ‘bubble-years’ loan program may be the first sign of re-inflating the mortgage bubble by these means.
It is obvious the Fed can’t keep rates down making higher leverage loan programs is easiest way of countering negative affordability from rising rates.
Aggressive 3/1 and 5/1 conforming interest-only hybrid intermediate-term ARM rates are being offered from a variety of lenders…that long of a name just sounds exotic, no? That is because they are. At present the mid-to-high 4% is still available – about the same rate as a 30-year fixed a month ago.
With 30-year fixed rates loans the top choice this time around, these bubble-year’s favorites have been avoided like the plague. However, some that were caught off guard and that must fund a purchase or refi will opt for these. If short rates stay down and long up, these just may get real popular again as they were in 2003-2005. However, if long rates keep moving higher or the market gets even more volatile, I would not expect these to hang around these levels for too long.
For borrower’s that can deal with an ARM, CITI was leading the pack yesterday. If 30-year rates stay up, ARM rates down and the refi-boom shifts to short duration 3/1 and 5/1 financing, what are we setting ourselves up for in three to five years.
Best Regards,
May 30th, 2009 at 8:19 pm
After reading the comment section of this blog,I would say that if you are worried about the rate on a loan or IO or any other affordabilty product,then the price of the home is much too high.Intrest rates are going to rise so just hold out ie.. go on a buyers strike,I would much rather pay 7% on 100,000 than 4.5% on 350,000.The math does not add.Paying over 200,000 for a house is silly.Better idea would be to move to Arkansas and rent or buy for 400.00 to 750.00 a month,it would leave plenty of money to invest in worth while projects.
May 30th, 2009 at 8:49 pm
“Paying over 200,000 for a house is silly.Better idea would be to move to Arkansas”
Sound financial advice.
May 31st, 2009 at 4:44 pm
The only problem is, you have to live in Arkansas!
May 31st, 2009 at 9:00 pm
wonton…
I realize that you’re fascinated with MY situation, (add a 0, if you must know..) but this is much bigger than 1 person… you could go ask around how higher gas prices affected THE REST OF THE ECONOMY! I’m sure other people’s decisions were made/or affected based on gas price (like employment/unemployment, driving to/for work.. )
Also I see you read my posts, but you take one item.. like the gas..pay attention to my posts.. gas (yes GAS at 4.50 was ONE of the reasons.. BUT it wasn’t the only one!)
May 31st, 2009 at 9:15 pm
Wonton… (soup)
Let’s see, you’ve looked at MY situation (somewhat) .. and you ASSUMED I lost the job (not my wife), and I spend 50 extra per month on gas.. ok..
You’ve also implied that is all my fault for ““buying at the peak”
I never said it’s not my fault, but not all! Government encouraged buying a home.. the american dream! heck.. look at it now, they’ll give 8000 tax credit + 10000 buying a new home today in cali..
Nah.. it’s the still the buyers fault.. no blame in politics? affecting your average “Joe the home buyer”??? You must be too naive.. to blame it all on me! or the buyers.. GET A LIFE BRO
May 31st, 2009 at 10:13 pm
ex_owner_now_renter,
You made a point. The government is giving people a lot of incentive to purchase a house, like what you mentioned, $8K tax credit and what not. However, if you can not afford to buy a house, no matter what kind of incentive the government gives you, you still can not afford to buy!
I agree with Wanton, you got yourself in this mess, boo hoo. Suck it up and be a man and quit whining about all your problems.
June 1st, 2009 at 7:06 am
So mortgage lending is seizing up while the banks in the bubble states are ready to unleash the moritoria pent-up foreclosures? That sounds like cash purchases at 80-90% off peak will become the new standard, no?
The US/Fed can’t borrow and print money furiously without creating a fear factor that pushes up borrowing costs thru the pipeline. All they can accomplish is continuing punishment of savers.
June 1st, 2009 at 7:51 am
Looks like I brought down the whole economy… by my mistake .. single handed! wow I didn’t know I had this power..
talking about reality ~~ whining
NewHomeOwner..my whole point is.. this incentives.. looks like a DEPERATE move.. it’s a like a poker game… I’m ALL IN! (72 OFF SUIT)..and hope not to get called!
Ok… I might just call it.. I’ve got pocket AA
June 1st, 2009 at 8:05 am
pushed (perceived) inflation (by gov+investors)+ without buyers + incomes not going up + lots of empty homes + high uneploymnet + many other factors = STAGFLATION => LOST DECADE
June 1st, 2009 at 8:08 am
MAYBE WE’LL SEE GAS AT 9$ A GALLON.. BREAD AT $5 LOAF.. MIN WAGE AT 22$.. HMM, I’m going to make 500K a year.. while home they’re still 500K.. ok then I’ll BUY! CASH!
June 1st, 2009 at 8:46 am
ex_owner, you’re blaming the government for your screw up??
Man, that’s just pathetic.
June 1st, 2009 at 9:16 am
Wonton.. You’re taking everything out of context
I’m not blaiming the gov (only). We’re all (banks, gov, buyers) at fault, me included. I just refuse to believe that the fault is all mine! get it?
June 1st, 2009 at 10:46 am
Since we can all agree that FHA is the new Subprime, causing another housing bubble is not going to work and will be very short lived as the economy tanks which cannot support the bubble and there is enough blame to go around; it seems that the only answer is to bring back 125%’s, Smile…Click, ah remember the days when all you needed was a pic (worth a thousand words) to underwrite a loan? Hell, why not make a 150’s, who’s counting?
June 1st, 2009 at 1:28 pm
Why are people still overpriced houses? I live in OC and a house next door just sold for 865,000K and its 1,450sq ft. It amazes me that people will pay $600 per sq. ft. these days after what has gone on.
June 1st, 2009 at 1:29 pm
should say buying
June 1st, 2009 at 1:46 pm
My refi’s 60 day rate lock was set to expire today, 6/1. My supporting paperwork was sent to the bank long ago but no loan processor has yet been assigned.
When I checked the status online today, the bank, (a large Bank in America), had automatically extended my lock for another month, so now it expires 7/1.
June 1st, 2009 at 2:00 pm
NewHomeOwner…you just bought a home..congrats! but what the heck r u doing reading this blog?? a little paranoid of where prices are going?? a little late for that .. you suck it up!
June 1st, 2009 at 4:57 pm
ex_owner_now_renter,
Thank you. Actually, I am very secure with my recent purchase. I stumbled upon this site and conversation via another blog that I follow which tracks housing prices in SoCal. Fortunately, unlike most people, I bough a home, not a house. I intend on living in it and not try and flip it for a quick gain.
Your particular comments throughout these pages are reminiscent of someone with buyer’s remorse. You were caught up in the hype and failed to live within your means, over extended, and ended up in what ever situation you are in today.
Thank you, I have sucked it up. This is precisely why I am a homeowner and you are a renter. Happy renting.
June 1st, 2009 at 5:30 pm
lost track of you
glad to see that you are still in action
June 1st, 2009 at 5:44 pm
NewHomeOwner.. once again… I repeat.. what the heck r u STIL doing going from one real estate blog to another.. after you ALREDY bought the home?? sure you’re secured.. NOT!
June 1st, 2009 at 7:40 pm
ex_owner_now_renter
Does your mind think as disjointedly as your posts? Please pause a minute, compose your thoughts, and then type your post. You seem to be really rambling here.
If you and Wonton want to go at it, great. Just try and keep your thoughts grouped together, instead of wandering thru 3, 4 , 5 posts at a time.
It gets kind of old, real quick, to have to navigate thru all of your diatribes.
June 1st, 2009 at 7:56 pm
ex_owner_now_renter,
The reason I’m here in this blog is to seek reassurance through your ramblings. They make me feel very secure! Thanks!
Happy renting.
June 1st, 2009 at 8:49 pm
WOW..I rather ramble on, and speak my mind, that stay quiet liket you! nothing better to contribute with? come on…what’s the solution this crisis??
- reduce people balances?
- let ex owners come back
- hyper inflate
- do nothing
- do them all?
SPEAK YOUR MIND AND CONTRIBUTE FOOL! We’re already in depression.. and that’s all you got to say.. ????????????????????
June 1st, 2009 at 8:51 pm
1 IN 8 HOMES WITH A MORTGAGE ARE IN SOME PROCESS OF FORCLOSURE!
June 1st, 2009 at 9:15 pm
ex_owner_now_renter
Like I said… Wait more than 2 minutes before you spout more dribble. You could have combined your last two thoughts as one. SEE BELOW:
But no, the poor white trashman has cometh, as indicated in all of your spelling and grammatical mistakes.
Keep on with your rants. I don’t log in to see your posts anyway. I look at this site to study Mr. Mortgage’s charts and research. The only research you would be able to help me with are the benefits of a double-wide, compared to a single.
I don’t need to ramble on and on about how the end of the world is coming. But do what you must. I am sure your intelligence will now dictate that you must post at least 6 posts in a row now.
WOW..I rather ramble on, and speak my mind, that stay quiet liket you! nothing better to contribute with? come on…what’s the solution this crisis??
- reduce people balances?
- let ex owners come back
- hyper inflate
- do nothing
- do them all?
SPEAK YOUR MIND AND CONTRIBUTE FOOL! We’re already in depression.. and that’s all you got to say.. ????????????????????
1 IN 8 HOMES WITH A MORTGAGE ARE IN SOME PROCESS OF FORCLOSURE!
June 1st, 2009 at 9:35 pm
I’ll keep saving, and stop rambling … nothing wrong with our economy..nothing to fix.. I must be imagining things..ok
I’ll keep renting in HB! (and get a 20% discount year after year.. I guess that is happy renting after all)
GOOD LUCK TO ALL YOU HOME BUYERS! You’ll need it..as 1990 prices are coming back!
June 1st, 2009 at 9:56 pm
“Thank you, I have sucked it up. This is precisely why I am a homeowner and you are a renter. Happy renting. ”
Ouch!! Damn, that’s a knee in the nuts.
June 1st, 2009 at 11:51 pm
suck it some more
June 2nd, 2009 at 8:31 am
Let’s all chill out and have a mojito.
June 2nd, 2009 at 11:34 pm
NEWHOMEOWNER:
While ex-owner’s comments aren’t exactly coherent, going around boasting about you being an owner and someone else being a renter is rather retarded.
Frankly as far owning is concerned, you don’t own a damned thing..the bank does. Even then, after you pay off your house, you’ll still be paying property tax.
It’s great that you “own” a home….but let’s not make it into a fantasy that it’s not. It’s a liability at best.
June 3rd, 2009 at 1:21 am
just rent no hassel keep it simple and watch the people beat them selfs up over this bullshit its not worth it just chill .
June 3rd, 2009 at 9:58 am
Noz, you need to read the thread carefully before posting. Newhomeowner wasn’t bragging, he was just giving ex_owner a taste of his own medicine.
Look at this ex_owner guy:
1) He bought a home and lost it. Blames it on the bank, the government, and freakin gas prices for his lost.
2) He wants to be able to buy now. He is indeed infatuated with owning a home.
3) But since he can’t buy now, he wants the market to crash.
4) He criticizes anyone who’s looking or just bought a home.
5) He also criticizes anyone looking to buy but may postpone their purchase until a much later time. Saying they’re easily “manipulated”.
Guys like ex_owner is the reason why people have little sympathy for those that have lost their homes (may not be fair to group them all together). Ex_owner needed a good kick in the nuts. I’m a renter and I wasn’t offended by Newhomeowner’s comment at all.
June 3rd, 2009 at 10:12 am
The tax implications can be substantial. For the many that choose to remain renters, it is likely that their income is not of the level to take sufficient advantage of the itemized deductions.
Also given the trillions that Feds have been printing, inflation is round the corner. And inflation is good for debt holders.
If you can afford it, now is a good time to buy a home to live in. Banks with huge backlog of homes to be foreclosed on are even more reluctant to lend. And even if they lend you can be sure that their valuations and down payment requirements reflect the foreclosed homes that they have in their inventory.
This pretty much reduces affordability on homes. As such home sellers must adjust prices to reflect the credit situation.
June 3rd, 2009 at 11:23 am
Noz and all the other renters on this blog,
I would like to go on the record and say that my comments here were not directed at you. I apologize if you were offended. My comments were solely directed at ex_owner_now_renter, and no one else.
June 3rd, 2009 at 12:07 pm
the new scam will be/is that landlords will not be paying their mortgages while collecting the rent/cash and eventually the renter will be kicked out of their house due to foreclosure and then they will be left scrambling to come up with security/down payment on a new place to rent……its always better to “own” your own home and be in control of your own destiny and if times get rough you can now take out your own personal TARP
June 3rd, 2009 at 1:34 pm
NewHomeOwner:
No need to apologize…this is a forum where debates happen!
I’m not offended in any way at all. Some renters get very sensitive…I couldn’t care less. I just wanted to make sure that buying OR renting are not all that they are cut out to be….they both have positive points and negative points.
The main negative point that most bitter owners like to use is the “well you’re an idiot because you are paying for someone else’s mortgage” excuse. That is true….but that also comes with a lot benefits that owning a home negates.
Anyway, I was simply making a point in a general way.
Ex-owner is a different story altogether.
June 3rd, 2009 at 1:37 pm
TOMH:
My wife and I make well over six figures. The tax implications are overdone.
It makes no sense whatsoever to purchase a home based solely on a tax break….especially in an overpriced market. I don’t find it logical to spend a dollar to get 30cents back.
I’d rather have no tax break and live in a nice, affordable home rather than have a tax break and bury myself in debt.
June 3rd, 2009 at 1:42 pm
Another thing I need to add is this. I don’t know where everyone lives but we live the Los Angeles basin (unfortunately).
We’ve looked for homes on and off for a while now. Frankly, I can’t really think a particular place that is appealing to me in LA to want to settle down and buy and put myself in so much debt.
The “desirable” areas are way overpriced still. And most areas of LA look beaten down, scruffy, and mismanaged. This ain’t no Vancouver or San Francisco that’s for sure.
So even though banks have all these foreclosures, I honestly don’t have the patience and time to filter through all the crap they are selling off…most of which are absolute garbage. And even this market, bidding wars are still going on…of which I want no part of.
If people want to kill themselves over housing, best of luck to them. It’s a hassle that I don’t want nor need to go through. If the time is right, and we find a home we can purchase without a bunch of greedy, desperate idiots wanting to buy the same thing, then, so be it.
June 3rd, 2009 at 4:27 pm
Noz, I’m the same way. I would like to buy a house one day but if I remain a renter all my life, that would be ok too.
June 3rd, 2009 at 6:45 pm
NewHomeOwner..Wonton..
There are lots and lots of people like me.. you’re insulting all of us! That’s ok, karma goes around!
We all know it’s our fault too, but to blame just the buyers that bought during the bubble years..for our economical problems.. it’s wishfull thinking!
Are you going to insult prime borowers too, after they loose their home???
When are you going to insult yourself, when you’re gonna walk in 2 years, from your bad investment in 2009? or because you’ll loose a job, or your wife does looses hers?
or maybe I should have said .. I WALKED AWAY CAUSE I WAS UNDER WATER.. like PARTYBOY.. would that have been better for you? YOU GUYS ARE PATHETIC! uh .. that must hurt your NUTS.. suck it some more bro!!
June 3rd, 2009 at 7:04 pm
Don’t blame the securitization of loans, where mortgage brokers cared about their comission only………and anyone with a pulse got a loan.. no we can’t do that!
Don’t blame the government over relaxed regulation.. for the repealing Glass-Steagall, in 1999… no we can’t do that!
Don’t blame Greenspan, for keeping the rates too low after 911.. no, can’t do that!
Don’t blame specuvestors, for buying multiple homes, and now walking away in masses… no we can’t do that!
Don’t blame the fliper, that sold 56 homes in a year.. no we can’t do that!
Don’t blame home owners that bought prior to buble years, but used their home as an ATM machine… no we can’t do that!
Don’t blame an economy that’s based 70% on consumer… no we can’t do that!
Don’t blame FHA loans now.. for being the new subprime.. with 3.5% downpayment, and LOTS of skin in the game… no we can’t do that!
Don’t blame ARM loans being available with little interest/bait, being available.. other countries only have the 20% down payment loans available… no we can’t do that!
Don’t blame FRAUD, REAL ESTATE AGENTS, OR APRAISERS.. cause their so onest… no we can’t do that!
YES WE CAN! YES WE CAN!
DON’T BLAME ME BRO!.. actually you did, and I don’t mind.. I’ve partially at fault for buying a home during the peak, without being more educated back then…but what’s your reason for you still renting?
ANOTHER ONE IN YOUR NUTS! KEEP SUCKING!
June 3rd, 2009 at 8:31 pm
Noz,
We like your income, and you can definitely string a word or two together. Let’s say you spend some time building your sophistication cred and we’ll welcome you up in the SF Bay Area. Just ditch that blue hat with the “LA” embroidered on the front.
June 3rd, 2009 at 9:30 pm
How’s the rents there Benzi? Cause home prices (not to scare Wonton.. then I need to get my violin..or Wonton/ or the chinese) has only dropped 16%..while others in Bay area droped 44% (like Solano)
Are we still deflating? or inflating? of flat lining…someone may want to know who’s looking to buy a home, not an investment *wink
June 3rd, 2009 at 9:34 pm
I want to add to drop in Bay area in price post, I mean ramble (just to piss off Wow in California) .. all in 1 year! how much further Benzi? are the chinese snatching there too?
June 3rd, 2009 at 9:38 pm
damn.. i’m stim rambling there… any ex owners there that bought at the peak?
note to self: don’t piss off Wow in California, he adds so much insight
June 3rd, 2009 at 9:48 pm
ex_owner, I’m tempted to tell you the obvious… but hell, if you don’t know it by now, you won’t get it.
June 3rd, 2009 at 10:22 pm
Wonton, I think you already stated that there is nothing wrong with 450K home in Diamnond Bar, the chinese are snatching everything, I’m arrogant, I’m the reason for everyone hating people like me, I ramble, but wished me happy renting, I ramble and yes..it’s all my fault! but we can also have a beer when you buy a home to live in..kick my ass back to my place, but you changed your mind cause rates went up .4%
What did I miss?
June 3rd, 2009 at 10:31 pm
btw..(damn this rambleing stuff..Wow must be fuming by now!)
I rather have wiskey with Benzi than a beer with you, he has granite!
June 3rd, 2009 at 11:30 pm
Benzy,
Thanks for the invite. I can’t stand LA. Never have. Stayed here because of family ties and obviously steady work. But as a city, this place is appalling in too many ways that would take days to explain.
I wouldn’t mind SF but it’s REALLY REALLY overpriced. And the work environment is a bit off for me. Too many stuffy characters there work-wise…all these Google types with highfalutin attitudes and latte-sipping issues.
I LOVE the city…it has character, it has age, it has charm. But I don’t know how people cut it up there with it being so expensive. Unless you work for places like Google or a startup or some fancy place that you need to sell your soul to work there.
Am I wrong in my assessment?
June 3rd, 2009 at 11:33 pm
EX OWNER:
Just because you’re underwater doesn’t give you the right to walk away. What sort of screwed up mentality is that? Do you do the same if you are upside down on your car?
Do you do the same if you owe money on your credit cards? Suddenly you feel like filing for bankruptcy?
People like you have damaged this market. They have set a norm for copping out when the going gets tough. You made a commitment when you purchased your property…you signed on the dotted line did you not?
So what makes you special in terms of walking away when the deal isn’t to your liking?