Careful What You Wish For
The NAR was very vocal in its lobbying for higher GSE loan limits in the economic "stimulus" bill.
Real Estate professionals cheered when the Senate passed and Shrub Jr. signed the economic "stimulus" bill.
The higher GSE conforming loan limits were heralded as a potential saviour for collapsing real estate prices and the jumbo loan market.
Either mis-informed or uneducated in the realities of the debt markets, what these professionals wished for has yielded the exact opposite.
Since passage, this "stimulus" bill has increased risk aversion, plunged agency housing debt into a morass and done anything but stimulate.
Connecting the dots and clarifying the picture we have been painting for quite a while...
Hattip to Bloomberg for Fed Efforts Foiled by Banks as Mortgage Rates Rise.
Rising rates... According to the Mortgage Bankers Association:
The interest rate on a 30 year fixed rate mortgage has climbed to 6.37 from 5.5% since Jan. 24.
Alan Nevin, chief economist with the California Building Industry Association:
"The mortgage rate isn't down as much as it should be because
the banks are in desperate straits and they need to maintain a larger spread than they normally would.
The banks need to generate income and the easiest way to do that is to broaden the spread.
If they pay 3.5 and charge 6%, that's a lot of money."
Wider spreads... Over the past 10 years,
the average spread between 10-year U.S. Treasuries and 30-year fixed-rate mortgages has been 1.75%.
Last week, the spread had widened to 108 basis points at 2.83%, pushing mortgage costs up.
The yield premium, or spread, on 30-year fixed-rate mortgage securities
sold by Fannie Mae over 10-year notes reached 238 basis points on March 6,
the widest since 1986. The spread was 207 basis points yesterday,
compared with an average of about 112 basis points the past five years.
The difference between what the U.S. government and companies pay for three-month loans has also climbed in the past month.
The so-called TED spread increased to 1.52 percentage points yesterday from 0.78 percentage point on Feb. 14.
Hubba, hubba, who do you trust?... All this has little to do with Fed policy and instead
reflects the lack of confidence of investors, who aren't buying securities backed by home loans.
Kenneth Rosen, chairman of Rosen Real Estate Securities: "No one wants to lend much of anything today.
The secondary market system for many loans has broken down. People don't trust the paper."
According to the Mortgage Bankers Association, Home-loan issuance will drop by 15% this year,
in part because lenders can't sell mortgages on the secondary market.
Cut all you want... Michael Carliner, former chief economist for the National Association of Home Builders:
"The mortgage rates are set in the securities market more than they are by the banks."
Morris Davis, a former Fed economist: "The Fed actions are not going to stop house prices from falling.
In an environment with falling prices and defaults, mortgages are a lot riskier now than three years ago."
According to the National Association of Realtors: "The median price of an existing home fell 13% in January from its peak in July 2006.
The Nattering One muses... And who should trust the paper? The asset upon which it is based, the real estate,
was driven up to UNSUPPORTABLE and UNJUSTIFIED price levels by greedy lenders, speculators and overpaying idiots.
The vortex of the multiplier effect working in reverse, on an overleveraged debt ridden system,
otherwise known as an economic death spiral, is sucking the capital base dry. As quickly as its leverage boosted prices up...
So shall it furiously deflate those prices through leveraged unwinding. A shrinking capital base means that all assets,
including real estate, need to come back down to their rightful price point or share of the available base.
The Fed will do their masters bidding and the cuts only benefit the insolvent Wall Street brokers, home loan lenders & banks...
which are hoarding the borrowed cash to maintain reserve levels, and whom legally own the FHLB and the Fed.
As there is no secondary market, the GSE's are the primary market and the government has nationalized the housing and home lending industry.
As agency (FNMA, FHLMC) and non agency MBS mortgage backed securities pricing deteriorates further through...
higher loan limits, increasing defaults, profit losses, institutional failures and ratings downgrades...
Spreads will continue to widen and mortgage rates will increase further. Less money for lending, less lending, less buyers.
More defaults, more foreclosures, more inventory, more PMI & lender failures, more fire sales, LOWER PRICES.
As a result of their actions, the realtors and the taxpaying public will both support the weight of FNMA, FHA & FHLMC loan failures.
Had the realtors not meddled in matters they can neither fathom nor comprehend the consequences thereof...
and instead lobbied to let Atla's Shrug, their sufferage and ours would have been much swifter and much less painful.
I don't think that the" men of mind" like John Galt have gone "on strike" against an incipient collectivist republic,
they and the Howard Hughes and Robert Mitchum's of days gone by, when men were men, and women were proud of it, just don't exist anymore.
Real Estate professionals cheered when the Senate passed and Shrub Jr. signed the economic "stimulus" bill.
The higher GSE conforming loan limits were heralded as a potential saviour for collapsing real estate prices and the jumbo loan market.
Either mis-informed or uneducated in the realities of the debt markets, what these professionals wished for has yielded the exact opposite.
Since passage, this "stimulus" bill has increased risk aversion, plunged agency housing debt into a morass and done anything but stimulate.
Connecting the dots and clarifying the picture we have been painting for quite a while...
Hattip to Bloomberg for Fed Efforts Foiled by Banks as Mortgage Rates Rise.
Rising rates... According to the Mortgage Bankers Association:
The interest rate on a 30 year fixed rate mortgage has climbed to 6.37 from 5.5% since Jan. 24.
Alan Nevin, chief economist with the California Building Industry Association:
"The mortgage rate isn't down as much as it should be because
the banks are in desperate straits and they need to maintain a larger spread than they normally would.
The banks need to generate income and the easiest way to do that is to broaden the spread.
If they pay 3.5 and charge 6%, that's a lot of money."
Wider spreads... Over the past 10 years,
the average spread between 10-year U.S. Treasuries and 30-year fixed-rate mortgages has been 1.75%.
Last week, the spread had widened to 108 basis points at 2.83%, pushing mortgage costs up.
The yield premium, or spread, on 30-year fixed-rate mortgage securities
sold by Fannie Mae over 10-year notes reached 238 basis points on March 6,
the widest since 1986. The spread was 207 basis points yesterday,
compared with an average of about 112 basis points the past five years.
The difference between what the U.S. government and companies pay for three-month loans has also climbed in the past month.
The so-called TED spread increased to 1.52 percentage points yesterday from 0.78 percentage point on Feb. 14.
Hubba, hubba, who do you trust?... All this has little to do with Fed policy and instead
reflects the lack of confidence of investors, who aren't buying securities backed by home loans.
Kenneth Rosen, chairman of Rosen Real Estate Securities: "No one wants to lend much of anything today.
The secondary market system for many loans has broken down. People don't trust the paper."
According to the Mortgage Bankers Association, Home-loan issuance will drop by 15% this year,
in part because lenders can't sell mortgages on the secondary market.
Cut all you want... Michael Carliner, former chief economist for the National Association of Home Builders:
"The mortgage rates are set in the securities market more than they are by the banks."
Morris Davis, a former Fed economist: "The Fed actions are not going to stop house prices from falling.
In an environment with falling prices and defaults, mortgages are a lot riskier now than three years ago."
According to the National Association of Realtors: "The median price of an existing home fell 13% in January from its peak in July 2006.
The Nattering One muses... And who should trust the paper? The asset upon which it is based, the real estate,
was driven up to UNSUPPORTABLE and UNJUSTIFIED price levels by greedy lenders, speculators and overpaying idiots.
The vortex of the multiplier effect working in reverse, on an overleveraged debt ridden system,
otherwise known as an economic death spiral, is sucking the capital base dry. As quickly as its leverage boosted prices up...
So shall it furiously deflate those prices through leveraged unwinding. A shrinking capital base means that all assets,
including real estate, need to come back down to their rightful price point or share of the available base.
The Fed will do their masters bidding and the cuts only benefit the insolvent Wall Street brokers, home loan lenders & banks...
which are hoarding the borrowed cash to maintain reserve levels, and whom legally own the FHLB and the Fed.
As there is no secondary market, the GSE's are the primary market and the government has nationalized the housing and home lending industry.
As agency (FNMA, FHLMC) and non agency MBS mortgage backed securities pricing deteriorates further through...
higher loan limits, increasing defaults, profit losses, institutional failures and ratings downgrades...
Spreads will continue to widen and mortgage rates will increase further. Less money for lending, less lending, less buyers.
More defaults, more foreclosures, more inventory, more PMI & lender failures, more fire sales, LOWER PRICES.
As a result of their actions, the realtors and the taxpaying public will both support the weight of FNMA, FHA & FHLMC loan failures.
Had the realtors not meddled in matters they can neither fathom nor comprehend the consequences thereof...
and instead lobbied to let Atla's Shrug, their sufferage and ours would have been much swifter and much less painful.
I don't think that the" men of mind" like John Galt have gone "on strike" against an incipient collectivist republic,
they and the Howard Hughes and Robert Mitchum's of days gone by, when men were men, and women were proud of it, just don't exist anymore.
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