Rates have shot up considerably in the past week and a half from roughly 5% at 1 point to 5.5%-5.625% at 1 point to the borrower. This was despite the Fed in the market buying $19 billion in Agency MBS last week. In the months leading up to the Fed announcing their QE plans, rates got under 6% several times — the mid’s 5%’s really is not that great. One would hope that with the Fed in there buying Agency MBS at the pace it is, rates could hold — but they have not been able to. This spike in rates will have a serious impact on the weekly MBA mortgage applications data that come out each Wednesday. My guess is that they are down this Wed and plunge the Wed after next.
Who is the Fed Really Trying to Help
The rate spike goes along with the thinking many (guilty!) have that the only reason the Fed is in there buying MBS in the first place was not to give you and I the gift of lower rates — rather to provide a bid for the Foreign Central Banks and Bill Gross to hit. Agency MBS are time bombs with the underlying loans imploding like private label. Most think that Fannie/Freddie loans are the cream of the crop…the truth is far from it.
As a matter of fact Housing Wire did a great story on it today. If their 90-day delinquencies are rising at 20bps per month and they are in full loan mod mode catching most prior to the 90-day mark, we got big troubles ahead.
The number of mortgages 90 or more days delinquent continued to rise at Freddie Mac (FRE: 0.68 +3.03%) during December 2008, reaching 1.72 percent of the GSE’s total single-family mortgage portfolio, the company reported Friday morning. That’s a jump of 62.2 percent from year-ago levels, and up 20 basis points from a 1.52 percent level reported for November 2008 — not surprisingly, as the nation’s housing woes have spread, Freddie Mac has posted a monthly rise in delinquencies throughout the entirety of last year.
FCB’s and Gross are the very players needed to buy Treasuries. How does the Treasury make it easy for them to sell their Agency holdings and hopefully buy more Treasuries…the Fed comes in the market with a multi-quarter perma-bid — others front-run or try to chase the Fed — and large MBS holders lighten up into the action. We know they were sellers before the Fed jumped in the market. Now we have made it easy for them.
Agency MBS are still not ‘explicitly’ guaranteed rather ‘effectively’ guaranteed while the firms are in conservatorship. This presents a problem especially with the new cramdown legislation on tap. Large Agency MBS holders better hope that .gov takes a firmer stance because if not, this market could see some considerable widening in short order. Remember, present backing is only $100 billion per GSE. Funny, but if they do stand up and back the entire $4.5 trillion GSE MBS enchilada and the cramdown legislation comes through, .gov (taxpayer) will be cramming themselves. Just think the Treasury yield action if .gov decides to ‘explicitly’ back trillions in Agency MBS.
Wholesale (Broker) Mortgage Rate Expo
Below are wholesale Agency =<$417k conforming rates from a few select large-named lenders. Boxed is the rate level that would cost the home owner 1 point in fee. The numbers next to the rate are the ‘cost’ or ‘rebate’ at that particular rate level. For example from Citi at 5.5% for 30-days, the broker gets paid .109% of the loan amount as a fee.On a $400k loan, that would be a little over $400 to be used as commission, to pay closing costs etc.
To get a popular no-point loan, rates are back over 6%. Remember, the rates below are for a perfect 80% LTV, 740 credit score, full-doc borrower. If the borrower has a second mortgage behind the first, a lower score, is pulling cash-out etc the rate can shoot up considerably.
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Below are the adjusters for anything other than a perfect borrower/loan. If the borrower fits within the outlined red box there are no adjustments. Everyone else gets hit. ‘A’ through ‘H’ are cumulative so it is obvious how quickly the rate and fees can get out of control. Two years ago 80% of these adjusters did not exist.
Below are Agency Jumbo to $625k pricing in the mid 6%. Citi has the best pricing but at 1.5 points, it is likely cost prohibitive for most.
The chart below is the past eight months mortgage rates. The last three months show what happens when a market loses its integrity and the government jumps in. And you thought stocks were volatile. This is a perfect shot of one of the reasons lenders are pulling their hair out - rates are so volatile borrowers keep re-applying with lender after lender trying to get the best rate. They better close one quickly - rates are going up.