Death of The Refi Boom

[PLATO]

QE III has been a huge help in sustaining record or near record low interest rates on home mortgages. Today, Fed chairman Bernake showed us when it will all end. The reaction? Fannie Mae Mortgage backed securities experienced a sell off over 100 basis points in under an hour. Rates are on the way up. Bernake is not ending the program now, but is merely telling the markets that there is an end in sight.

Good overall IMO as pumping $85 billion a month in "new" money into the economy isn't really sustainable, but if you wanted to refinance or buy...you missed it.

Chances are that the markets will realize that it isn't the end of the world and recover some tomorrow, but a 100bp sell off is unlikely to be overcome. The era of ultra low interest rates ended today.

[DaShi]

Finally.

[Aeson]

I propose tracking rounds of QE with letters, rather than numbers. That way the next one will be the one that fixes everything.

[pchang]

QED

[Colon™]

Finally.

Be careful what you're wishing for.

[Spaced Cowboy]

Ultra low, yes, but low is still doable. 4.25% on a 30 year is still almost free money.

[PLATO]

Finally.

Yes...in the long run this will be very good. Transitions are difficult when they are this severe. Hopefully we will see some bounceback tomorrow followed by stabilization and gradual increases.

Once rates rise to the point that there is a greater appetite for risk, then we will finally learn if Wall Street has learned its lesson.

[PLATO]

Ultra low, yes, but low is still doable. 4.25% on a 30 year is still almost free money.

With todays sell off we will be very close on a 4.25. It is equally likely that we could open higher than that. I will have to look at the graphs in the morning. 5% by the end of January is looking like a real possibility.

[PLATO]

Wow...overnight news is not good. Looking like conforming loans will be opening at 5.000% now. The MBS market is still in sell off mode. Government loans look to open with rates around 4.25%. Very similar to 2009 rates.

All the banks should have rates out within the hour unless things are too volatile.

[Sava]

good, now maybe all these snake oil mortgage commercials will go away

[snoopy369]

QE III has been a huge help in sustaining record or near record low interest rates on home mortgages. Today, Fed chairman Bernake showed us when it will all end. The reaction? Fannie Mae Mortgage backed securities experienced a sell off over 100 basis points in under an hour. Rates are on the way up. Bernake is not ending the program now, but is merely telling the markets that there is an end in sight.

Good overall IMO as pumping $85 billion a month in "new" money into the economy isn't really sustainable, but if you wanted to refinance or buy...you missed it.

Chances are that the markets will realize that it isn't the end of the world and recover some tomorrow, but a 100bp sell off is unlikely to be overcome. The era of ultra low interest rates ended today.

And I just closed on my refi last week. Go me

[PLATO]

Not that most of you guys really seem to care about the huge change in the U.S. economy over the last week, but the 10 year treasury yield (which is fairly consistent, as far as movement, with Mortgage Backed securities) opened today with a yield of 2.62%. This is 91 basis points higher than last months low of 1.71%. This is the fastest rise in the 10 year since 1962.

The translation of this is that you will see much higher borrowing costs for home buyers, less activity in refinancing, and higher corporate borrowing costs. This will equate to a slowing in economic activity over what it would have been.

We are looking at a risk based model on mortgages that could reemerge at about the 3.50% yield marker if is obtained and holds steady. At this level it will be possible to price some level of risk back into mortgage products and underwriting criteria could be loosened. For the millions of borrower's who pay their mortgages but otherwise have credit challenges, there could be some light at the end of the tunnel.

The forgotten people are the ones who got stuck with adjustable sub prime loans 5-7 years ago, but have continued to pay on time. Relief may (MAY!) be on the way for them in the not to distant future. If this occurs, there will be a lot of activity...hopefully the new regulations will act to keep another "bubble" from emerging.

The complication to this is that new home construction must pick up the pace. We are already seeing upward pressure on home prices as the market is finally beginning to clear some. Without new home construction, this upward pressure could get out of hand and lead to new problems.

So...the net is: look for an initial slowdown in the growth of economic activity followed by a spike once rates overcome risk resistance levels.

Thank you for your time and attention. I will now put the crystal ball back on the shelf.

[giblets]

I don't see why they should tighten monetary policy when inflation is still low and unemployment is still high.

[PLATO]

I don't see why they should tighten monetary policy when inflation is still low and unemployment is still high.

Well...they actually haven't. The markets are reacting to a couple of real influences, but mainly to the statement that "One day we will stop QE". As far as what is normally considered "monetary policy", i.e. the feds fund rate...there is little talk of changing anything there at all.

[giblets]

If they say "we will raise rates when x conditions are met" I would consider that a policy although that's not what people normally mean by "monetary policy".