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Higher rates squash refinance demand
June 11th, 2009, 8:03 am · 31 Comments · posted by Mathew Padilla
I got swamped yesterday finishing a story for Sunday, so am blogging this now from National Mortgage News:
The market share of refinancings has dropped to its lowest point since November 2008, according to the Mortgage Bankers Association. The group’s Weekly Applications Survey Market Composite Index, an overall measure of mortgage applications, fell over 7% on a seasonally adjusted basis. Refis only made up 59.4% of total applications, down from 62.4% the previous week, as mortgage rates continued their sharp rise. As a result of the drop in refis, for the week ended June 5, the MCI was 611.0, compared with 658.7 one week earlier. However, rising rates have not had a negative impact on purchase activity, according to the survey. While the refinance index decreased 11.8% to 2605.7 from 2953.6 the previous week, the seasonally adjusted purchase index increased 1.1% to 270.7 from 267.7 one week earlier. On an unadjusted basis, the index increased 15.7% compared with the previous week and increased 7.6% compared with the same week one year earlier. Adjustable-rate mortgages accounted for 3.4% of applications, up from 3% for the previous week, the MBA said. There was an increase in the average contract interest rate for 30-year fixed-rate mortgages to 5.57% from 5.25%, with points (including the origination fee) increasing to 1.09 from 1.02 for loans with 80% loan-to-value ratios, according to the association.
As I write this on Thursday morning, Yahoo Finance is quoting the yield on the 10-year Treasury at 3.95% — the yield was under 2.6% back in March. There is a rough relationship between that yield and 30-year fixed mortgage rates (though they are more closely tied to yields on mortgage securities).
In any case, both long-term Treasury yields and mortgage rates have been elevated over the past two weeks or more. If this continues it could also put downward pressure on housing prices and sales. Of course, mortgage rates are still low by historical standards.
In other news…
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- Time to double-down on housing?
- Do these homeowners deserve help?
- O.C. mortgage rates jump again
- SEC files civil charges against Countrywide founder
- Widow, 85, faces foreclosure
- Is FDIC’s LLP DOA?
- 1-in-4 O.C. homebuyers borrow 96% of sale price
- FTC may prohibit advance fees for loan-modification help
- Mortgage rates up, down or flat?
- Mortgage rates retreat
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Personally, if prices drop another 25%, I wouldn’t mind paying 7% for a loan.
“However, rising rates have not had a negative impact on purchase activity, according to the survey.”
Hey Matt, off topic, but please excuse me.
Calculated Rick regurgitated a Bloombery fantasy story and I think it’s completely hysterical. Why do people insist on writing about things which they do not understand?
The story is about a widow (aren’t they all) who got a $315,000 option arm with a .375% start rate, a 145% principal cap and a $98 starting payment.
Baloney.
First, .375% is an outright LIE.
Second, 145% is also an outright LIE.
Third, even if you believed the bullcrap “.375%” rate, the initial payment would be $925.28, or 10 times the payment in the story.
Sweet Jebus, make it stop.
Followed by 100 clueless comments, no less!
huh? what? heh?
I always wanted to be the first.
You should get on there and correct them.
yes, i saw that, although he does mention an inconsistency with the Wachovia/Wells/GoldenWest Option ARM portfolio. I may blog on it later.
The CR post is here:
http://www.calculatedriskblog.com/2009/06/option-arms-paying-98-month-on-350.html
I don’t follow exactly how these work, but the interest only on 350,000 at .375% is about $100 according to:
http://www.bankrate.com/calculators/mortgages/interest-only-mortgage-payment-calculator.aspx
Is that how how the option arms work? If the person chooses to pay only interest?
No, they MUST must pay the minimum and the minimum is equal to the start rate amortized over 30 years. In this example (if you believed the .375% (which I don’t)) the minimum payment is $925.28.
In year 1, that is. It goes up 7.5% from there.
Hmm…haven’t seen that retraction yet. Could it be that your understanding of option ARMs is flawed?
hey deleao- your past clients WISH you wouldve researched
the bubble as vehemently as you researched that bloomberg article-
then they wouldnt all be upside down now
maybe dealeo perma-blogs her life away in deep denial… because she has so much guilt from all the hardship she has rained down upon her past clients… just a theory — llllooollll
When the going gets tough, the weak get personal.
Dealeo probably knows what her initial payment was because he sold the 73 year old widow this garbage!
Dealio,
$92 would be the correct payment (with no principal) for a $315k loan at 00.375%.
It says the loan was “sold” to GMAC so it’s possible that this was a niche Option ARM product that doesn’t fit the typical profile. She refi’d in 2007 which was when lots of small Alt-A players were dabbling in Option ARMs.
You are mistaken.
That is the first month interest only calculation, but it is trumped by the $925 minimum payment (that’s why they call it that).
If the min payment was $98, and even if the cap of 7.5% continued uninterrupted for 30 years, she would have paid back $121,597 on a $315,000 balance. It doesn’t compute. It didn’t happen.
You don’t know what her minimum payment requirement is without the loan documents, specifically the note that she signed.
Wanna bet? No one did what you are suggesting. No one.
Even the FDIC explained it my way (halfway down / example in red)
The minimum payment for there $180,000 loan was $630.
http://www.fdic.gov/consumers/consumer/interest-only/index.html
Get a grip, people, how many times do we have to go over this?
Dealeo,
You sound like a ranting fool splitting hairs over whether a min payment was $900….$630….$400…or $98. Does it really matter? For christs sakes the fully ammortizing montyly payment, 30 year structure, is $2K+. No matter which way you slice it….option arms like this were nothing but bridge loans to nowhere. The only way they would work is if prices rose forever….
Your tone seems to imply that all was not really that bad with the mortgage market…and it is negative hyperbole that is taking the market down. Go look at prices vs rents, and think about rent arbitrage to understand why the bubbled markets are going to drop another 20-50%. Thats right…count on it. Before this is done…prices will be less than 150 rents…even in the most desireable markets.
Things cost what people can pay for them. If case you have not noticed…the FED is starting to go into convulsions because of foreign credit masters are making it clear the will not load to us forever. The termporary respite from the credit crunch is just that…temporary. Next on deck…and full bore balance of payments crisis for the US. Watch what that does to financing availability and RE prices.
The rate quoted was wrong, The minimum payment could have been considerably higher than even the $925 I calculated. You call it splitting hairs when someone is off by 10x? You have your opinion, and I have mine. I won’t hold my breath for 150 times rent.
“The only way they would work is if prices rose forever….”
Not true. They only way they DON”T work is when rates skyrocket.
“lend to us forever” that is…..
No…they wont work because of the borrow. WHY would a borrower take out such a loan? Because they could not afford the ammortizing payment. If they could not afford the ammortizing payment…that means they could not afford the purchase. The only way it worked is if prices rise forever. If prices do not rise forever, borrowers can not re-fi because creditors have no equity protection, and will not just give away money forever. First and foremost…these loans required prices to rise to remain viable credit structures. It was nothing but a fantasy…and ponzi scheme.
you go brantw - I love it when someone schools dildeo
Didn’t Dealeo/Tracker make the comment the other day that FICO scores are overrated and that they had a 60k line of credit from AE that got reduced?
I’d certainly not recommend taking financial advise from this person.
The lower rates sparked economic activity. With rates being higher borrowers will not save as much and the lenders, brokers, marketing companies, advertising companies, appraisers, title companies, escrow companies, insurance companies, realtors, county recorders office will not create the kind of revenue they would otherwise. Commerce is the key to getting out of this economic slow-down. Lower rates are important to increase/stimulate the economy. Interest rates are an important part of this recovery and the administration should do everything possible to keep them down until at least the end of 2010. It will be almost impossible for the administration to do this but the longer it does the better off the American People will be.
A good story, maybe already done would be to look at Reagan’s Presidential term, the interest rates over that time and how the economy reacted to that. Has that been done?
Why do Journalists and I’m using that title loosely, see the need to sensationalize every story? Example using the word “squash” as well as using a national story versus actaully doing some investigation and reporing that activity(ies) are going on here in OC? We have always been different from the country and even LA county, so let’s earn our salaries at the OCR (they must be high with the subscription rates going up so much!) and report on local issues, especially those so disparate from region/county to others.
Pardon my spelling and grammer, I’ve not had my coffee and I was a Business Major. Just excuses for my writing since I’ve finally decided to get off the bench on these boards and start holding the OCR accountable for it’s content.
Agreed. National trends don’t necessarily apply to California especially OC. My mother is a RE agent in Ohio and just cranked out her to best month EVER. Some are short sales; however, most are normal sales. That is what she is telling me but I have to keep in mind she is a realtor, j/k mom.