Posts Tagged ‘Fed’

Okay, well, it’s not that dramatic, but I do have a new post up on Zillow’s Mortgages Unzipped, with some in-depth commentary on why mortgage interest rates are not rising dramatically, pronouncements of doom to the contrary.

Thought you might like to see it.

Market: So, yesterday we were watching the Fed, and as it turned out there was nothing to see. Bonds ended exactly flat at 0. Today we’re up 12bps and sitting on a multiple resistance line (Note: if this doesn’t make any sense to you, don’t worry. It’s not important in the cosmic sense. I just want you to know that I’m paying attention to it, and that I know what it means. Call it outsourcing your worry about rates.)

Analysis: Oil spiked a couple weeks ago because it looked like the recession was bottoming out. Whoops. Demand continues to be bad. Oil is now falling. GDP numbers today showed the economy shrinking by 5.5%, and unemployment numbers were bad again, and now earnings are bad as well, so what we learn from this is that we still have a long way to go. This argues for a flat rate environment.

In fact, we’d be trending strongly downward except that every time the government holds a press conference it talks about changing the face of the financial landscape to such a degree that lenders and banks are forced to hedge their bets. Think of it this way: you’re in Vegas. You want to play a little blackjack. You go to the table and the dealer deals you some cards. Then when you look at them, he takes one back. Apparently you can’t look at both of them. This hand, the dealer says, 23 will be the winning score. Next hand it’s back to 21, except you can’t win if you have clubs. How much would you bet on a game like that?

But that’s precisely what’s happening with the US government. Between President Obama, Ben Bernanke, Secretary Geithner, FHA, FHFA, OFHEO, HUD, and a partridge in a pear tree, every single day (and sometimes twice) the rules for lending, how much you can lend, to whom, under what conditions, are changing. If you were a bank, how much would you bet on a game like that?

If it weren’t so catastrophic to so many people, it would be actually kind of fun, like trying to do a puzzle using a funhouse mirror. At least I can say my job isn’t dull.

Cj

Chris Jones
City 1st Mortgage Services, Utah’s Mortgage Lender of Choice (and nearly everywhere else)
801-310-3407

A couple weeks ago I posted about debt and spending in A Conundrum Wrapped in a Paradox, Stuffed in a Burrito.  The point was that we as a country can get – and have gotten – to a place where we can’t keep spending as we have, because we weren’t spending our money, and now the debt service is so high that we can’t pay it all back unless we start economizing.

Today, here’s this from the San Francisco Fed:

In the long-run, however, consumption cannot grow faster than income because there is an upper limit to how much debt households can service, based on their incomes. For many U.S. households, current debt levels appear too high, as evidenced by the sharp rise in delinquencies and foreclosures in recent years. To achieve a sustainable level of debt relative to income, households may need to undergo a prolonged period of deleveraging, whereby debt is reduced and saving is increased.

Bingo.

Yesterday the Fed announced a couple of things of critical import to the mortgage world.  One, it is not doing much of anything with the Fed rate for the forseeable future.  There is not going to be a rush to raise interest rates even if the economy improves dramatically, and there’s no reason to think that it will, not any time soon. Two, it is expanding its purchasing program of mortgage-backed securities from $500 billion (half is spent) to $1.25 trillion.  With a “T”.  Three, it is going to start buying back long-term Treasury bonds as well, $300 million worth.

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