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Freddie 30 Year Fixed At 5.14%, 4 Month High, As 30 Year-1 Year ARM Spread Hits Another Absolute Record

Tyler Durden's picture


A week ago Zero Hedge discussed the spread between the Freddie 1 Year ARM and the 30 Year fixed, concluding that the recent record spread is indicative that the Fed will do all it can to become the new subprime lender of any resort, even if it means creating exponentially more roll risk, as it seeks to lend money regardless of the probability of ultimate payback. Today Bloomberg points out that the Freddie 30 Year has just hit a 4 month high of 5.14%, a level last seen at the end of August. What is notable is that in less than two weeks the 30 Year Freddie Fixed has jumped by 20 bps. At this rate we will overtake the 2009 high of 5.59% within a month. However, our original observation is that even as the 30 Year Fixed has finally started to move in line with the 10 Year Treasury, which just can't find a floor in the past week, the 30 Year Fixed - 1 Year ARM spread has simply exploded: when we looked at its last it was 60 bps, a week later, it is now at 81 bps. The Fed is now literally throwing money away in the form of Adjustable Rate Mortgages.

Luckily the SEC has finally started investigating the New Centuries of the last housing crash (we sure aren't holding our breath for any convictions in the next million years - after all Mary Schapiro is in charge of it all). Yet it gives us hope that at some point, regardless of how long after the next housing bubble has finally burst, the biggest criminals of the current cycle, those residing in Marriner Eccles building, will also be finally put to justice.


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Thu, 12/31/2009 - 14:07 | 179107 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

Meh., actually prosecuting these mofos would (ahem, clearing throat to sound very pompous and official) "...decrease confidence in our financial institutions and systems which could result in a catastrophic run on banks and the end of the free word."


God bless America, land of the crooks giving us minions the finger.

Gotta love TEOTWAKi arguments.

Thu, 12/31/2009 - 14:21 | 179124 MarketTruth
MarketTruth's picture

ROFL, thanks for the laugh and you are right of course. CONfidence??? In the current USA system??? Bah!

To quote lyrics from your avatar's album:

Yes, we know, it's nothing new
It's just a waste of time
We have no need for ancient ways
The world is doing fine
Another toy will help destroy
The elder race of man
Forget about your silly whim
It doesn't fit the plan

Thu, 12/31/2009 - 14:42 | 179172 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

MT- The avatar seemed appropriate.

Thu, 12/31/2009 - 14:41 | 179169 Anonymous
Anonymous's picture

Americans are to lazy to "run" to a bank.

Thu, 12/31/2009 - 14:18 | 179119 ghostfaceinvestah
ghostfaceinvestah's picture

In three months 5.14% is going to be seen as ridiculously low.

Thu, 12/31/2009 - 14:47 | 179178 Anonymous
Anonymous's picture

Why is that, because the economic recovery is so strong?

Thu, 12/31/2009 - 15:48 | 179260 SteveNYC
SteveNYC's picture

Agreed 100%. Or, the dollar is gonna buy a whole lot less.....and Bernanke will need to hire more security.

Thu, 12/31/2009 - 14:24 | 179123 aint no fortuna...
aint no fortunate son's picture

Good luck Ben. Come to St Augustine where the supply of homes going on the market is absolutely exploding the past 6 weeks... there is just a jaw dropping number of new 4 sale signs showing up daily on every street in town, with some of the biggest increases being in the high end gated communities. You better pick up a couple thousand more printers, you're sure as schit gonna need them.

Thu, 12/31/2009 - 14:36 | 179151 virgilcaine
virgilcaine's picture

Local politicians in Dutchess Cty NY just raised property taxes by 12%...The carrying costs are going to be too high for anyone, insurance , taxes, Electric, Oil..and Higher Mtg rates.


What a Sick system Housing is. Its funny/sad when the store owners complain due to lack of business and close down..  Just look at your elected official!

Thu, 12/31/2009 - 14:36 | 179163 ghostfaceinvestah
ghostfaceinvestah's picture

Propety taxes.  Yeah.  An unavoidable expense conveniently forgotten by a lot of people pumping housing as the American Dream.

Thu, 12/31/2009 - 17:17 | 179360 deadhead
deadhead's picture

that's a fact!  in upstate NY, we have some of the highest property taxes in the nation.  it's absolutely insane.  i know people over the years that have had to sell not because of the mortgage p and i but because of the property tax nut.

Thu, 12/31/2009 - 22:24 | 179593 Rainman
Rainman's picture

Here in CA we find a way to screw up almost everything, but the passage of Prop 13 in 1978 was not one of the screwups. In fact, I think property taxation in all States should have confirmed statutory boundaries. It is the most onerous of taxes, especially for the older fixed income crowd whose numbers are growing by leaps and bounds with boomers going into ripe old age.

Of course, in CA the personal income tax rates are progressive and go to in excess of 10% and the local govts hit everybody with bullshit sneak taxes on everything. But I have several relatives living back East who are really fed up with the property tax situation. The increases are back breaking on owners of 20 + years.

Another reason EVERYONE needs to demand constraints on ALL government spending LOUDLY.

The government tail is now wagging the taxpayer dog.


Thu, 12/31/2009 - 23:17 | 179627 Anonymous
Anonymous's picture

Property taxes are a throwback to serfdom when only property owners voted. When we amended the Constitution to guarantee the vote to everyone, we should have also outlawed property taxes.

The only fair taxes are cashflow taxes. If you earn or if you spend, you get taxed.

Fri, 01/01/2010 - 15:07 | 179960 Crime of the Century
Crime of the Century's picture

Aren't your "school taxes" carried as a separate line item as well?

Thu, 12/31/2009 - 16:01 | 179274 Anonymous
Anonymous's picture

Could someone explain: "the 30 Year Fixed - 1 Year ARM spread has simply exploded." Sorry about my lack of knowledge on this. What does this mean? Thanks.

Thu, 12/31/2009 - 16:01 | 179275 Anonymous
Anonymous's picture

Could someone explain: "the 30 Year Fixed - 1 Year ARM spread has simply exploded." Sorry about my lack of knowledge on this. What does this mean? Thanks.

Thu, 12/31/2009 - 16:48 | 179328 mikla
mikla's picture

Could someone explain: "the 30 Year Fixed - 1 Year ARM spread has simply exploded." Sorry about my lack of knowledge on this. What does this mean?

This spread is a measure of risk (currently showing great and increasing fear regarding the future).

In theory, the "1-Year ARM" is the *safest* thing possible for a lender -- you're not locking your money up very long (one year at most), and you can *adjust* the interest rate in the event of extreme inflation (which helps moderate your risk to inflation).

In contrast, the "30-year fixed" is the *most dangerous* thing possible for a lender:  You've locked up your money for thirty years, have the risk that you won't be paid back in the event of default (much greater risk over 30 years than over one year), and have the further risk that future inflation will so de-value your future payments that the loan will result in a tremendous net loss (again, much greater risk over 30 years than over one year).  Further, in the rare event of deflation, you even have the risk that the borrower will "re-finance" out of this loan so you can't even count on the expected interest rate return over the thirty years.

So, when the "spread" between the 1-year ARM (super-duper-safe) and the 30-year fixed (super-duper-risky) is very wide, you're seeing people nervous about the future:  Will I be paid back, and can I account for the risk of future inflation?

Based on these current historic spreads, no, you can't account for this risk.  You demand greater interest rates on the 30-year fixed rate to help offset this risk.  People do NOT want to loan their money for this crap-shoot over 30 years without a hefty premium in expected interest payments. 

Not to worry, though:  When everyone else is too smart to lend in an environment like this, we can always rely on the dumbest lender on the planet:  The US Taxpayer.

They are the only lender right now.


Thu, 12/31/2009 - 19:07 | 179468 Tethys
Tethys's picture

Very clear and helpful explanation for us econo-newbs.  Thanks.

Thu, 12/31/2009 - 20:00 | 179499 spekulatn
spekulatn's picture

Nicely done, mikla.



Fri, 01/01/2010 - 16:13 | 180009 Spitzer
Spitzer's picture

lol about your avatar, the guy bent over infront of the flag

Fri, 01/01/2010 - 17:47 | 180072 WaterWings
WaterWings's picture

Not to worry, though:  When everyone else is too smart to lend in an environment like this, we can always rely on the dumbest lender on the planet:  The US Taxpayer.

They are the only lender right now.

Effing brilliant explanation. Loved the finale.

Thu, 12/31/2009 - 16:23 | 179300 Anonymous
Anonymous's picture

30 year fixed - is a fixed rate mortgage for 30 years - your rate is set

1 year ARM is a mortgage where your rate is set for only 1 year, and then resets (usually based on1 year LIBOR or some index like that), so the borrower (homeowner) gets a lower nominal rate today than the 30 yr fixed rate, but take the risk that rates rise.

Thu, 12/31/2009 - 17:26 | 179370 Anonymous
Anonymous's picture

Any hope for rates to retrace next month back to the December lows? I want to refi next month. I might be insane getting in deeper on my place but I'm in the purgatory between walking away and keeping it.

Thu, 12/31/2009 - 17:30 | 179372 mrmortgage
mrmortgage's picture

Wrong again guys.

Fully 85%+ of conforming loans done this year are fixed 10, 15 or 30Y. A lot of the TBTF rate sheets we get have intentionally priced their ARMs out b/c they only want to originate 30Y FRM b/c FED is focusing on that part of the MBS market.


If you want to see the daily stat visit NYLX look towards bottom NYLX box click Active Product. You can also review all Fannie/Freddie info on their sites. ZH is solid in analysis in other areas but this author continues to draw conclusions on very limited information to back into their world view. If you want/need data for your articles in the future email mrjumbmortgage at


Cheers and Happy New Years.

Thu, 12/31/2009 - 18:07 | 179416 max2205
max2205's picture

Inside a black hole everything is reversed and rotated 180 dg....this chart proves hawkins theory that while you can't see anything after it enters, it all gets crushed

Thu, 12/31/2009 - 22:55 | 179613 Anonymous
Anonymous's picture

memortgage:this analysis is not necessarily wrong because 85%of mortgages are in the 30 years area.Most people will definitely opt for the 30 years fixed as long as they can afford it no matter how low the ARM is. It just shows the difference in a year lifespan,and probably also the FEd trying hard to stirr people into the near term of the curve. I would argue just as much,that left without intervention,long term rates should rise a lot higher,not necessarily for fear from inflation,rather from the sheer amount of debt. Simple demand vs supply facts.

Fri, 01/01/2010 - 01:06 | 179690 moneymutt
moneymutt's picture

Maybe, just maybe, I finally timed something right, locked in 4.5 on 15 yr refi late Nov. .....Wish my timing on investments were better...I thought market peaked in Sept.

"Interest"-ing times

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