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Mortgage Applications Tumble Double Digits, Refinance Index Hits Lowest Since January 2010
The MBA reported the results of its weekly mortgage applications survey earlier and the leading indicators for the housing price collapse continue coming fast and weak. After rising by 5% in the prior week, the market composite index plummeted by 12.9%, a major reversal, which confirms that as we have been saying, no matter the record 2s10s spread, few if any are taking "advantage" of surging mortgage yields and refinancing. Indeed, the Refinance index decreased by 15.3%, hitting the lowest level since January 2010, while the Purchase Index is at the lowest since October 2010. And so, in addition to global rioting, add the complete collapse in the housing market as the natural offset to a market meltup inducing QE 2. As such, the tradeoff becomes: debt monetization and Russell 2000 at 36,000 (bankers win) or a complete housing market wipe out and accelerating global food price revolutions (middle class is not eradicated). We take the former any day.
From the MBA:
-The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending January 21, 2011. The Market Composite Index, a measure of mortgage loan application volume, decreased 12.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 12.0 percent compared with the previous week. The results do not include an adjustment for the Martin Luther King holiday.
The Refinance Index decreased 15.3 percent from the previous week and reached its lowest level since January 2010. The seasonally adjusted Purchase Index decreased 8.7 percent from one week earlier. The Purchase Index is at its lowest level since October 2010. The unadjusted Purchase Index decreased 3.1 percent compared with the previous week and was 20.8 percent lower than the same week one year ago.
The four week moving average for the seasonally adjusted Market Index is down 1.0 percent. The four week moving average is down 3.7 percent for the seasonally adjusted Purchase Index, while this average is down 0.1 percent for the Refinance Index.The refinance share of mortgage activity decreased to 70.3 percent of total applications from 73.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.2 percent from 5.0 percent of total applications from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages increased to 4.8 percent from 4.77 percent, with points decreasing to 1.19 from 1.20 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This week's increase in the rate followed three consecutive weekly decreases.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.12 percent from 4.16 percent, with points increasing to 1.26 from 0.90 (including the origination fee) for 80 percent LTV loans.
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OT
Ben Ali might not get to use all that gold
http://www.bbc.co.uk/news/world-africa-12286650
You guys just need to cheer up. You guys are too bearish. Kind of too scared for everything...
This is NO GOOD, and will not make you money!!
Just be optimistic! Be an American! and most important of all---BTFD!!
I'll BTFD when the DOW reaches DJIA 26. Till then, not interested.
Who in the Hell hasn't already refi'ed in the last year if they were in a position to do so? Hell, every time I call my banker she's pushing me to refi. I guess we could just do it every year.
Plus, considering that I have a Countrywide/BofA/Fannie Mae mortgage from a Re-fi in like '05 or '06, I will pay the extra point knowing that should I fall on financial misfortune I have a 91% chance that I will die in this house before the paperwork to throw me out could ever be found/organized.
what new fine print do they throw in when you re-fi?
what new fine print do they throw in when you re-fi?
what new fine print goodies do they throw in when you refi?
To the best of my understanding, when you re-fi, the old mortgage is paid off and a new one is created. Proper chain of ownership of the new note is now going to be assured.
I don't really have any intention of walking away from my house payment, but odds are on my side considering the time frame and the parties involved that a cry of, "Show me the note" would be answered by crickets.
Its all good. Apple and Google are not in the housing market. Rally on
We are all in the housing mrkt. non?
Or does your employer let you sleep in your cubbie ?
I wonder how much the weak housing market can be accurately attributed to uncertainty about (or conviction about ever-upward) property taxes on the part of potential buyers.
Obviously it's not enough that some sub-markets haven't seen prices fall quite so much, rates are still very low by historical standards and some properties can be at least partially funded by rental income.
But if you know that property taxes are the piggy bank that stands between struggling municipal governments and municipal governments taking some pain...
GM anounces that they will build a new green engine plant creating up to 600 new jobs.
Wait for it.
In Mexico.
And why wouldn't they? When faced with a choice between a Jackbooted thug government that will do EVERYTHING in its power to destroy you and one that needs you so bad they will give you damn near anything, what would you do? Couple that with the choice between spoiled workers who won't do assembly work for anything less than will provide them with an upper middle class income, a timeshare, jet ski's and a foo foo dog for their stupid whore daughter, OR people who are so damn poor they will work for rice and blow you for the opportunity, which would you do?
Game over.
Somebody junked you? Guess the truth hurt them too much. (Probably someone getting screwed over on their GM pension.)
I don't make the comment because I think it's the way it SHOULD be, or that I like it, it's just the plain ass hard effin truth.
This is so classic and all predicted years ago. First the banks get no oversight, so they overreach.
Then they get so much oversight, that they underreach.
But to the big planners, all part of the scheme. Must be good to implement long term squeezes like this, knowing full well that you'll still be at the helm, in 10, 20, 30 or even a 100 years down the line.
The plunge is surely not for lack of want. Ninja no more.
ORI
http://aadivaahan.wordpress.com/2010/12/20/i-met-the-mother-of-cognitive...
Equity Market no longer cares about Housing, the equity market has "moved on". You bears are grasping at straws if you think Housing is going to pull down equities.
Right who needs housing, we've now got Apple and theres an app for that!
Tyler says:
What happened to the vibrant recovery in the critical housing sector that QE2 promised to deliver? Add to this the recent Case-Shiller data, and we're back in double-dip territory.
We've finished separating those that could re-fi from those that will be squatting and hoping the sheriff doesn't knock and now get to see what happens when so many people walk away from their homes that the banks have to walk away from homes and Bennie and the Inkjets will be forced to become slumlords (every good gangsta needs some "towers", yo).
++++
Lots of people took advantage of the refinancing.
It's just getting to the point now that everybody who can/could refinance has already done it. Sometimes more than once.
I think we are just literally running out of buyers and refinancers.
Which is the same as saying that this is a local top in the housing finance market?
my father is a real estate attorney who has been in business over 30 years and has never not been busy thru out all the booms and busts......UNTIL NOW......he says noone has even knocked on the door over the 3-4 months and i see he is just spending more and more time in florida......good news for him as he is being forced to enjoy life , not so good news for the rest of the housing market
Meanwhile new home sales for 2010 were the lowest in 47 years, and 14% lower than in 2009....in other words, sales were at the same point as when the US population was about 40% smaller. In other words, a country with almost 120 million fewer people bought the same number of new homes in a year as in 2010. It is literally as if we separated 120 million people into another country, and they purchased NO new homes for an entire year. And yet we top Dow 12K.
In fact I spoke too quickly. In 1964, new home sales were about 550k....in other words, a country 120 million smaller bought almost twice as many homes as were purchased in 2010. The SEVEN LOWEST MONTHS ON RECORD since 1963 were in 2010. And yet we top Dow 12K.
The Residential Mortgage market is made up mostly of 15 and 30 year fixed rate mortgages.
ha, ha, ha !
Just think about the Jumbo and Commercial 3 & 5 year term loan turnovers/rollovers just starting now.
So back in 2008 (before the SHTF) Mr. House goes to Joe banker and says "Joe can I get a 3 year loan on this $500K property at 10% down"/ Joe says sure Mr. House here is your loan of $450K see you in 3 years (to roll it over/refinance)
As soon a Joe banker settles the deal he thinks to himself "what if Mr. House doesnt pay me back" ?. I know what to do he says I will buy some default insurance incase Mr. House doesnt pay me.
He calls lets say AIG and says hey I need $450K of credit default obligation Insurance on my client Mr. House incase he doesnt pay me. AIG says here ya go your CDO Joe.
Then AIG says hey, wait a minute what if Mr. House doesnt pay Joe banker I will be out $450K and thats alot of money. So AIG gets on the phone and calls Zurich insurance and takes a $450K default insurance policy out protecting AIG if Mr. House defaults.
Then Zurich says "wait just a minute here" what if AIG defaults ? I have to hedge my loss so he calls Prudential and takes out a default policy incase AIG doesnt pay.
Then Prudential says "wait just a minute here" what if Zurich defaults on this insurance ? I have to hedge my loss so he calls Hartford and takes out a default policy incase Zurich doesnt pay.
Then Hartford says "wait just a minute here" what if Prudential defaults on this insurance ? I have to hedge my loss so he calls Allstate and takes out a default policy incase Prudential doesnt pay.
Some of these leveraged CDO's and CDS like insurance policies go 10+ policies deep-stacked.
Time for Mr. House to rollover/refinance that 3 year loan he got back in 2008
Now Mr. House lost his job at the beginning of 2011 and cant pay the note as he defaults.
That means that $4.5 million in debt Derivitives are leveraged against a house (that was originally valued at $500K and is now worth maybe $300K) The chain reaction of this is that $4.5 million dollars were just created out of thin air on a $300K depreciating asset that has a note due of $450K and needs to be rolled over but Mr. House cant afford it.
Question:
Who is going to re-finance that ?
Answer:
Nobody !
Now lets take a $45 million dollar shopping mall that had a 95% OR in 2008 and has now due to the depression a 65% occupancy rate and apply the same scenario as above.
Mr. Mall goes to Joe banker .......................
see where this is going. ?
This is the easiest way in my mind to understand the swap/CDS/CDO default "BOMB" that awaits us.
As the saying goes:
"YOU AINT SEEN NOTHING YET"
Threeggg,
Maybe I'm missing something but the chain you describe is one where the original
risk is simply passed along, it isn't increased by virtue of elongating the chain.
A owes B "X" amount, B owes C "X" amont and so on. When the X amount fails
the last insurer in the chain is the bag holder. Everyone else in the chain (assuming
the last insurer has the capital to cover the exposure) is made whole. If the last
insurer fails, the loss simply falls on the next to last insurer in the chain.
Even if everyone in the chain fails, the entire extent of the loss will never be more
than what cannot be recovered from the sale of the property vs its mortgage.
No?
My point is the leverage that is out there.
Leverage is 100 to 1 and some higher
Food, oil, housing, property everything is leveraged to the gills
Where is the leverage in your example? One loan is created. It can be insured by
one, ten, a million "insurers", in a chain, but no increase in the initial loan ever
occurs. The fact that there may be an aggregate of billions of dollars of policies
written on one loan doesn't change the fact that the total exposure is, and will
always be, just the amount of the original loan. That isn't "leverage". That's simply
reinsurance.
My life insurance policy can be indeminfied by company A, reinsured or resold to B,
reinsured or resold to C but the death payment doesn't change. The fact that the
risk on my life is passed along, diced up or whatever, how many times doesn't
change the original amount at risk. Its still "X" in total and is only "X" to the
last company in the chain that has the capital to pay it off. Even if none of the
insurers can payoff the loss, the total lost falls only on one entity (my estate).
If all the insurers in the chain fail before they can pay my claim the loss is still
only "X" not "X" times the number of reinsurance events.
what about all the premiums that have already been paid and booked
Then its all just cash flow from servicing ?
When there is a meltdown do the insurance companies have the reserves to pay all the claims ? No !
They always get bailed out by uncle sugar or they would be insolvent (remember AIG) - hence creating debt out of thin air.
Bottom line is they dont have the reserves to cover all the claims. looks like leverage to increase the volume of the servicing fees to me.
Well, after all, the real estate market has NEVER declined nationwide (never mind worldwide!) </sarc>
If the first INVESTOR buys insurance on the mortgage, they pay a premium (say $100).
This reduces their return on the original investment in the mortgage but they've
offloaded the ENTIRE risk to the insurer. The first insurer sells the risk to another
insurer who (somehow) measures the risk lower than the first. They charge the
first insurer a lower premium than the original investor paid and the first insurer
books the spread between what they got in premium vs the lower amount
they pay the second insurer and so on. The game can go on (logically) as long as
you can find a SUITABLE next insurer (one who can not only pay you back what
you owe the next guy up the line but ALSO one who will charge you a lower
premium than what you are paying). If you can't find the next insurer at a positive
spread you have a choice; be the last insurer on this risk or take YOUR hit, currently,
by booking some degree of negative spread. Not a happy thing but maybe preferrable
to keeping the WHOLE RISK. Then again, maybe you can sell only a fraction of
the risk to another insurer.
The point is; there is only one party exposed to the entire risk at any point in time.
Does the last insurer have the capital to pay the NET loss? Maybe, maybe not.
That is THE major factor anyone who engages in purchasing insurance must
assess, no? Personally or professionally.
The "servicing fees" between transactions are simply a spread between rates.
Who cares about those? The first insurer gets a premium of $100. He sells the risk
and pays the next guy a premium of $95. He makes $5. The next guy paying 95
sells the risk and pays 90. He makes $5.
This can go on and on and on. If the last guy will accept a premium of $1 on the
risk who cares? If he has the capital and there's a loss he pays the claim. If he doesn't
the insurer before him will pay the claim and so on.
Only the original $100 premium is paid. Its passed along, DECREASING
as it goes through each insurer that elects to either try and pass it further or
is willing to hold the risk (and collect the remaing BALANCE of the premium).
So if the one loan goes bad, only one insurer is stuck. Any insurer along the way
who booked PART of the original premium as a gain is fine....as long as THEIR
counterparty remains solvent.
There's only one risk amount and ONE PREMIUM amount (unless someone in the middle of the process pays MORE to the next insurer, taking a loss on HIS spread) at play
at with any, one, mortgage. No?