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Mortgage Originators Everywhere Seeing Red As Freddie 30 Year Mortgage Hits Fresh All Time Low Of 4.54%

Tyler Durden's picture




 

The Fed came, saw, and conquered the mortgage market. The 30 year Freddie fixed just dropped another 2 bps from the prior week to 4.54%, a fresh all time low, and more billions in margins chopped off from the profit line of mortgage originators everywhere, now that the Fed and Pimco are the only two entities remaining in the mortgage market, even as consumer cash flows are under more pressure than ever confirming that in this bizarro market just as one wants to buy, the right button to push is sell and vice versa.

 

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Thu, 07/29/2010 - 10:51 | 494059 trav7777
trav7777's picture

red, bitchez

Thu, 07/29/2010 - 11:13 | 494099 Borat
Borat's picture

You must have a HFT morphed to gain advantage on RSS feeder.

Once you get the post 1 millisecond earlier than others, you run a program that add a phrase

rand & ", bitchez"

 

Thu, 07/29/2010 - 11:24 | 494124 Young
Young's picture

I fuckin' love it. He/she's very concrete in his posts. Totally accurate with two words. He could probably teach the economists a bit...

Thu, 07/29/2010 - 11:00 | 494077 The Franchise
The Franchise's picture

trav, promise me you will never stop the bitchez posting... it must continue until the apocolypse ensues.

Time to refi my $267K loan on my $245K townhouse. "The National Association of Realtors wants you to know that now is a tremendous time to buy with interest rates at historic lows..." commercial can probably play on a loop for the next three years.

Thu, 07/29/2010 - 11:03 | 494085 breezer1
breezer1's picture

http://housingstory.net/2010/07/28/the-aftermath-of-the-global-housing-bubble-chokes-the-world-banking-system/?source=patrick.net

i don't think buying a house is a good idea right now. i could be wrong but i see a big drop coming.

Thu, 07/29/2010 - 12:42 | 494305 chrisd
chrisd's picture

Now is the perfect time to buy a house if prices have truly declined in your area. If things really do go significantly south, it will be far harder for someone to kick you out of your house then it will be to kick you out of an apartment.

 

If things get materially worse and then get better and you don't plan to sell anytime soon, you could likely break even when you do sell (10 - 15 years). Even better, take out a loan, then buy it back from the bankrupt owner of your note in 5 years at half the price.

Thu, 07/29/2010 - 13:17 | 494364 traderjoe
traderjoe's picture

I've heard you can buy a decent suburban tact home in parts of FL for $50-75k. Makes sense to buy at 50% of replacement cost. 

In my area (Northwest), prices probably have 50% to fall or more. 

I have the canard of buying due to lower interest rates. If rates go up, then the value of your house goes down (all other things being equal). So, you're buying at a time where there is a significant chance that prices will decline in the future. Unless you plan on paying off your 15/30-year mortgage by staying there the whole time. 

Thu, 07/29/2010 - 11:02 | 494082 Mako
Mako's picture

Let me see all-time lows in mortgages and borrowers are now learning how to stop payment and keep the house. 

This is fun.

Thu, 07/29/2010 - 11:04 | 494088 Justaman
Justaman's picture

Let's all give a big old cry for the mortgage companies.  Wah!

Now that that is out of the way, I believe an overlay of the T market would reveal pretty much the same conclusion.  Except replace Fed and PIMCO as the buyers with Banks and Fed.  Neither of these buyers are complaining though...yet. 

Thu, 07/29/2010 - 11:04 | 494089 ShankyS
ShankyS's picture

What a joke that spike was on 4/8.

Thu, 07/29/2010 - 11:07 | 494093 -Michelle-
-Michelle-'s picture

How long do you think it will be before underwater homeowners can name their own price for a new deal? 

Thu, 07/29/2010 - 11:13 | 494111 Mako
Mako's picture

Been happening for years IF you know what you are doing.  The price is $0.  I helped two people several years ago that couldn't pay, they sustained their rights and fought back against the "debt collectors".  Statute of limitation has expired on one and the other one is within a few months of expiration. 

There was no loan, nor could there have been one.

Thu, 07/29/2010 - 11:18 | 494134 -Michelle-
-Michelle-'s picture

No, I mean without all of the rigamarole of loopholes and "gotchas."   How long until the underwater homeowner can simply call up their mortgage holder and say, "this is what I'm going to pay you from now on" and the holder responds with, 'we'll take it?"

Thu, 07/29/2010 - 11:33 | 494162 Rainman
Rainman's picture

....that's such a bizarre concept that it will probably come true as the New Normal continues to evolve.

Thu, 07/29/2010 - 11:37 | 494168 MachoMan
MachoMan's picture

Why would you want to?  If you are underwater enough, you can just live there for free...  no way they recognize that hickey.  This is a war of attrition.

If you have equity in the place, get the fuck out of it, asap.

Thu, 07/29/2010 - 11:39 | 494171 Mako
Mako's picture

Like I said you can do it now if you want, I am serious.  Of course, you won't even find the correct person to offer a $100 too.   Once the "debt collectors" are fought off, sit back and enjoy the house free of charge.

Thu, 07/29/2010 - 14:27 | 494518 RockyRacoon
RockyRacoon's picture

Anecdotal evidence of your comment:  I have a second mortgage with a balance of about $2,500 that I wanted to just pay off.   I called the 1-800 number at the top of the mortgage statement...  "No record of that loan....".  They referred me to another 1-800 number -- same story!  Really.   I talked to the wife and we wondered who would be sending us a NOD if we just skipped the payment.  After several more phone calls I got the automated voice instruction to go to www.whatthehell.com/mortgagepayoff.  Went there.  They had no record of my name or SSN, let alone a loan.  End of story, I sent a check for all the balance less $100.  We'll just pay the last statement balance and hope that works.  These people deserve all they get, both the lenders not getting paid, and the borrowers getting a free house.

Thu, 07/29/2010 - 13:11 | 494356 Rogerwilco
Rogerwilco's picture

I see a different play coming, and this is the way it worked in the late '70s. When mortgage interest rates spiked, people with low-rate mortgages were offerd huge discounts to pay off their existing loans. When the bond bubble bursts in the next 18 months, "investors" will be tripping over themselves to unload those sub-6% loans. 25% discounts anyone?

Thu, 07/29/2010 - 11:19 | 494135 IBelieveInMagic
IBelieveInMagic's picture

Can you please provide more details on the approach?

Thu, 07/29/2010 - 11:44 | 494182 Mako
Mako's picture

- The trustee is not the holder in due course and is a debt collector under the FDCPA to foreclose

- The debt collector pretending to be an attorney at law who submitted a complaint is in violation of FDCPA. 

Both the attorney and/or trustee are debt collectors and lack standing to foreclose.  Of course, there was no loan to start with but that irrelevant at that stage, the petitioner has to prove standing, yet petitioner lacks standing and is in violation of FDCPA.

See

Federal Debt Collections Practices Act

Rules of the court where foreclosure complaint was submitted

Heintz v. Jenkins, 514 U.S. 291 (1995)... the attorney is a debt collector

 

 

Thu, 07/29/2010 - 12:22 | 494272 uno
uno's picture

this is hard for many of us to understand not being in the legal field.  I have some very basic questions I hope you can clarify for me and others.

 

Does this mean anyone can simply stop paying and have a house for free?

Can you turn around and sell the house and not have to pay off anything?

If you have a second mortgage, can you stop paying that also?

 

I know someone who has a little equity in a house, tried to work out a new payment plan with the bank which rejected it, knowing she could not make the current payments.  In a case like this should she simply stop paying and legally have a house.

 

She is going to talk with an attorney next week about the issue.

Thanks for the insight provided

Thu, 07/29/2010 - 12:29 | 494282 Mako
Mako's picture

http://groups.yahoo.com/group/mortgage-challenge/

Consider joining this group.  Pay attention to TheInhabitant posts on this subject, he basically nails the issue.

Too many questions for this forum.  You might even see me out on that group.

Thu, 07/29/2010 - 12:30 | 494285 uno
uno's picture

Thanks Mako

Thu, 07/29/2010 - 13:07 | 494351 Rusty Shorts
Rusty Shorts's picture

It appears that if your mortage was handled be these guys, Mortgage Electronic Registration System, Inc. (”MERS”), you may just have a free house, as MERS has no legal standing. (google - mers has no legal standing)

 

http://foreclosuredefensenationwide.com/?p=190

 

http://blog.floridaforeclosurelawyer.org/2010/01/02/mers-role-in-the-foreclosure-epidemic-and-lack-of-standing/

Thu, 07/29/2010 - 13:16 | 494363 Mako
Mako's picture

MERS as a nominee has no standing, the Trustee has no standing and the debt collector pretending to be an attorney at at law has no standing... only the holder in due course has standing.

All of the above can be sue for violations under FDCPA for civil liabilities in federal court. 

Thu, 07/29/2010 - 13:40 | 494419 MachoMan
MachoMan's picture

Am I missing something here?  Why would a trustee ever bring suit?  In my jurisdiction, we simply have mortgages and mortgagees (no intermediaries/escrow).  The person bringing suit will almost certainly be the mortgagee or its assign.

It doesn't make any sense to me that the party holding the mortgage on behalf of the mortgaging parties would ever initiate suit...  am I missing something here?

PS, I'm sure that in the world of "we're just dumping this on the GSEs" many of the formalities have not been followed...  e.g. I searched for the mortgage of my fiance and it had not been filed months after closing...  need to look at that one again.  Not that it matters as to the parties to the contract...  just affects priority.

Thu, 07/29/2010 - 13:50 | 494433 Mako
Mako's picture

"It doesn't make any sense to me that the party holding the mortgage on behalf of the mortgaging parties would ever initiate suit...  am I missing something here?"

A trust is formed, trustee or nominee moves in to collect... which is violation of FDCPA.

They are all "debt collectors"... including the attorney. 

If the holder in due course shows up then you proceed.  There is no loan given so how can they show a lose or damages... whooops..... there is no loan SEE Modern Money Mechanics by the Federal Reserve 1961.

 

Thu, 07/29/2010 - 14:15 | 494490 MachoMan
MachoMan's picture

From the earlier link, it appears someone shit the bed when drafting the assignment documents and only contemplated a transfer of the security instrument and not the underlying note...  is this what you're talking about?  Instances where the mortgage is assigned, but somehow not the note, leaving the mortgagee holding his dick?  Malpractice much? lol

I've never seen a challenge to a foreclosure suit on these grounds...  i guess as Taleb always claims, the more complex the system, the more fragile...  Who the hell would sue without standing and subject themselves to FDCPA?  Very strange...  I gues we're more traditional in these parts...

Thu, 07/29/2010 - 14:26 | 494515 Mako
Mako's picture

There are many ways to skin a cat.  I try and dismiss a suit as quick and easy as possible.  One time the opposition forgot to sign the complaint.

Thu, 07/29/2010 - 15:04 | 494627 MachoMan
MachoMan's picture

Easily and liberally amended...  We have the "gentlemanly" practice of law around here...  gloves on...  let cases go to their merits...  of course, the old breed is dying and everyone thinks they're practicing law on tv nowadays... 

Thu, 07/29/2010 - 15:34 | 494729 DarkAgeAhead
DarkAgeAhead's picture

Yes true but the SOL is either the attorney's nightmare or a really good friend.  My issue was with attorneys that would, in a gentlemanly way, agree to waive certain procedural violations by the other side that create adverse consequences for their client.

To me, that's malpractice, not professional courtesy.  Excellent moniker, by the way.

Thu, 07/29/2010 - 16:07 | 494833 MachoMan
MachoMan's picture

I've never witnessed another attorney waive the SOL to an adverse party without consideration for the client.  For example, I have been in situations where there are multiple parties, e.g. former owner, bank, and purchaser at foreclosure sale, and in order to keep a unified front, we (representing the purchaser at foreclosure) enter an agreement with bank (handling the foreclosure sale and allegedly not keeping up with all the necessary statutory formalities) to stay the statute of limitations period until it is determined whether the prior owner has a legitimate claim.  In that situation, the bank got a much better chance at beating the case against former owner in exchange for having to deal with us later if former owner gets to redeem the property.

To practice the gentlemanly practice of law does not mean to leave your client's interest to the wind...  It generally has to deal with quibbles over discovery requests, hearing dates, deposition dates and conduct, etc. 

Thu, 07/29/2010 - 22:32 | 495471 DarkAgeAhead
DarkAgeAhead's picture

Sure if there's a potential benefit, even if contingent, for your client, it makes sense.

And I did an inadvertent headfake with my post, from SOL to procedural violations.  I've never witnessed waiver of a SOL without consideration, but in other cases, waiver of causes of action or means to dismiss waived. 

There's a fine line there, for sure.  From the "vigorously representing" your client stuff professors talk about in law school and being a complete douchebag.

Fri, 07/30/2010 - 08:42 | 495770 MachoMan
MachoMan's picture

I see many issues routinely waived, including potential causes of action as well as means to dismiss, given rudimentary strategic considerations.  In general, motions to dismiss are complete and total failures and just milk clients for more money.  Even if you are successful, all you do is delay the merits of the case when the other side amends...  Generally, we don't waste our time nor clients' money on this...  Sometimes you actually do have a legitimate basis to dismiss (e.g. have a case where subcontractor is suing my homeowner client for the cost of materials purchased by the general contractor, but not paid for...  well, unfortunately the sub failed to exercise its rights to our lien statutes and, further, has an existing contract with the general and no privity of contract with my client, so it can go fly a fucking kite).  Some potential causes of action are so convoluted and a stretch, it's best not to raise them...  and, again, you can always amend if need be.  We routinely waive service issues in an effort to ensure our client is not embarrassed at his/her place of work, etc.

Just depends on the materiality of the defect...

Thu, 07/29/2010 - 14:28 | 494520 Payne
Payne's picture

You might be able to avoid eviction however the home will have a cloud on Title.  That means it cannot be sold in normal terms.  That means it has little value.  I am not sure that if you tried to sell the property that the prior lien holder would not block the sale.  No title company would issue a Title policy in the future.  These homes will be like grey patches in an neighborhood, no reason to keep up condition for resale.  Permanent rental property however can the renter refuse to pay rent claiming that you do not actually own property and have no legal standing.

Thu, 07/29/2010 - 13:49 | 494437 trav7777
trav7777's picture

This is the downside of securitization...nobody can find a fucking note.  Most don't exist and god only freaking knows who is the real owner of them.

If this gets too pervasive rest assured that the banksters will get legislative reforms passed.

Thu, 07/29/2010 - 14:12 | 494488 Mako
Mako's picture

That is only a component of the problem.  There is no loan yet your docs will state you received a "loan". 

Thu, 07/29/2010 - 14:32 | 494528 RockyRacoon
RockyRacoon's picture

I read a story some time back about someone finding stuff in the dumpster of a failed S&L.  It included all the mortgage/note documentation on mortgages and some of them had mortgage payment checks still in them that had not been deposited -- months old!

I'll state again, they deserve what they get -- nothing.

Thu, 07/29/2010 - 12:59 | 494336 greyghost
greyghost's picture

mako,

you should write a post pointing people in the correct directions on this legal matter. being federal law does that prempt "all" state laws...etc.....etc? what kind of lawyer would specialize in this field? is this the same thing that the kansas state supreme ruled against the debt collector????

Thu, 07/29/2010 - 15:01 | 494601 MachoMan
MachoMan's picture

From reading the yahoo group posted above, here's my take on the standing issue.

Effectively, you need a little background in how loans are handled to even "know" you might be getting hornswaggled.  Simply put, you get a home loan at local bank X.  Well, X doesn't want your stink on its hands so, it sells your loan (your future payments) to a third party, government teet Y.  However, bank X keeps the ability to service your loan, meaning you keep paying bank X, despite government teet Y actually owning the note.  (you probably got a letter in the mail about this assignment).

When it comes time to foreclose and boot your sorry ass out of there, if bank X is the one foreclosing, it does not have the right to do so because it has signed away such right.  Although it is obviously more complicated than this, it must be government teet Y who forecloses.  (the loan is often sold to a "loan trust" the profits of which are sold to investors and it is actually the investors that must bring the suit; you probably won't get any notice about this).

To add insult to injury, sometimes the documents transferring the interest between X and Y get drafted poorly and do no accomplish what the parties had intended.  In other words, it may be unknown who the rightful party to bring suit against you might be...  the party who has right to the mortgage may not have been transferred any interest in the note and, as a result, will not have standing to sue you in foreclosure.

Thu, 07/29/2010 - 15:24 | 494700 Rusty Shorts
Rusty Shorts's picture

When I bought my house and property, I signed the loan papers with bank X, about  six months later, bank Y (Chase), sent me a monthly payment notice and a letter explaining that they had bought my mortage from bank X...I have not signed any contract with Chase, nor would I ever, this is why I used local financing, so were does this leave me??? (I'm current on payments by the way)

Thu, 07/29/2010 - 15:46 | 494767 MachoMan
MachoMan's picture

Who knows.  You never know until you conduct diligent discovery...  Standing is simply something you need to allege in your initial responsive pleading (e.g. answer subject to motion to dismiss) and follow up with a motion to dismiss and/or motion for summary judgment.

I suppose you could ask the bank for the documents...  good luck with that one though...  and, asking may tip them off...

Thu, 07/29/2010 - 15:59 | 494806 JLee2027
JLee2027's picture

My loan is recorded twice through MERS with JPM and then Credit Suisse listed as "Investors" (refinances).  There is a third party servicer who I send payments to.  Where do I start to get more info as to who owns the loan.

Thu, 07/29/2010 - 16:18 | 494861 MachoMan
MachoMan's picture

Who cares?

My guess is that they are not going to volunteer the information...  not sure what rights you even have to request it (depending on who it is you might try the FOIA, but I'm sure there's a carveout).  You can always call customer support...  my guess is that you'll run into a wall of "confidentiality" and be given the weenie.  Ask for a redacted copy if they won't budge. 

These issues are typically presented AFTER parties default...  not proactively in the hopes of defaulting...  if you are ridiculously underwater and the financial institution is going to go after you for the deficiency, then maybe it's a good idea...  otherwise, you're pissing on the wrong fence. 

In other words, this is to be used as a shield, not a sword, given you have no idea whether the other side will bring the suit by the correct party and boot your defaulting ass onto the street...

Thu, 07/29/2010 - 17:25 | 495019 JLee2027
JLee2027's picture

Thank you.  

Any which way to screw with the crooked at JPM temporarily blinded my senses. 

Thu, 07/29/2010 - 22:33 | 495476 DarkAgeAhead
DarkAgeAhead's picture

That's a difficult thing to resist, certainly.  I've had that challenge more frequently of late dealing with different levels of goverment.

Fri, 07/30/2010 - 08:51 | 495794 MachoMan
MachoMan's picture

but yet those chuckleberries aren't subject to our deleveraging process...  every once and a while, you find a government agency with its shit together...  who the first person you talk to can actually help you with your request...  but, in general, the whole fucking lot of it is completely worthless and even supervisors and managers are completely ignorant.  Corporate america has survived on trimming fat for a couple years...  no telling how long governments of all sorts could last on fat trimming (despite the feedback loop).

Thu, 07/29/2010 - 14:22 | 494510 John Bigboote
John Bigboote's picture

I am sure this has all been cleared up in favor of the banks within the healthcare or finreg bill. I am sure someone will stumble upon it in the many thousands of unread pages.

Thu, 07/29/2010 - 14:52 | 494584 old_turk
old_turk's picture

Seek competent legal advise from a real estate attorney in your state.

What 'works' some places ... does not work in others.

Each state has there own rules and precedents, be sure you know ... because your lawyer really does!

Thu, 07/29/2010 - 12:43 | 494306 Cognitive Dissonance
Cognitive Dissonance's picture

Been happening for years IF you know what you are doing.  The price is $0.  I helped two people several years ago that couldn't pay, they sustained their rights and fought back against the "debt collectors".  Statute of limitation has expired on one and the other one is within a few months of expiration. 

 

There was no loan, nor could there have been one.

I always think of the following when I see your comments Mako. :>)

Bald headed boy in "The Matrix":

"Of course, you can't bend the spoon (dissolve the mortgage loan) with your mind. That would be impossible. Instead, consider there is no spoon (loan)."

 

Thu, 07/29/2010 - 14:34 | 494533 RockyRacoon
RockyRacoon's picture

(Chuckle...)  Read my post above.   I had proof there was no spoon!

Thu, 07/29/2010 - 11:09 | 494100 tempo
tempo's picture

Treasury can tax and confisicate trillions;  therefore US Treasuries will never default.  Therefore 10 yr Treasury rates will go to 2%.  Deflation is everywhere.....abandoned/vacant strip malls and plants, 25% unemployment for those under 25 years old, 45 mm on food stamps, housing prices declining, consumer debt as percent of income at near all time high; $20 billion Ca. State deficits.   Excess production everywhere in the world.   More and more power will shift to Washington DC because thats the only place that issue bonds and spend to keep the union from collaspe.

Thu, 07/29/2010 - 16:01 | 494812 JLee2027
JLee2027's picture

It's all temporary pending hyperinflation.

Thu, 07/29/2010 - 11:16 | 494125 snowball777
snowball777's picture

Wake me up when it converges with the discount window rate.

Thu, 07/29/2010 - 11:42 | 494179 Not For Reuse
Not For Reuse's picture

it'll be exactly like retailers squeezing margins down to zero. As CC fees approach 100% of gross profit you reach an inflection point where it's better for most businesses to just drop all CC business completely and deal locally in cash at a lower volume.

same thing with FRN; as long rates converge with fed funds, spreads will approach an inflection point where banks are sponging off such a ridiculous % just to supply FRN to the masses that it will make more sense for most people to drop the FRN as a medium of exchange altogether and deal in local bills.

Thu, 07/29/2010 - 11:18 | 494131 peaceful
peaceful's picture

meanwhile back at the ranch the xlf is setting up with an inverse h/s pattern

 

Thu, 07/29/2010 - 11:24 | 494142 Atomizer
Atomizer's picture

sniff sniff. Someone pass me a tissue.

Thu, 07/29/2010 - 11:28 | 494145 Rockfish
Rockfish's picture

What better way to prop up failing home prices than with taxpayer sub-rates.

Thu, 07/29/2010 - 11:34 | 494163 Caviar Emptor
Caviar Emptor's picture

For those who doubt the deflation story and think 4.95% is too low:

 

McDonald's sets new low for bond interest rates


By CHRIS DIETERICH 


Of DOW JONES NEWSWIRES 

 


NEW YORK -- McDonald's Corp. (MDC) raised $750 million in the bond market Wednesday, paying what its deal manager said was the lowest interest rate of any U.S. company in at least 15 years

 

Thu, 07/29/2010 - 13:32 | 494393 Ignatius J Reilly
Ignatius J Reilly's picture

I'm not saying, I'm just saying.

Let's suppose you are a very wealthy entity with cash (or gold) on hand.  Would a bank or an bond holder want to lend you money if you don't need it?  Maybe even at a ridicules rate just to get back some return on that fractional lending.

 

What do you do with that money, accumulate assets that are under-priced maybe?

Government would want you to do it.

Economists would want you to do it.

Stock market would want you to do it.

What's wrong with that, right?

 

Maybe McD's should go into the landlord business?  If only FNM could produce the documentation?

 

No moral hazard from McD's owning your home is there?  I mean that's like the government owning your home, what could be wrong with that?

(Sorry, maybe my tinfoil hat is too tight.)

Thu, 07/29/2010 - 11:38 | 494170 ZeroPower
ZeroPower's picture

This is actually quite reminiscent of '06 (before people started realizing in '07..) of uber-low mortgage rates. Not so much a 1yr teaser this time as a full on flat rate.

Since mortgage brokers work on commission, they themselves are enjoying the bonuses while the co's they work for are on the hook for billions which won't be showing up as +CFs on their 10Qs

Thu, 07/29/2010 - 11:49 | 494195 docj
docj's picture

We dumped $3.6T of new debt into the system and all we got was a 4.54% (and dropping) long mortgage rate... and this lousy T-shirt.

Thu, 07/29/2010 - 12:55 | 494321 Red Neck Repugnicant
Red Neck Repugnicant's picture

Without the Treasury/Fed intervention in the mortgage market, that lousy shirt would have been the only thing in your drawer. 

Mortgage rates would have zoomed to 20%, housing would have plummeted to zero, banks would have immediately imploded, and a viscous deflationary vortex would have careened through this country like an asset destroying tornado.  A Great Depression 2.0 would have sucked the life out of this country.

I know..I know...many of you anarchists with armageddon death wishes want that thrill. Perhaps many of you - with your guns, ammo, and backyard farms - would have been prepared for urban warfare, but the American Idol population would have been decimated. 

The Fed/treasury gave you much more than a shirt, my friend. 

 

Thu, 07/29/2010 - 13:17 | 494355 docj
docj's picture

Knew you'd out yourself sooner or later, Benron.

Thu, 07/29/2010 - 13:19 | 494366 Rusty Shorts
Rusty Shorts's picture

 - for the most part, housing will not plummet to zero, albeit, housing may plummet to a fraction of today's balloon funny money, but shelter, (and land) will always have some intrinsic value worth fighting over.

Thu, 07/29/2010 - 13:27 | 494383 traderjoe
traderjoe's picture

I don't think the story is complete yet. We'll see what happens next...

Thu, 07/29/2010 - 13:54 | 494443 trav7777
trav7777's picture

This is simply wrong.

the market sets the pricing of interest rates via the aggregate demand for credit.

This is why booming areas have higher rate regimes, because they CAN.  If you were a banker in a town and NOBODY wanted to borrow, what would YOU do to move your product (debt)?

Drop rates.  That is what is occurring.  Aggregate economicalness of the USA or developed west does not and CANNOT support a 20% rate.  There is precious little demand for credit at 5%, how much would there be at 20? 

Thu, 07/29/2010 - 14:35 | 494538 Red Neck Repugnicant
Red Neck Repugnicant's picture

No. It's not wrong. 

I agree that the market sets rates, but if you remove a buyer who is responsible for gobbling up several trillion in a particular product, that product would crash in value, and the market would respond accordingly. In housing, the fed is the market.  Without the fed/treasury, there would be no market for mortgage backed securities, unless the yield was utterly whacked out.    

Without the fed/treasury intervention, banks would have burned to the ground and it would have rained pianos on main street, as house prices collapse in value. Banks weren't even lending to each other, so what makes you think they would make a reasonable loan on a crashing asset in the midst of a deflationary vortex?

There would have been no market, unless prices and rates moved to whacked out extremes.

Why do you think the fed/treasury intervened in the first place?  Because rates would have been a little high?   

Thu, 07/29/2010 - 15:27 | 494705 Red Neck Repugnicant
Red Neck Repugnicant's picture

One other thing...

Unless you live in Candyland where lollipops hang from trees and rainbows are seen in every direction, the normal laws of rates and prices were trumped by the laws of survival in early 09. Without the extreme measures taken by the fed/treasury, your textbook Candyland economics would not apply.  

Otherwise, in a normal functioning environment, I agree with your post. Without a doubt, 20% is an unsustainable, retarded rate which does not reflect normal laws of economics.  But keep in mind, we were running from pianos falling from the sky.

Thu, 07/29/2010 - 16:36 | 494908 faustian bargain
faustian bargain's picture

The Fed created those pianos in the sky in the first place. It's a castle in the air and gravity will have the last laugh.

Thu, 07/29/2010 - 15:31 | 494722 MachoMan
MachoMan's picture

Just out of curiosity...  What happens to the market when the FED/GSE dumps the MBSs?  Your proposed solution is temporary at best...

Further, the FED intervened because someone had to pay off the TBTF for their failed investments.  The guise was the underpinning of the housing market.  As trav stated, the interest rate has nowhere to go but down...  to some level where there is a smidgen of demand.  Your proposal is a farce.

Thu, 07/29/2010 - 19:40 | 495266 Red Neck Repugnicant
Red Neck Repugnicant's picture

@ mr savage

What happens to the market when the FED/GSE dumps the MBSs?

Everyone has a tendency to believe that it's some sort of doomsday scenario, where the fed dumps the MBSs and creates total chaos.  Why can't they be unwound orderly in due time?

...the interest rate has nowhere to go but down...  to some level where there is a smidgen of demand...

I agree that interest rates will fall to meet anemic demand, and that normal rules of supply/demand will take over; but that is only because the credit markets have been sedated with endless fed liquidity.

The 20% rates (or whatever the exagerrated rate would have been) was in reference to a scenario where the fed/treasury did not buy the trillions in MBSs during a time of extreme financial chaos that we saw in 08/09. 

Had the fed/treasury not intervened and those banks with trillion dollar balance sheets were allowed to implode, the remaining banks would have hoarded their cash and only issued loans at absolutely outrageous rates, if at all.

Whether you want to admit it or not, the fed/treasury saved the system from immediate collapse.  Had it collapsed, rates would have shot to the moon. 

Thu, 07/29/2010 - 22:22 | 495462 MachoMan
MachoMan's picture

You're saying that institutions would have asked prices they knew they could not get anyone to nibble...  that doesn't make any sense.  They would have simply imploded...  I don't know what you're arguing...  some type of ultra technical 1 day interest rate hike...  argue the rule, not the exception.

Further, what kind of timeline are you talking about?  You believe in magic?  In perpetual motion?  Well, contrary to popular belief, the fed does not have a magic machine that runs on our misery...  close, but no cigar.  The GSEs and FED are going to implode with nonperforming assets.  The ability and political will to keep them afloat is waning.  They have a VERY limited lifespan.  At least make a falsifiable hypothesis...  what is your timeline?  Mine is 6 months to 3 years...  for the fed to have an orderly unwind, you're talking a lot longer than that...

Thu, 07/29/2010 - 14:20 | 494499 Strider52
Strider52's picture

but the American Idol population would have been decimated

  And this is bad why?

Thu, 07/29/2010 - 14:21 | 494502 Caviar Emptor
Caviar Emptor's picture

Can't have it both ways, my Repugnicant friend. Either government is small or big, laissez-faire or hands on, spends big bux or not. We're now in the era of "Big Government Republicans", a new direction for GOP. Many candidates this fall are gonna soft pedal the "don't spend" platform since many constituents feel that what's left of their net worth hangs on more future government largesse and safety nets. They learned about "market fundamentalism" in 08-10. Best campaign platform for November : " More Sugar!"

Thu, 07/29/2010 - 15:07 | 494635 docj
docj's picture

We're now in the era of "Big Government Republicans", a new direction for GOP.

Though you're certainly correct as to The Stupid Party's likely direction going forward, there's precisely nothing new about it at all, honestly.  Unless you think 2001-2009 (Medicare Part D, NCLB, etc. etc. etc.) were somehow "small, laissez-faire" government incarnate.

Thu, 07/29/2010 - 11:50 | 494200 Jim in MN
Jim in MN's picture

Mind if we add some Police State insult to that Police Market injury, brokers?  K, here:

http://www.reuters.com/article/idUSTRE66R43L20100728

 

Mortgage brokers to be fingerprinted and registered

 

 

Thu, 07/29/2010 - 11:59 | 494216 hidingfromhelis
hidingfromhelis's picture

Real estate agents as well (WA State):

http://www.dol.wa.gov/business/realestate/brokerslicense.html

"If you haven’t sent us your fingerprints in the last 6 years, have your fingerprints taken. Take the fingerprint card you received at the testing center to any fingerprinting service approved by the Washington State Patrol."

Thu, 07/29/2010 - 11:57 | 494213 ZeroPoint
ZeroPoint's picture

I swear I am in the Matrix. Here we are where the government is so desperate to offload overpriced houses now in its possession, which no one can afford to buy, that they are practically paying qualified buyers to make a 'purchase'.

At the same time, banks have taken an entirely different strategy of simply hiding the defaults, as reported yesterday, to keep their stock price artificially inflated, while any insolvency problems were promptly provided for by the tax payers via bailouts.

How much longer can this go on?

 

 

Thu, 07/29/2010 - 13:22 | 494375 Sancho Ponzi
Sancho Ponzi's picture

I was looking through foreclosures in my area and found a property where the bank took ownership in 2005, and it's just now going to auction. It was worth about $1 million, and the bank has been sitting on the property for 5 years!

Thu, 07/29/2010 - 13:39 | 494408 jkruffin
jkruffin's picture

Imagine all the critters living in that sucker after 5 yrs and you know the bank hasn't done anything to keep it up. Probably wood rot and termites everywhere by now, and probably some nice healthy MOLD to boot.

Thu, 07/29/2010 - 13:43 | 494425 jkruffin
jkruffin's picture

I have a loan at HSBC, that I haven't paid since Jan that doesn't even show up on my credit report.  The entire loan doesn't show up, like it doesn't exist.   Reggie wrote about this yesterday, and from what I can see it is true.

Thu, 07/29/2010 - 12:15 | 494258 trav7777
trav7777's picture

no demand for creditmoney=price drops on it.

Simple as that.

Proves that currencies have NO intrinsic value either, they are merely supply and demand instruments, something I've been saying for a decade.  Interest rates are a reflection of the supply/demand metric on debt.

There's a huge supply overhang of available debt, but not a lot of demand; consequently, price falls.

Thu, 07/29/2010 - 18:14 | 495135 ozziindaus
ozziindaus's picture

But even currencies with intrinsic value (gold backed) are susceptible to bubbles. (check 1890's housing bubble)

http://www.ritholtz.com/blog/wp-content/uploads/2008/12/case-shiller-cha...

 

Thu, 07/29/2010 - 12:17 | 494261 John McCloy
John McCloy's picture

  The majority of those who could afford and were going to refi have so already. I cannot imagine these low rates spurring purchases simply because the problem is not with rates but with the pricing of housing still. We have at least 60% left to go in many markets to the downside. The counted housing inventory is only going to grow as the job loss increases, HELOC defaults and were are not even considering the shadow bank held inventory.

     People should really consider selling their home at this point if any equity remains because when this inventory is unleashed out of panic the haircuts are going to be swift. Early 1980's pricing is when a bottom should be reached in housing. What frightens me are those who so their home equity triple in that period and prior using their home as an ATM machine. We may have people who have purchased homes for 40K-75K and saw their homes valued at 250k+ just a few short years later tacking on 150k+ or more in debt on housing renovations and taking on debt to pay their children's tuition as those costs inflated expecting the home would double again in a few short years.

    There is no model for this kind of easy credit lunacy unchecked especially when record job loss is in the mix, potential pension haircuts if austerity emerges. Anyone who thinks we have bottomed clearly is not connecting the dots.

Thu, 07/29/2010 - 12:35 | 494295 DarkAgeAhead
DarkAgeAhead's picture

It's like a Kramer ad continuing for days on ZeroHedge.

Thu, 07/29/2010 - 13:19 | 494367 RF
RF's picture

Dark, good morning.

 

Firefox has a dandy plugin called "flashkiller" which eliminates Cramer's annoying face. That way, one can enjoy ZH without the ads. You can donate money to the cause to offset the revenue loss (or to salve your conscience.) Has the added benefit of making such ads less relevant while still helping keep the site online.

 

Downside is, it's Firefox.

 

Best regards,

RF

Thu, 07/29/2010 - 14:07 | 494470 Sancho Ponzi
Sancho Ponzi's picture

There's AdBlock if you're running Chrome. If you block all ads, you may want to throw a little money ZH's way, or buy a ZH t-shirt.

Added: Works with Safari as well

 

Thu, 07/29/2010 - 14:11 | 494485 DarkAgeAhead
DarkAgeAhead's picture

RF,

That's appreciated, as I am seeing double Cramer as I type this.  I'll be downloading flashkiller, and perhaps donating as well.

Thanks for the advice, and for being well.

Thu, 07/29/2010 - 18:04 | 495116 ozziindaus
ozziindaus's picture

According to this http://www.marketoracle.co.uk/Article21430.html, we have a decade left of declining values due to the shadow inventory. 

I do however anticipate a reported 10-15% price increase over the next few years as the second wave of a multi year down turn.  

Thu, 07/29/2010 - 12:22 | 494273 CynicalBear
CynicalBear's picture

How long can this go on?

It can stay irrational longer than millions of homeowners can stay solvent.

Thu, 07/29/2010 - 12:29 | 494284 Ripped Chunk
Ripped Chunk's picture

Spreads shrinking to Happy Meal size.

Fees that can't be passed on to borrowers increasing.

Clawback on loans because of a $14 error on the TIL.

Industry crushed.

4 or 5 banks now doing all lending.

Great for the consumer!!!!

Thu, 07/29/2010 - 13:37 | 494403 Grand Supercycle
Grand Supercycle's picture

DOW daily chart posted at blog, showing two megaphone wedges . . .

http://stockmarket618.wordpress.com

Thu, 07/29/2010 - 13:57 | 494452 trav7777
trav7777's picture

People people...

When car sales flag, what do the credit arms do?  They LOWER RATES to try to entice people to borrow.  They drop the COST of borrowing.

That is what is occurring.  The market decides what rate it would like to borrow at.  The Fed follows the market.  It can market-make ONLY in a climate of excess demand.  It can throttle or attenuate credit growth rate via adjustments.  But in this stagflationary or contractionary climate, seriously...this type of situation, the "liquidity trap" is not discussed, acknowledged, accepted, in mainstream (orthodox) economic theory.

Thu, 07/29/2010 - 17:58 | 495102 ozziindaus
ozziindaus's picture

Right on. The cost of money (%APR) is a function of risk and anticipated inflation. Only the market can determine what this is and no single entity or collusion amongst a conspiratorial group can trump it. The Fed obviously knows this. 

Thu, 07/29/2010 - 14:35 | 494539 Caviar Emptor
Caviar Emptor's picture

We're way off the rails of any "free market forces" after 3 years of non-stop Fed and world central bank intervention. The decision was taken squarely Against market fundamentalism after Lehman Bros crashed. That little affair and the subsequent near-death experience in global credit, equity and commodity markets, got resolved only when Hanky "Free Market" Paulson did a 180 and intervened on a massive, unprecedented basis with TARP, TALF, FX Swap lines, emergency credit and capital market support facilities. Extending even Zero Interest was not enough alone to stimulate borrowing let alone economic activity.

Thu, 07/29/2010 - 17:53 | 495081 ozziindaus
ozziindaus's picture

Don't know if anyone has already mentioned this but lower rates are only going to escalate strategic defaults, out of spite, on underwater mortgages locked into higher rates prior to the bust. Banks aren't negotiating and HAMPster can't assist those who feel they are pissing a few hundred $'s more each month while keeping payments current. Those who defaulted and short sold in 2008 are reentering the market for a second chance, or possibly a second slaughter in the advent of the 90+% shadow inventory release but regardless, they are given a second chance. 

It blows my mind that you have to be in default before they will even consider working with you. 

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