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Is The Mortgage Police Losing The Battle
The relationship between the 10 Year and the 30 Year Mortgage spread and the actual level of the 30 Year Mortgage has broken down in the last week.
The correlation has dropped to zero, meaning the Fed's Open Market purchases in the critical part of the curve may be having less and less of an impact on the ever-critical mortgage rate. Did the (mortgage) vigilantes pull a fast one?
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unrelated- "They" keep looking for a fall guy in the wrong places, as usual (instead of investigating the obvious suspects):
"WASHINGTON (AP) -- A key federal regulator said Tuesday his agency must "seriously consider" imposing stringent limits on speculative trading of energy futures contracts, a move that would mark a major shift for the government."
Naughty SUgar High!
"seriously consider"? OhMy! Better increase the contributions this quarter...
haha ,"Send more money"
Losing the battle? The issue is that once joined this is a war the Fed would lose without reflation of the previous condition. I don't believe that a rapid return to 2005 in real estate is imminent making the collapse of correlation inevitable.
Well, if you are a bank and you can have 50+% margins by front running your customers or .5% margins by committing your capital to low interest loans for years to come (the securitisation of MRE seems to be dead), what would you do?
And if you are a small fish, you need that $ to keep your capital requirements in check.
Add in the potential of higher than average inflation in the distant future, and the answer is obvious. The demand for those low interest loans might be much higher than the actual supply (or will by banks to make those). The FED might not realize it, but they might have created a typical price celling issue. (remember OIL shortages in 70's?)
Thanks for this article TD. HuffPo has an interesting piece today (b'ness section) on foreclosures..
Is the Chinese Economy really booming? (or you can't make this stuff up):
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can someone please serve a chilled glass of reality to Mr. Market
Sorry for being a noob here but does this mean 30 year mortgage rates will probably hang were they are now or drop or are we headed towards a rise in mortgage rates? Trying to decide if I should lock in my rate today or wait until August 1 as closing is on august 31st and I have to choose between a 30 day lock and a 45 day lock.
Mortgage! LOL. You people just don't learn do you....
Then you expect someone to look into THEIR crystal ball to provide YOU with a perfect answer. Nice.
I'll see you either on the bread line or at the soup kitchen at which time I will provide you with the answer to your question.
My understanding of mortgage rates is that, typically, and I think we can all concede that these are anything but typical times, but typically, mortgage rates are gleaned from the 10y treasury yield, but are also a reflection of the fed's interest rate, which is now 0%. Realistically the only direction mortgages have to go is up.
But please correct me if I'm wrong, just off-base, or oversimplified.. thank you...
Good luck actually closing. I applied for a mortgage in early April and just closed on July 15. 800+ credit score, etc. I basically had to threaten them with a lawsuit to get them to the closing table (I am lawyer). In the end, with appraisers sphincters cutting diamonds these days, I had to meet a 75% LTV and cough up an additional $60K to get the refi done.
I believe that the correct phrasing of the title should read:
"Be the Mortgage Police Losing the Battle"
Oh dear... Ramp up of stocks at 1:06PM was accompanied lockstep by long yields. Got a problem, Ben?
When's it going to roll over TD? For real. Give us a little hint. You've got to be seeing some stress cracks from your vantage point and you know which cracks have the most potential. Come on TD. Leave some Easter eggs with a hint or two.
Looks like they will need to some more tweaking on the bogus indirect bid number:
"The indirect bid, a carefully watched category that includes foreign buyers, fell to 33% from 69% in the June auction"
http://www.marketwatch.com/story/treasury-awards-42-billion-in-2-year-no...
I heard all primary dealer bids from dealers not domiciled in the USA will now be considered "indirect", that's whay the Canadian banks are being allowed as primary dealers now.
Here is what is happening in the MBS market:
The Fed realizes that when it runs out of its 1.25T to buy MBS it is going to be very hard politically to increase that number, the Chinese would go apeshit.
They also know that once they use up that money, the mortgage market implodes. Expect 7% mortgage rates.
So they are taking the pressure off a bit, allowing spreads to drift up, but preserving their buying power.
My bank is ready to give me a 95% LTV loan at 5.35% conventional fixed 30 year. My wife and I have 0 debt and decent incomes and upper 700 credit ratings. They didn't seem concerned at all. I also had several homes get sold out from under me while I was trying to arrange showings. I was kind of suprised. And this is the Milwaukee suburbs.
Yes I read about that. A poll was done by realtor.org and demographically 97% of all buyers during that time frame in that market were graduates of Milwaukee State Community College.
It's a great time to buy in Milwaukee!
Of course the bank doesn't care, they won't be holding the credit risk.
I hope they aren't just yanking my chain or I will snap. :) Should know in a a week or two once the loan finishes underwriting.
Tyler, wondered if you'd looked at the Seeking Alpha comment on this post re Correlation. Be nice for us w/o BBs to see that view as well:
Hi,
Thanks for your blog, but i think that your correlation figure might not be the relevant one.
You should compute the correlation not in the price space but in the return space.
You can do that in BBG by changing your data type to Price Change 1 Day Percent ( in case of yields, it would be better to use Price Change 1 Day Net, but in the case of Custom Index, your USGG10YR Index - MTGEFNCL Index, for some reason, you cannot select it).
You will see the picture is quite different.
Cheers
HFQuan