Fed Unintended Consequence #267435: Homeowners Front-Running QE By Not Refinancing

Tyler Durden's picture

For the fifth week in a row, MBA mortgage applications fell - dragged lower by a notably consistent drop in the refinance index - which dropped 3% this week alone and represents almost 80% of the total number of loans. Surely if rates are rising - as they have in general in the last few weeks - we would expect the 'rational homeowner of olde' to rush to his friendly local mortgage broker and refinance immediately for fear of missing the turn and the 'opportunity of a lifetime' to lock-in low rates.

Unfortunately, just as retail equity investors appear to the be the smartest players in the room as they sell into strength, so the homeowner has now become conditioned by the Fed's central-planning and repression to expect rates to remain low - and QE3 to be implemented later in the year - and therefore will wait for the 'expected' lower rates rather than accept a periodically rising rate. Yet another unintended consequence that hints at the fact that should we see 'real' recovery (we know, but go with the thought experiment) then higher rates will act as a drag on a burgeoning mini-stimulus from refinancing and normalize us back to lower growth.


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Concentrated power has always been the enemy of liberty.'s picture

the Bernank is a psychopath

dlmaniac's picture

I front-run FED by spending my would-be-mortgage-payment on gold and silver.

Stock Tips Investment's picture

The market is clearly nervous. Any news in relation to Europe, China and U.S. obviously causes a rapid reaction of small investors and consumers. In recent months we have seen a lot of short-term movements and these continue.

JohnKozac's picture

Gold up 230% while houses down 30%.

So how much lower will houses be at the point when gold has jumped jumped another 200% ?

Will houses sink another 30% ?

40% ?

50% ?

Comay Mierda's picture

refinance now

dont buy though

interest rates will spike when petrodollar reserve currency status ends

i dont care what they say about zirp. the dollar is dead and spiking interest rates will be necessary to put a floor on the collapse of the dollar

the whole world knows that the fed/primary dealers have been financing 100% of govt deficits since 2008.  pure funny money

also interesting to note that credit created for the federal govt is 73% of ALL credit creation in the last 5 years (see fed reserve z1 report)

obama cant wait to scapegoat "capitalism" when the dollar collapses. and they will say no one saw it coming

buy gold bitchez. it is the only asset class that has outpaced the % increase in total credit outstanding (FRN creation) since 1971

Henry Chinaski's picture

A refi makes the most sense if you plan to remain in debt. 

A while back, I looked at refinancing a 30yr mtg (27 remaining) @4.75% with a $325k balance at a new interest rate of $3.375%. Instead of paying the banksters $7k closing costs up front for the priveledge of increasing the debt and extending the term back out to 30 years, I lowered the interest expense, shortened the term and lowered the debt by paying down about 1/4 of the principal.  Your mileage may vary.

Comay Mierda's picture

good call. i was thinking just in terms of interest rates. but yes, the closing fees can make a refi not worth it

Henry Chinaski's picture

Every situation is different.  After running the numbers on my alternatives the answer was obvious.  The important thing is to consider the alternative of paying down principal if that might be an option for you.  It is easy to fall into the either/or (refi/do nothing) trap, and not look at other alternatives.   

Probably the most important factor in a refinance decision is the length of time you plan to carry the debt.  If you plan to move/buy/sell in a few years or less, there won't be much benefit to monkeying with the mortgage.

deez nutz's picture

A refi makes the most sense if you plan to remain in debt.

I would have offered more interest to any banker giving me the most equity for the re-fi.   Then I would have bought gold.   In 5 years you walk into the same bank and hand the teller 1 bullion bar you bought with your equity and pay that mortgage off.  Fiat does have some advantages.

I am more equal than others's picture

print bitchez, inflate all physical assets!!! Bring it.  NOT


No, physical assets won't inflate with hyperinflation.  Infact, they do quite the opposite.  Wiemar shows us real estate values dropped 80% in some cases.  Choosing between eating and buying - pay for real estate - most will opt for eating.  What fool would sell real estate knowing the nominal value can be paid back in inflated dollars.  No.  Real estate will suck when hyperinflation takes hold and when interest rates are increased to combat inflation you'll see a -7% change in value for every 100 basis point change in interest rates.  Buy gold/silver. 

Comay Mierda's picture

exactly!  its a myth that residential real estate does well in hyperinflation.  when ppl are starving they wont pay their mortgage.  plus banks wont lend until interest rates skyrocketing and currency turmoil comes back under control or the currency gets revalued.

if you buy gold/silver now, wait til the end of the hyperinflationary crisis, you will be able to buy INCREDIBLE real estate deals.  truly once in a lifetime deals.  but the USA will become the USSA so there will be much more political risk you will have to deal with.  

JohnKozac's picture

<< Every situation is different>>

Yu are correct. My buddy looked at re-fi of his $780,000 mortgage on his house (now valued at $420,00).

The bank said fine but you need t0 put up $400,000 toward the refi of that $780k.

Since he is thinking of "just walking away" at this point....he told them "no thanks."

LongBalls's picture

All you have to do is watch what is going on in Europe to understand what will happen in the U.S. The Fed will cap interest rates at 1% untill the new system is settled on. When we get there....i will refi. Thats if gold will not pay off my house or afford me some land elsewhere.

LawsofPhysics's picture

print bitchez, inflate all physical assets!!!  Bring it.

bdc63's picture

I don't see how the FED could possibly launch QE3 with WTI crude nearing $100 again, and the stock market approaching all time highs ...

eclectic syncretist's picture

The stock market is up on the fumes of inflation my friend.

Super Mario said he will push inflation until the euro is worthless unless someone stops him. 

Bicycle Repairman's picture

There is a large "war margin" built into oil, and demand for gasoline continues to drop worldwide.

The stock market must move up @ 8% per annum or the pensions go ka-boom. 

That being said it is the ECB's turn to print, IMHO.  The FED will follow on after November.  If for no other reason than the "fiscal cliff" will have to be offset.

AurorusBorealus's picture

In the U.S., it is always about the crude, and you are right.  How can the Fed continue to ease monetary policy in the face of rising oil prices and warmongers rattling sabers for a full-on conflict in the Middle East?  The short answer is... they cannot short of another Lehman moment, which, given the massive black holes of debt sucking so much liquidity out of the system, is just around the corner.

adr's picture

Gas going above $4 means Obama is toast and you can froget about the holiday shopping season. Good luck selling the iPhone5 when nobody will pay to drive to wait in line.

Bicycle Repairman's picture

I initially thought that gasoline over $4 meant the end of Obama.  But the Republicrats candidate is so unappetizing I think the number is now $5.  So Romney has got to get the Israelis to rattle their sabres a little louder.

kito's picture

its a good thing you are a bicycle repairman, that skill will be quite valuable should israel strike iran................

Bicycle Repairman's picture

I have no intention of moving my shop to the middle east.  I could be wrong, but a strike by Israel at this time would be suicide for the entire middle east, IMHO.  So it ain't happening.  Sabre rattling, on the other hand, has it's uses.

Nevermore Peabody's picture

Sabre rattling, on the other hand, has it's uses.


Is that where Bernank and Drahgi stole this from? Israel's playbook?

icanhasbailout's picture

Food and fuel are specifically excluded from the computation of the official inflation rate.


Thus, the wise central planner manipulates in such a way as to push as much of the impact of inflationary printing into those two categories, where they can deny it exists. Brilliant!

koaj's picture

ive refi'd twice in the past year. knocked 20% off my original minimum mortgage payment started in november 09


i figure ill wait for europe to implode before i do it again

koaj's picture

When you continue making your normal monthly payments even when you get the refi month "off" you pay down a ton more principal. over the life of the loan, the smaller amount of interest accrued will greatly outweigh the minimal fees i paid (less than $500). also overpaying each month will knock the mortgage out in much less time. instead of paying interest, i pay principal


plus with the extra cash each month, i buy a little silver. works out in the end

adr's picture

and you've lost every dime you paid so far to your mortgage over the past three years. You might save 20k in interest over the lifetime of a loan when you refi from 5% to 4.25%, but two years of $1,000 mortgage payments is $19k down the drain after the refi, since you only paid about $5k of actual principal.

Not to mention the $4k average in closing fees. So your finance skills have actually put you in the hole over the long run. The bank must love you.

Unless lowering your monthly payment without caring about total cost is your only goal, following your path is just about the stupidest thing a person with a mortgage can do.

Kind of like a person that takes the 96 month 8% interest loan on a car because the monthly payment is lower than the 36 month 0% loan.

Dr. Richard Head's picture

I kept the term (25 years left on a 30 year mortgage at 6%) the same on my refi (25 year term to 4%) save 10% on my monthly loan payment.  When addind the ammortization on the original loan and the refi loan, I found that total payments (including the closing fees) was some $70K less on the refi over the original.  As long as term isn't added, a nice savings can be had both immediately and over the term of the loan.

Of course, the payment is still going down the toilet as 26% of the value of my home has gone to shit.

serog's picture

You sound like you know what you're doing and I'm sure you know this but i'll say it anyway.  Banks aren't looking out for you.  Ever.  If it sounds too good to be true...

Dr. Richard Head's picture

What the bank gained through me signing a new note was me also signing a document that allowed them to rehypothicate my note over and over again. 

Also, the funny thing is that the "savings" alloted to me through this refi have already been eroding as property taxes are somehow raising, along with my homeowner's insurance.  Color me surprised, as there is NO inflation.

Turin Turambar's picture

Hey Einstein,

Why don't you keep your dumbass comments to yourself.  I've personally refinanced several times over the years and have done it at ZERO cost.  Now in case you think I don't know what I'm talking about, I own a mortgage company.  ZERO was added to principal balance on refi.  I've done this very same thing for loads of customers over the last couple of years.  Even those who don't take a little higher rate, which is lower than their current one, in order to recieve a lender credit offsetting all refinancing costs can do a COST BENEFIT Anaylysis and come out ahead.  Are there people who have refinanced that probably shouldn't have?  Sure.  Still, it might be wise if you'd refrain from projecting your ignorance onto other people's decisions, the details of which you haven't a clue.

You're probably a Krugman fan judging from your intellecutal prowess.

tahoebumsmith's picture

Riddle me this TT... What will your entire industry do when the rates tick up say a mere 2%? Answer, NOTHING! Having rates so low for such an extended period of time will pretty much kill the mortgage industry when the FED is forced to raise rates to stave off a dollar collapse.

Turin Turambar's picture

Who said anything about the entire industry?  The government and the Fed have pretty much trashed it.  I was responding to an ignorant comment generalizing a losing financial situation to specific individuals, the details of whose situation the poster hasn't got a clue. 

Are your reading comprehension skills so challenged that you didn't understand the topic of the posts?

Regarding a 2% increase in interest rates, for an INDIVIDUAL, it probably won't make sense to refinance.  As for the industry, yes, demand will dry up, so there will be less loans.  Thank you for the insight, but I got the gist of supply and demand a couple of decades ago. 

viahj's picture

if mortgage rate go up 2% then that means that Ben has lost his grip on the yeild curve and we're all fucked at that point.  $16T bubble pop.

serog's picture

"Now in case you think I don't know what I'm talking about, I own a mortgage company"

Correlation does not imply causation.

Turin Turambar's picture



"Correlation does not imply causation."


You are joking right?

Do you even know what it means?  You sure as hell don't know how to apply it correctly in context.  By stating that I have a mortgage company, what exactly did I say this caused?

I'll take a guess.  Are you trying to say that just because I work in the business that that doesn't mean that I'm competent or know what I'm talking about?  Logically speaking, this is true. But if, for example, you would prefer to learn chemistry from a layman who tells you that he can show you how to turn lead into gold, rather than an accredited chemistry teacher, then that is your choice.

I hope I'm just being trolled here.  It would be a sad day to learn that the average IQ on ZH has fallen into the double digits.

analyzer_66's picture

agrred, + he is a sociopathic whore mongering job/economy killer who likes dropping babies off the empire state building

Dr. Engali's picture

Who in the heck can refinance in this market? They must have some serious equity to begin with.

serog's picture



fixed it for you

fonzannoon's picture

I bought in '07. Put down 20%. Got a refi though in '10 because of a program that allowed me to avoid pmi even though I did not have the equity because I originally put down 20%. Called my buddy up a few weeks ago who is a mortgage broker. Those programs don't exist anymore. I asked him about a refi. He had a good, hearty laugh.

serog's picture

You wouldn't qualify but HARP 2.0 is still around isn't?

Ned Zeppelin's picture

your loan has to be in trouble. 

serog's picture

No, your loan has to be current.  Underwater or otherwise.

Dr. Richard Head's picture

Shit, 5/3 bank gave me a refi with the following fact openly stated to them -

Wife no longer has income, as she lost her job. - No income.

Wife and I Sold ALL paper assets. - No "assets".

$269 house now worht $200 (more drops to come) - No appraisal.

I purposesly defaulted on Chase and BofA credit Card - Poor payment history.

No problem!  Just sign here.  Of course, they just needed to resecuritize the note, get a new note, and get me to sign a electronic transfer of title document, all so they could flip that bitch right to Fannie or Freddie within DAYS of signing. 

Turin Turambar's picture

It's a weird market DRH.  For all of the Fannie and Freddie talk, you never hear much about FHA.  FHA has been trying to plug the holes in their leaking boat for ages now.  FHA loans are no longer FHA.  What I mean by that is that its lineding standards are very different than just a few years ago.  Lending requirements have significantly tightened, which is good, but I still think FHA will eventually need a bailout, and it's not going to be a small one.

I think the last bubble we've got left is the one inflating in the equity markets.  When this one finally pops, there will be hell to pay because there will be nothing left for Bernsnake to inflate.  Things will inflate just fine without Bersnake once the dollar is rejected as the world's reserve currency. :-(

DosZap's picture

I purposesly defaulted on Chase and BofA credit Card - Poor payment history.

And the banks did not sell your written off balances to a HeadHunter?..................that will sue your ass to oblivion?.

In Texas they do, and if the NEW blood suckers will not settle for a reduced amount, or a repayment plan, your ass is in court, and the judge will decide how much garnishment comes from your pay,until it's all paid back.

NO escape, except thru Bankruptcy.

Dr. No's picture

VA loans.  No questions = no lies = refi.

yogibear's picture

It's not if but when Benny Bernanke will continue dropping money from his helicopter. It's QE forever to keep Wall Street flowing and the year-end bonuses going.

Bernanke can't have rates high it would destroy his political enablers.

Cognitive Dissonance's picture

We have all become Pavlov's dog.



Just remember.......it does not have to be this way. We hold the power. We just need to remember to remember.