mortgages « Citizen Economists

The Morality of Walking Away

By Simon Grey, on January 18th, 2012

Now, with the property worth roughly $60,000 less than the balance of their mortgage, Martin, 68, has been giving serious thought to just walking away, a process lenders call “strategic default.”

“Guilt and morality are one side, and objective financial analysis are on the other side,” Martin said. “They’re coming to two opposite conclusions. I wonder how many other people are struggling with the same question.” [Emphasis added.]

Actually, there is nothing at all immoral about walking away from an underwater mortgage. Yes, people (particularly Christians) are generally morally bound to pay their debts. But here’s the thing: If you default, your debts will be paid.

In a general mortgage agreement, the borrower agrees to borrow a certain amount of money at a specified price (called interest) from a lender. Since houses tend to be expensive, lenders don’t generally give out unsecured loans; in fact, lenders generally demand some type of security—also known as collateral—to secure the loan. In general, a mortgage is secured by the property being purchased with the mortgage.

This means that if a borrower misses a specified number of payments (known as default), the lender has the right to confiscate the property pledged as security as compensation for the loan. Stated another way, if you default on your loan, your lender will confiscate your pledged property. In essence, by confiscating your property, your debt is considered paid in full by the lender. You therefore owe the lender nothing, for the lender has stated, per the terms of the contract, that ownership of property offered as security will suffice as repayment in lieu of currency.

That the lender may take a loss on the loan is the concern solely of the lender. The lender has a moral responsibility to do due diligence on each loan, in order to maximize profit. If a lender fails to anticipate a declining housing market, that is his own problem. If a lender fails to anticipate high inflation, that is also his own problem. The borrower is not responsible for ensuring the lender’s profits, the lender is. If the lender is a fool, it is not the borrower’s job to save the lender from his foolishness.

As such, it is not inherently immoral to walk away from an underwater loan. If the lender contractually accepts the property used as security as sufficient for repayment, then there is no problem with using that property to repay the loan. The only question the borrower has to ask himself is which payment method is cheaper—cash or property—and act accordingly.

Note: obviously, this is a general moral guideline, not specific legal advice. Treat it as such. If you are considering a strategic default, consult with an attorney first.

Protest what?

By Christopher Briem, on October 20th, 2011

I have looked at this a lot, but never had a reason for posting about it. So now I note Bram passed on the image that highlights the conundrum going on Downtown and elsewhere as folks struggle to figure out where to focus their anger. It reminded me of what may be the ultimate financial infographic of all time. See below.

Not new, this has been floating around for quite some time at this point. I believe this is the original source, but it is hard to tell given how much the image has been passed around. This is the reverse engineering one couple did of what happened to a single mortgage as it went from the signing of their promissory note and down into the rabbit hole known as the financial markets. I keep trying, and failing, to find George Bailey in there somewhere. As much as the name and cartoons are far more accessible to the general public, this is a far more accurate representation of what is otherwise known as Toxie in other circumstances (I have no reason to think Dan and Teri are themselves anything other than good credit risks).

So let’s say you were angry over the foreclosure crisis.. where in this diagram is the center of gravity that you would vent your anger at?

Current Home Loan Trends

By B.P.T., on August 26th, 2011

With economic uncertainty continuing to hamper economic growth, inflation has been non-existent, and mortgage rates have remained low. Current rates for conforming loans have dropped below the lows seen late last year to set new record lows for fixed rate mortgages, 5 year ARMs, and 1 year ARMs.

However, many new home buyers looking for a new mortgage and existing home buyers that would like to refinance their current mortgage have struggled to take advantage of these record low rates because of stricter lending standards put in place by most banks or a lack of equity in the home.

Fortunately for people looking for a mortgage that have been unable to obtain one, there have been rumors of another attempt by the federal government to assist existing homeowners swirling around Washington, and most of the plans under discussion are more focused on benefits for existing homeowners that are expected to end the decline in home prices, rather than improving bank balance sheets or handing out credits to new home buyers. These programs are expected to help existing home owners immediately and new home owners in the long term by increasing home values, making a home a safer investment and a quality asset again.

One assistance program that has already been put into place is a refinancing program for existing home owners with little to no equity in their home. The program is for mortgages owned by Fannie Mae that were originated before June 1, 2009 without any mortgage insurance, and it will allow qualified applicants to refinance their mortgage debt (including a second mortgage) up to 105% of your current home value at current market interest rates. These stipulations do limit the pool of eligible home owners, but for people that qualify, it is a great opportunity. You can begin by determining if your home loan is owned by Fannie Mae here.

If you believe that you qualify for the Fannie Mae program described above or are looking for any other type of mortgage assistance, you should contact a lender like Aurora Loans to start the process of obtaining a new mortgage or refinancing an existing one.

Owe No Man Anything

By Simon Grey, on July 11th, 2011

Well, this is interesting:

In a June 21 response, attorneys for the church indicated the church had strategically defaulted on the mortgage after learning its real estate – a 23,635-square-foot office building housing the church – is worth only $2.375 million vs. the $7.653 million owed to the bank.

This strategic default involved an analysis of whether it made sense to use church members’ donations to pay the underwater mortgage while also trying to save money for expansion needs.

I remember arguing with a preacher once over the morality of strategically defaulting on one’s mortgage. He was of the opinion that, per Romans 13:8, we each have an obligation to pay off our debt. His argument struck as somewhat asinine (but less asinine than the argument that Romans 13:8 forbids the Christian from going into debt).

Anyway, the flaw in this preacher’s thinking was that defaulting did not lead to repayment of the debt. Most mortgage agreements work like this: the borrower agrees to borrow a certain amount of money and repay it, plus a usury charge called interest. The borrower is generally expected to offer some property as collateral. If the borrower fails to pay per the terms of the agreement, then he is in default, and the lender usually reserves the right to confiscate the collateral in order to cover the remainder of the principal. For most mortgages, confiscation of property is generally considered sufficient compensation in the event of a default (which is predicated on the theory that housing prices always go up and never come down).

Thus, the lender is essentially saying that the property offered as collateral is equivalent to the value of the foregone cash. Whether this assumption proves to be true in the long run is not the concern of the church, in this case, but of the bank that makes the loan. And if the bank’s estimation of the future value of property is wrong, it does not follow to claim that the church must repay the bank for a mistake the bank made. Furthermore, the bank has already said that ownership of the property in the event of a default essentially marks the debt as paid, so there is nothing wrong with the church defaulting on its payments in order to save money (in fact, the church would do well to default and then repurchase the property once the bank sells it).

Therefore, it is not wrong for the church to default on its loan, for it is simply making a prudent financial decision and will, even by defaulting, pay its debt. The bank, not the church, is responsible for determining market risk, and the bank, not the church, should bear the consequences of making the wrong decision.

Wanted: International Buyers of Danish Mortgage Bonds

By Claus Vistesen, on June 24th, 2011

Not too long ago, I compared the Japanese economy to a bumblebee because of the economy’s ability to keep on chucking along even as the government debt/GDP ratio stormed above the 200% mark. I am starting to think that the same comparison might be warranted too in the case of my home country.

One striking aspect of the Danish economy that any economist following the discourse on Denmark must be pondering is that despite the widespread idea that Denmark has a serious productivity problem relative to its peers, it has not yet shown up in the data. Denmark is still running a sizeable trade as well as income surplus which together adds up to a tasty current account surplus.

So what gives and can this situation be maintained?

The reason that I have been forced to think about this was today’s report by Bloomie that the Danish bank and mortgate originator Nykredit announced that it would actively seek to widen its international investor base for covered bonds backed by mortgages of which the bank is Europe’s largest holder and which contributes to making the Danish market for mortgages one of the world’s biggest.

Basically, the problem for Danish financial institutions is that under the new Basel rules, covered bonds backed by mortgages will be treated as less liquid than government bonds (and thus less liquid than is currently the case) and thus Nykredit et al will be left holding way too many of these securities. The problem in a nutshell is this;

Denmark is leading efforts to persuade the European Union to ease liquidity rules set by the Basel Committee on Banking Supervision that the Nordic country says penalize the world’s third-largest mortgage-bond market. While the EU has signaled it may accommodate some of the demands, standards scheduled to take effect by 2015 are still likely to treat covered bonds as less liquid assets than government debt, Engberg Jensen said.

“I don’t think we can totally avoid a haircut” on how banks treat covered bonds in their liquid assets, he said. “I don’t think that we’ll end up with rules where covered bonds and government bonds are equal.” This means “we need to find a broader investor base. We want to be stronger in Europe and we have also started in the Middle East and the Far East. We’ve had investors for many years in the U.S. and Europe.”

Under the new rules, banks must abide to a limit of 40% in terms of how much of the securities portfolio that can be made up by (mortgage) covered bonds which leads to the obvious result that …

“If we get the new rules, most Danish banks will have to restructure to sell mortgage bonds and buy government bonds,” Engberg Jensen said. While Danish banks have relied on the country’s covered bonds to generate liquid assets, lenders in Germany and Asia have room to purchase the securities without breaching Basel’s 40 percent limit, Nykredit estimates. The company wants to sell its bonds to banks in those regions to make up for the selloff it expects to see in Denmark, Nykredit Group Managing Director Karsten Knudsen said in the same interview.

Denmark has a problem here, a big one in my opinion and the only chart you need to look at is the following.

(click on picture for better viewing)

Despite the crisis, Denmark has not delevered substantially and mortgage debt remains a sizeable portion of GDP; 134% by my calculations in 2010. And this is mortgage debt alone and thus leaves out a large private debt burden, all corporate debt as well as a growing government debt.

It is important to understand where Denmark is here. Denmark is like Spain, Ireland and Australia with large a large private debt burden which will only really make itself felt once the government has to assume the final bill (think Ireland here). Now, at this point my compatriots would know doubt file this post under the “one flew over the (…)’s nest” folder as comparing Denmark with the countries made above seem more than outrageous. But try to get the main point here. Denmark’s main debt problem is in the private sector and given the Irish experience, once the sovereign has to plug a hole in the domestic financial system, it is the total debt that matters and not merely the government debt.

Recently, the EU commission issued a report with a stark warning to Danish policy makers that both the size and structure of the housing market with the majority of loans made up by variable interest rate and no-amortisation/down payment (often both in the same loan!) represented a current and future source of instability. The Danish central bank has even suggested to phase out these loans entirely even if it seems that such a proposal has not got political backing in the Danish parliament regardless of the result of this year’s election.

According to Bloomberg, Nykredit and others have noted that they will try to separate the way they funds their adjustable rate mortgage portfolio from their fixed rate portfolio. This is almost hilarious in its uselessness in my opinion since the main problem here is not a flow issue but a stock issue as evidenced by the chart above.

When all is said, I think you should take away the following point from this.

Essentially, if Danish mortgage originators start selling bonds to foreign investors for the obvious rational reason that they need to abide to new capital requirement rules it will mean a defacto deterioration of the current account (not necessarily a problem, just a fact when you sell securities abroad). So, the question is; how willing will foreigners be to finance one of the most overlevered housing markets in the world and at what yields?

When I run the scenario in my head, I end up in a situation where it might be quite difficult to push Danish covered bonds to foreigners at acceptable prices, liquidity will dry up and re-financing will get more difficult. In addition, if yields go up prices (i.e. house prices) will fall and exacerbate the difficulty in pushing the securities since the prices on the underlying collateral (i.e. property will go down).

Now, far be it from me to attempt to put Denmark in a club to which it does not belong but think about it for a minute. The road map for how a Danish government might be forced to issue government bonds and swap them for unsellable covered bonds in order to allow its financial institutions to abide to the Basel rules is an almost sinister way in which the Danish sovereign ultimately may end up being on the hook for the total stock of debt in the society, just as we have seen elsewhere.

Am I seeing ghosts? Perhaps, but consider yourself warned.

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What's a decimal point worth?

By Christopher Briem, on May 27th, 2011

Not new, but from Zillow and via Calculated Risk is a table of negative equity in the largest real estate markets in the US.

Phoenix: 68% of all mortgages are ‘under water’ calculated as the percentage of single family homes with mortgages where the equity value less than current market value.

Pittsburgh: 6.8%.

The disparity is even wider in a real sense. I bet the proportion of properties in Phoenix that have mortgages in the first place is higher than in Pittsburgh. If true, the proportion of homes that are at risk in a financial sense is even lower here when compared to places like Phoenix. If we further compare the $ value of how much mortgages are underwater. I suspect the 6.8% of local properties are underwater in this type of calculation have total market values that are less than just the underwater amount in markets like Las Vegas. If that type of calculation were done, I bet the disparity between Phoenix and Pittsburgh could be more like 20:1.

How The Securitization Of Mortgages Impacts The Average Citizen

By Trace Mayer, on December 8th, 2010

Trace: Welcome back to the Runtogold.com Podcast. I have with us Aaron Krowne, who operates ML-implode.com, the Mortgage-Lender-Implode-o’ Meter. Welcome, Aaron!

Aaron: Hey Trace, good to talk to you again.

Trace: Live from DC, it sounds like. So, we were talking about a little bit before the show about this foreclosure gig and robo-signing, about how it erodes the foundation for the entire securitization market. I have actually got a friend who’s a commercial appraiser and he says that that market is pretty much completely frozen; securitizing these large mortgage-backed securities, things of that nature. Can you talk a little about this foreclosure gig and about this robo-signing has affected the securitization of mortgages, and how that is going to impact the average citizen.

Aaron: Well, there’s two parts. There’s the on-going part, and then there’s what has already been securitized. I’ll mostly talk about what has already been securitized. It can be compared to when the sub-prime crisis was blowing up big. Six months or so after I started ML-impolde.com and the media started catching on, and the basic theme was that you had these bad loans, and these pools of loans, that were packaged and re-packaged sometimes and sliced and diced and distributed around the world.

In many cases, these banks buying from the pool of other banks. So they were all over the place, and it was discovered that some of the loans were originally with such low standards that they started going bad in huge numbers, rapidly and they were popping up all over the place. It was like whack-a-mole, or an Easter egg hunt with rotten Easter eggs. And they were popping up later –especially the ones that hadn’t been found originally.

So it caused people to flee from the market, wholesale, and it destroyed the market in terms of issuance because no one wanted to issue, and no one wanted to fund the loans and it destroyed the bonds that had been issued and it really spread a contagion all over the bond market because nobody knew what these things were. So, that’s been in a sense sorted out, you have the fed and the other financial authorities buying out these pools and taking them onto their books, and spending whatever money needs to be spent to bail out the banks that own them. In that sense they have smoothed that part of the crisis over. But what robo-signing, and what’s underneath it, foreclosure gate, shows is that there’s other sorts of rot in the system that spread far and wide and have not been accounted for.

This is more than just whether the T’s have been crossed and the I’s are dotted in doing the paper work. This is actually whether the loans were transferred properly into trusts, because when you securitize loans they are put into a trust entity, which is a semi-separate entity and if that’s not done right, then you lose the authority to foreclose, you lose tax privilege status, potential investors lose recourse, and by some accounts by some very intelligent people, you have this as the rule, not the exception.

Trace: Yeah and when we’re talking about this, due process, one of the fundamental tenants in real estate property law is you have to have stuff properly recorded. You have the properly record the deeds, you have to properly record the mortgages, and the way the real estate law has evolved, because it’s tied to the land, it’s very much a county by county…it falls under the umbrella of state law, property contract court law, those are state functions. So, the judge in the county where I grew up in Florida, he’s the Duvall County judge who said they’d committed fraud on the court with this robo-signing in the foreclosure that you’re talking about. Now, what exactly did they do with MERS because they didn’t want to pay the local recording and filing fees, right?

Aaron: Right. That’s maybe the core reason or the genesis of this, is they wanted a more efficient system so that they could securitize the loans and move them around and resell them and things like that. I think it might go a little deeper, that it actually become easier to sell the loans multiple times in what they call hypothecate and re-hypothecate them, which is basically another form of money-printing. But even if you accept that it was just for the efficiency reasons, basically they didn’t do their legal homework on how they would need to set this up, to make it legally viable, and they just went ahead with it anyways. Even Fanny and Freddy endorsed it and bought into the system and are a core part of this and as we are finding out, judges in courts around the country are waking up.

Trace: And this might have been that they made a calculated choice based on the moral hazard that, well we can just override the state law, or we can jus not pay attention to it, and privatise the gains so that people who securitised all these things are getting paid to create them, they are getting paid their bonuses for selling them, and then when the proverbial crap hits the fan, because of the moral hazard they say, “oh, well we’ll just retroactively go back with federal pre-emption and federal law and try to fix this”.

And that was the bill they tried to pass retroactively deal with all these fake notarised documents, but then that got struck down because of popular outcry.

Aaron: Well, that’s part of it. I don’t think that that bill would have done much because it wasn’t just the notarization; it was also the nature of the assignments and transfers. So, that would have been step 1 for retroactively legitimising this. But even if they got a slew of the retroactive fixes passed, those would still be ex post facto laws which would still be subject to widespread court challenge.

Trace: And it would still be unconstitutional.

Aaron: It would still be unconstitutional. So it wouldn’t make this huge legal firestorm go away, and even though they have halted foreclosures and they have fired certain law firms and they have stopped using MERS, and are going back and trying to do the recording locally like they are supposed to. That’s doesn’t retroactively fix the problem.

All these loan pools are now tainted. Just like with sub prime, you don’t know really what the value is in them because you can’t recover value on a loan like you used to be able to when you were able to foreclose. And in addition to the lack of ability to be able to sell that property and pocket what you can, you have the legal fees for fighting battles on these. Anybody can challenge their foreclosure, and if they find that there’s not an authority to foreclose, if the assignments weren’t done correctly, then you are stuck, as an investor note holder. So we really don’t know the scope of that at this point.

Trace: And it can be huge.

Aaron: And I think it is. We’re talking trillions of dollars of essentially new bad loans that we thought were ok, or that were popularly thought to be ok. So, in absence of a massive rescue program, where say they get Fanny and Freddy to buy up massive amounts of troubled loans, essentially printing the money to do it, I don’t see how they are going to fix this.

Trace: But even if they do print that money up… you’re familiar with the liquidity pyramid, what’s happening is that people are selling their mortgage backed securities or whatever and buying something further down on the pyramid. So all that that’s going to do is print more of the fiat currency illusions that go up the pyramid and evaporate in their purchasing power anyway, so it’s not like that’s going to be able to fix the problem and restore the illusory wealth that had existed because of this fiction that the banks have perpetrated, probably to get their short term bonuses and things of that nature. Right?

Aaron: Well, yeah, there’s many trillions of dollars of what we call value of what was assumed to be in the housing stock when they ran up the bubble, and the banks ran up the bubble and they are really at the core of this; the feds and the banks. And they are never going to get that back.

Trace: Because it never existed.

Aaron: Exactly. They never existed. People are never going to get that back, but that doesn’t stop politicians from printing money…

Trace: …from trying.

Aaron: Yeah. And making promises, and basically shifting the damage off of themselves and shifting the blame off of themselves and that’s exactly what these bank bailouts mean, they mean executives, and to some extent share holders of these companies, get bailed out while the public more directly takes the brunt.

Trace: So, privatizing the gain, socialising the losses. Which is the same thing that has eroded the solidarity of European banks also, isn’t it?

Aaron: Right. Exactly. It’s going on everywhere and it’s a global phenomena, absolutely. I think that were going to see more waves of this where there’s just massive problems with the loans, how they were done, or the valuation or they will find that massive fraud was embedded and it happened during the bubble and it happened, like you said, it’s going to cause this irreversible trend of people over time, not necessarily month by month but year by year moving out of paper assets that are very hypothetical in value and moving into more concrete assets because those are the only places where they can be sure to preserve what’s left of their wealth.

Trace: Right. You know, you want to saw you’re a saver, you consume less than you make or produce, and so you have this excess capital, what do you do? We used to loan it to people, so they could build suburbia. But now, we aren’t necessarily…

Aaron: Yeah I mean, what do you do with it? People ask me, “what should I invest in? Where should I put my money to be safe?”. And usually they don’t want to hear “put it in gold, or put it in silver”, because that’s what loony people do, right? But I don’t have much else to tell them.

Trace: You don’t want a mortgage where you don’t have the right to necessarily foreclose?

Aaron: I mean, unless you are really going to do a lot of work, I wouldn’t even buy real estate. You really need to do your homework to know where it’s actually likely to go up on its merits, as opposed to just getting into a huge Ponzi scheme, so there’s no easy answer and I don’t see many refuges for wealth in the land of paper.

Trace: About 5 years ago I had a friend who I had lunch with, and he said “hey, I’m thinking of buying a condo” and I said “no, don’t buy a condo right now! They’re expensive.” And he said “well, what should I do?” and I said “Well, buy silver or gold.” Well, he did not buy the condo. He’s one of the people who actually took my advice – who would have thought?- and we had lunch about a year ago and we were talking about these things and he said “Yeah, I am still buying my gold and silver, so when should I buy my condo?” and I was like “well, probably not yet. But where exactly are you, because you didn’t buy the condo.”

Based on the market that he was going to buy the condo, we will assume it was a $420,000 condo, and we’ll assume that we would have put 10% down, and then we’ll assume the difference that he would have paid between the mortgage and rent he just would have bought silver every month. Well, in those 3 years and a half, between when we had the conversations, if he had bought the condo, he would have had a mortgage of about $360 000 and the condo would have been worth conservatively about $350,000, probably less. If he had bought the silver, he would have had enough silver to buy about a third of the condo at its current price. Just in three years, by being on the right side of the trend.

Aaron: There are even more extreme examples out there in a number of episodes with my family where I gave similar advice and some people took it, and some people –usually most people- didn’t , and there are many cases 4 times worse off, or more.

Trace: Yeah, so I think that I can agree with you that I don’t necessarily like the metals, particularly at these all time highs, where they are getting quasi-expensive. But the other side of the coin is i don’t want little fiat illusions that are just figments of people’s imaginations that are just represented by some digit on a webpage, I don’t want that.

Aaron: Well, my point is that we are really not even at the half way point is in discovering where all the rot is in the paper investments, which is the majority of the financial world. I see that process is really getting into its high-momentum phase of breakdown and turning a point in sediment where it actually becomes popular knowledge that you want to have a lot of precious metals and not just be in paper, and not just be trusting the government and their bonds.

Trace: And of course you have got the other component, you know there’s a reason why tax codes encourage people to go into debt and get real estate as opposed to buying the metals and that’s because when people “own” their houses, they have a lot more at stake in social peace and tranquility. I mean obviously you don’t want to riot and burn down your own house. But now we are seeing that being completely eroded and I mean look at what’s happening over there in Europe; you had Paris, and you had Ireland and you got Greece and so these things could also be coming here and that’s another reason not to own real estate, it’s because of that potential risk.

Aaron: Right, you really see this sediment turning, where I can see that some places prices are fair, especially if you are buying distressed real estate, the sediment is the beginning point where people are just beginning to rule out real estate completely, it’s almost like a generational thing but it’s in response to just how far the other direction went as a society and there’s always an over correction in the other direction with any bubble.

Trace: And we’re just getting started, huh?

Aaron: I think we are. I know you say that the metals are expensive, but you know I think the increase has been modest especially compared to making up lost ground for the many years that were likely manipulated to the downside, so you know I think there is quite a ways to go.

Trace: I agree, this is going to be a long generational bull market. It might take another 25-30 years before we see the turn happen and a lot of it depends on how quickly we do it politically. Anyways, I think we are out of time so thank you very much for coming on the podcast today!

Correlation, Causality and Common sense

By Christopher Briem, on November 18th, 2010

WSJ looks at an updated metric of ‘low risk housing markets’.

Yeah, yeah, there we are… just as we have been for years at this point. What makes this year’s iteration noteworthy is the WSJ’s summary for why Pittsburgh’s ranking is so low. Verbatim from the WSJ: “Pittsburgh, where the natural gas industry is creating jobs and wealth“.

I bet the Marcellus Shale Coaltion makes a press release out of that.

So here is the deal. I think the source of this metric, the PMI group, has been regularly ranking us as the single safest (i.e. least risky) real estate market for years. Just one cite, but we were the single safest real estate market back in 2007. I am pretty sure few were talking about, or noticing, any big boom in natural gas related jobs in the region in early 2007. If that does not convince you, then lets go back further… 2004? Ditto. How about more recently? 2008: Check. I am pretty sure with a a few minutes I could find the same story repeated each and every year going back some time.

So we have been the least riskiest market long before Marcellus Shale was rediscovered, and we have not budged much from the top ranking in recent years. So the reason to gratuitously say natural gas is part of this year’s ranking is what exactly? Maybe the local economic impact of shale has been positive… maybe not… but the implied causality with mortgage and real estate risk is completely non-sensical as described. Any undergraduate completing an introductory statistics class would hopefully not use such logic in any context especially in light of the observed history.

Thus the state of quantitative reasoning these days. It’s just that it’s the WSJ no less in this case. If we describe this so badly, it kind of explains how we missed all the problems with those slightly more complex credit default swaps.

30 Year Fixed Rates Now Below 4.4% – Should You Refi Yet Again?!

By Eldon Mast, on August 27th, 2010

How low can they go?

Mortgage rates managed to reach yet another low this week, with the 30-year fixed rate now costing borrowers less than 4.4% for the first time in history.

Freddie Mac (FMCC) said on Thursday that the average rate for traditional 30-year fixed mortgages fell to an average of 4.36%, the ninth decline over the past 10 weeks.

Fixed mortgages with a 15-year duration also fell to a historic low of 3.86% and adjustable-rate mortgages, which have shorter terms of one or five years continue hovering near 3.5%.

The sharp decline is a reflection of three factors: Ongoing stress in the housing market, regulatory policies aimed at spurring demand and an increasing belief on Wall Street that deflation (and inflation) is basically non-existent.

“…long-term bond yields fell to the lowest levels since January 2009, allowing fixed mortgage rates to ease to new record lows this week,” said Amy Crew Cutts, Freddie’s deputy chief economist.

In response to the low rate that Mortgage Bankers Association reported on Wednesday that in its Weekly Mortgage Applications Survey for the week ending August 20, 2010 the Market Composite Index, a measure of mortgage loan application volume, increased 4.9% on a seasonally adjusted basis from one week earlier.

“The volume of refi applications last week was up 26% over their level four weeks ago. Mortgage rates dropped to their lowest level in the survey, going back to 1990,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “We are at a new 15 month high for the Refinance index. With rates this low, many borrowers who refinanced in the past two years may well have an incentive to refinance again, and this is likely increasing refi application activity.”

Economic Events on April 21, 2010

By B.P.T., on April 21st, 2010

The Mortgage Bankers’ purchase index was released at 7:00 AM EDT, and there was a week to week increase of 10.1% last week, which was attributed to the end of the second federal stimulus program and a decrease in mortgage rates from last week. This increase followed a decline of 10.5% in the previous week.

At 10:30 AM EDT, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update on oil inventories as oil prices continue to move higher.