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Thursday, March 13, 2008

Adjusting, Adjusting

Well, well, well. Take a look at MBA's weekly update:
The average contract interest rate for 30-year fixed-rate mortgages increased to 6.37 percent from 5.98 percent, with points decreasing to 1.05 from 1.15 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.72 percent from 5.26 percent, with points decreasing to 1.06 from 1.08 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year ARMs increased to 6.72 percent from 5.83 percent, with points increasing to 1.27 from 0.85 (including the origination fee) for 80 percent LTV loans.
1 yr ARM rates higher than 30 yr FRMs. Some of the difference can come from different markets, but booyah. Needless to say these rates do not help buyers to qualify. HSH stats look very different (these are daily) and include jumbos:
30 yr FRM: 6.89%; 0.39% pts
15 yr FRM: 6.24%; 0.43% pts
1 yr ARM: 5.83%; 0.50% pts
One of the more interesting developments is that hybrid ARM rates are generally lower. 3/1s are at 5.86%, 5/1s are at 5.92%, 7/1s are at 6.36%, and 10/1s are at 6.88%. The Fed rate cuts are not showing up in home equity loans at all.

Initial claims are moseying along on the same path. They are into recessionary territory, and the NE is still the worst hit area in the country. NSA initial claims were up about 40,000 over the comparable week last year. However, NSA continued claims improved for March 1st off relatively high initial claims. This is still a relatively gradual movement.

My guess is that the service economy is feeling most the pain. See CR's coverage of the CFO survey. Retail sales are at recessionary levels at a nominal 2.6% YoY increase, which translates into approximately a 1.8% real drop the way I calculate it. Look at this:
Category Feb 2008 Feb 2007 YoY Chg$ YoY Chg%
Total 349746 327624 22122 6.75%
Food&Bev 46004 42535 3469 8.16%
Gas 36574 28292 8282 29.27%
Health/PerCare 20108 18450 1658 8.99%
Needs Ratio 29.36% 27.25%

Remember, first quarter 2007 was weak. The extent of the pressure can be thumbnailed by looking at US gas consumption trends. These are a few months behind but show that consumers are responding to higher gas prices by cutting consumption.

I don't know how the meme that gas consumption is unrelated to pricing got into the press. In theory, the US population increased by about 9.4 million people from 2000 to 2007, so per capita use is falling fast. The 04-07 average is below the 86-89 average. Recent trends by month:

For a dose of humor, try reading about Barney's brilliant plan to reduce foreclosures juxtaposed with Paulson's working group's "no silver bullet" conclusion. I really liked this part:
The working group called for uniform national licensing standards for mortgage brokers, and new standards of disclosure for borrowers, while also forcefully recommending that rating agencies differentiate corporate and municiapal structured finance products.

Paulson said the group will form a private-sector committee to work toward implementation of a new set of standards for the rating agencies, and threatened strong and potentially restrictive oversight by Federal regulators if market participants — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — can’t drum up a solution.
Does that translate to "don't you dare downgrade munis"? I think it may. I'm sure that will help to generate real confidence in ratings. Like it or not, there is some correlation between munis and real estate if the municipality involved is heavily dependent upon RE fees or property taxes. The correlation varies.

Thank you MoM.Redwood Credit Union in sonoma County is advertising a 3/1 ARM at 4.875%,so there is quite a bit of variation.I hope both you and the chief are doing better,and thanks again for all your work.
interest quote:

"The United States continues to dominate the ranks of the world's biggest companies, but to a much lesser degree than it did even a decade ago. It now accounts for nine of the Top 25, followed closely by Europe with eight. In 1998, the United States accounted for as many as 18 of the Top 25 companies, followed by Europe with five."

Back to my world view thing, granted that business wants to make a buck regardless of origin, many do it different. With the US losing in the Top Business, that means that views change. If only that the ability to buy congress critters in bulk and wholesale declines.

Which when that happens, and it has happened in the past, real political change follows.
Yes there is a lot of variation. I wonder about the details on that one.

The Chief and I are much better, thanks. Btw, Jay and Cheryl are doing GREAT.
I am glad to hear that Jay and Cheryl are doing well.the 3/1 ARM is available for purchases and no cash out refi's at a 90% LTV.They are full Doc and I understand that these are portfolio loans.I would not be comfortable with this degree of risk in a market that is likely to correct as much as ours (Napa,Sonoma,Marin counties).We have an official YoY decline in the median of 22% in sonoma county,BUT prices are not in line with incomes at all,We have a tremendous # of Alt-A loans resetting next year and MEW was substantial.We also have an economy heavily reliant on tourism and ag in Napa and Sonoma which is not comforting.
Tom, if they are well underwritten, they may do fine. A low rate with high credit quality can backstop performance. You have to have the money to do this plus good reserves. CUs have something of an advantage because they are not paying taxes, which generally can allow them to cut NIM a bit closer.
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