Monday, August 6, 2007

Now mortgage peeps are down beat!

Interest rates could hit 6.25%, says AMI

The Association of Mortgage Intermediaries believes the sub-prime problems in the US will impact the UK over the next year.

Posted by nearly30 @ 10:16 PM (427 views)
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7 thoughts on “Now mortgage peeps are down beat!

  • 6.25% is the best outcome.

    I figure that we may see 50 basis point (0.5%) in a hike this year.

    Things are that bad.

    On Black Wednesday, Lamont had to hike it 300 basis points (3%) in a morning and promise another 200 bp (2%) by the afternoon.

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  • planning4acrash says:

    What a load of tosh, they say that an early .25 rise in ir’s will make 6.25 more likely, and I thought that earlier ir’s meant a lower peak? Read between the lines and you will see that they think that ir’s have further to go and that an earlier rise will make the next rise easier to stomach before christmas. And the thing about reducing the power of local authorities to increase building rates is rubbish, what with builders sitting on enough planning permission to meet needs, the fact is that builders are in it for profit and cannot be expected to meet housing needs without subsidies to provide affordable housing, or without local authorities being allowed to build, much of this problem is because local authorities no longer have the power to build. Why should we listen to a mortgage company telling us that we should dismantle local democracy and civil society to meet their vested interests?! These people are starting to sound like little Hitlers far too much for my liking, but the fundamentals means that they will only have the first laugh.

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  • This year?

    David Smith on his site reckons .25% only…

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  • Interesting view, Planning…

    A contact of mine , a Marxist told me about 3 years ago that the houisng crisis would onoly get worse and was a result of and could only be expected from privatising the house building process – Gordon? as you are so much an exponent of PFI, what’s your take on this?

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  • The prospect may arise but the financial services ‘industry’ will fight tooth and nail against this even though it may be sensible, I don’t know. The longer they leave it before getting to grips with the debt crisis, the worse the problem below might get. Take the American article I flagged up yesterday , for the sake of repeating it a little:

    1. The subprime mortgage market continues to head rapidly downhill, picking up speed. Its negative effects are reinforcing the parallel downhill slide of the housing market and cutting the appetite of financial markets for credit risk in general…Major homebuilding companies are reporting large losses and pessimistic outlooks, as new home sales have dropped steeply and for-sale inventory has grown, putting downward pressure on home prices.withdrawing subprime mortgage products and generally raising credit standards.

    2. Subprime mortgage default rates, already very high, continue to increase…Countrywide Financial, the nation’s largest mortgage lender, shocked the stock market by announcing large credit losses related to home equity loans made to originally prime-rated borrowers…About 80 subprime mortgage lenders have gone out of business since December…It is now apparent that the problems of the subprime bust run far beyond the failure of specialist subprime lending companies.

    4.The excess supply of homes, and declining demand for them, means falling home prices. Falling home prices, in turn, tend to increase mortgage defaults, because pressured borrowers can no longer sell the home for enough to pay off the mortgage debt. Higher default rates lead to continued tightening credit and less demand for homes, with more downward pressure on prices, and the self-reinforcing downward cycle will continue, not forever, but for some time.

    5. American Home Investment Corporation, a major mortgage funder and investor, recently announced large write-downs in its portfolio and severe pressure from its creditors…according to the Institutional Risk Analyst: “missing original notes…the documentation has been horrendously sloppy.”

    6. A sobering element of this issue is that the models for loan repayment include home price appreciation (“HPA” in the trade lingo) as a factor. According to one report of an investment manager, his firm asked a rating agency, “What if HPA were to [be a negative] 1% to 2% for an extended period of time? They responded that their models would break down completely.”

    7. If the junior tranches of subprime securitizations are in addition bought by investors on a leveraged basis, using money borrowed under repurchase agreements or “repos,” they become hyper-leveraged to the risk of the credit losses being worse than the models expected. And the losses are indeed worse than the models expected—with results that were expected by us pessimists as we surveyed the housing bubble a year ago.

    8. At that point we were saying, we know these risky securities are being sold and moved around the financial market, but were did they go? Who’s got them? Now some of the answers have been revealed.

    9. The most notable case so far has been the two large hedge funds specializing in subprime investments, operated by Bear Stearns, which have ceased trading and entered bankruptcy with virtually total losses to their investors. Other hedge funds in the United States, England and Australia have announced large losses tied to subprime mortgage investments. Such investment losses have also required the bailout of the German bank IKB, which cost the president of the bank his job, and the bailout of a French mutual fund. Now everybody is asking, who else took these risks?

    10. Given these developments, it is instructive to look back to some of the more optimistic forecasts of the past, all of which proved wrong.

    A year ago, it was common to say that while home prices could fall on a regional basis, they could not on a national basis, because that had not happened since the 1930s. Well, now home prices are falling on national basis, as measured by the S&P/Case-Shiller U.S. National Home Price Index.

    Six months ago, people were saying that it looked like the housing market was bottoming and stabilizing. Nope.

    Three months ago, as the subprime bust grew worse, people assured the market that the problems would be confined to the “relatively small” subprime mortgage sector and would not spread further. Not a good call, either.

    The pessimists all along were those of us who study history, because all the elements of the subprime mortgage and housing bust display the classic patterns of recurring asset bubbles based on credit overexpansions. Such credit celebrations are based on optimism and a euphoric belief that the price of some asset class—in this case, houses and condominiums—must always rise.

    These booms are inevitably followed by a hangover of defaults, failures, discovery of excessive speculations by “sophisticated” investors, dispossession of unwise or unlucky borrowers, revelations of fraud and scandals, late cycle political and regulatory reactions or overreactions, and a credit contraction as the former optimistic beliefs turn into their opposites.

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  • 7% please

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  • IVM,

    Where did you take your name?

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