Sunday, December 21, 2008

US mortgage rates falling, HP dead-cat bounce coming IMO

Fed Targeting Long-term Interest Rates to Force Mortgage Rates Lower

John Mauldin "Letters" are always a good read. The relevant part to this is half-way down "Some Good News for Borrowers". "Remember that ARMs (Adjustable Rate Mortgage) reset problem I was writing about late last year? Resetting the rates has been a problem up until now. However, that may no longer be a problem in the near future. The large majority of ARMs are linked to either 1-year LIBOR or 1-year Treasuries. 1-year Treasuries are 0.39%, and 1-year LIBOR is 2.09. Both were at 4.5% in 2006. Those going to reset in the near future are actually going to catch a break and see their payments go lower! Mish Shedlock writes that he has an interest-only mortgage tied to 1-month LIBOR, and his annual rate is going to drop to 1.75%" - [Fixing the ARM reset problem would be very significant]

Posted by mountain goat @ 10:04 AM (1013 views)
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4 thoughts on “US mortgage rates falling, HP dead-cat bounce coming IMO

  • Mike Shedlock also points out that the majority of ARM loans are in delinquency BEFORE THEY RESET to the new libor rate. Ie. the people with the loans are not paying (or cannot pay) and that is while they are on the super-cheap teaser rates. So this problem has not gone away.

    i. If you own a mortgage on a house that is on negative equity, as a huge amount of these loans are, then why would you keep paying if you can walk away from the loan without liability, as Americans can? People are just not paying.
    ii. A lot of people who took these loans can’t afford them but banked on property prices going up. Now they’re in trouble and not paying.

    So don’t look for a dead cat bounce, in my opinion. Americans are being made unemployed in ever bigger numbers, so expect more delinquency, more defaults, and more housing stock waiting to be sold.

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  • This lame duck could not bounce on water!

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  • Planning4acrash says:

    We already had a dead cat bounce. It was the dollar rally prior to the election. Dollar plunged 10% the last few weeks, its over.

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  • Sowing the seeds of the next crisis …

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