How low can we go? 30 yr fixed at 3.75% with no fees...

[eyephone]

Re: treasury and mortgage rates

"Yields on 10-year and 30-year Treasury securities are typically used to set long-term mortgage rates. Loans with short initial terms (1-, 3-, and 5- year ARMs, e.g.) are pegged to shorter-term securities. So when bond yields drop, typically, conventional mortgage rates fall as well (see historical graph below). Conversely, when yields rise, so do mortgage rates. Why? If a lender chooses to sell your mortgage loan to an investor, the lender will likely use Treasury yields as a benchmark for value."

Source:http://mortgage-x.com/general/treasury.asp

Click the link for the graphs

 

[eyephone]

ECB proposes 1.1 trillion Euro QE. more than double of previous expert consensus. Canada's central bank just cuts its rates. It looks like everywhere else is heading for a deflation, while US is relatively the strongest economy of them all. Let's hope the money keep pouring in to US stock and more importantly, US MBS

Also, hope people buy US treasuries drive the rate lower.

MBS is more important/directly tied to mortgage rates.  10 year treasury yields are indicative of lower rates but not always...yesterday for example, rates were mixed while the yield was way down

FYI - I modified my statement. See above for modified statement.

 

[Irvinecommuter]

ECB proposes 1.1 trillion Euro QE. more than double of previous expert consensus. Canada's central bank just cuts its rates. It looks like everywhere else is heading for a deflation, while US is relatively the strongest economy of them all. Let's hope the money keep pouring in to US stock and more importantly, US MBS

Hmm-if the US stocks go up doesn't the 10 year bond go up also? Therefore interest rate will rise.

Stocks and bonds are usually inversely related but if the US is the only safe market to invest...both could do well.

 

[sgip]

Eyephone - the 10yr is a "benchmark" but not tied directly to the street price of a loan. Most investors would rather purchase a guaranteed rate from the UST than a possible loser of a MBS. MBS's then have price incentives relative to UST's to attract investors in those MBS's.

As UST's plunge also, many banks see accellerated prepayments of older MBS's (AKA Pipeline Runoff) which the banks will do all they can to prevent. This is why we're not seeing 3.5% on average 30 fixed rates today, even with the lower rates experienced in the UST market. The runoff is being artificially stemmed by the servicing banks as best as they can by witholding market pricing to the consumer. Cartel-ish? You betcha!

 

[The Motor Court Company]

http://www.cnbc.com/id/102356672

this guy predicted 10 year T yield below 2% in last August, and is now calling it to hit 1.5%
let's certainly hope he is right again, and of course MBS yield will also track 10 year T yield eventually

 

[Chairman]

Is there a specific mbs bond I should be looking at on Bloomberg? Pools or TBAs?

USGG10YR @ 1.7880%

Yeah but how are the MBS bonds doing?

 

[Chairman]

ECB proposes 1.1 trillion Euro QE. more than double of previous expert consensus. Canada's central bank just cuts its rates. It looks like everywhere else is heading for a deflation, while US is relatively the strongest economy of them all. Let's hope the money keep pouring in to US stock and more importantly, US MBS

Hmm-if the US stocks go up doesn't the 10 year bond go up also? Therefore interest rate will rise.

Stocks go up when when risk is on and US Tsy yields are low yielding. If there is an event that causes uncertainty there is typically a flight to quality and people pile into Tsys, driving yields down.

Bond prices and interest rates are inversely related. If the 10 year bond goes up, rates go down.

 

[Chairman]

Eyephone - the 10yr is a "benchmark" but not tied directly to the street price of a loan. Most investors would rather purchase a guaranteed rate from the UST than a possible loser of a MBS. MBS's then have price incentives relative to UST's to attract investors in those MBS's.

As UST's plunge also, many banks see accellerated prepayments of older MBS's (AKA Pipeline Runoff) which the banks will do all they can to prevent. This is why we're not seeing 3.5% on average 30 fixed rates today, even with the lower rates experienced in the UST market. The runoff is being artificially stemmed by the servicing banks as best as they can by witholding market pricing to the consumer. Cartel-ish? You betcha!

Also known as contraction risk in MBS space. Since all these MBS are being paid down, investors that get their money back can only rebuy newly issued MBS at lower rates which would lead to less demand which is keeping interest rates from going down further.

Definition: Contraction risk is a component of prepayment risk that increases as interest rates decline. This is because a decline in rates may create an incentive for the borrower to prepay all or part of the outstanding debt, which results in the life of the debt instrument being reduced. As interest rates decrease, the likelihood of prepayment increases.

 

[Irvinecommuter]

Eyephone - the 10yr is a "benchmark" but not tied directly to the street price of a loan. Most investors would rather purchase a guaranteed rate from the UST than a possible loser of a MBS. MBS's then have price incentives relative to UST's to attract investors in those MBS's.

As UST's plunge also, many banks see accellerated prepayments of older MBS's (AKA Pipeline Runoff) which the banks will do all they can to prevent. This is why we're not seeing 3.5% on average 30 fixed rates today, even with the lower rates experienced in the UST market. The runoff is being artificially stemmed by the servicing banks as best as they can by witholding market pricing to the consumer. Cartel-ish? You betcha!

Also known as contraction risk in MBS space. Since all these MBS are being paid down, investors that get their money back can only rebuy newly issued MBS at lower rates which would lead to less demand which is keeping interest rates from going down further.

Definition: Contraction risk is a component of prepayment risk that increases as interest rates decline. This is because a decline in rates may create an incentive for the borrower to prepay all or part of the outstanding debt, which results in the life of the debt instrument being reduced. As interest rates decrease, the likelihood of prepayment increases.

I am also curious if lenders are going to stretch out the refinancing period...I was told that I can't refinance for 6 payments...that seems like a very long time.

 

[The Motor Court Company]

Same lender for refi?

Eyephone - the 10yr is a "benchmark" but not tied directly to the street price of a loan. Most investors would rather purchase a guaranteed rate from the UST than a possible loser of a MBS. MBS's then have price incentives relative to UST's to attract investors in those MBS's.

As UST's plunge also, many banks see accellerated prepayments of older MBS's (AKA Pipeline Runoff) which the banks will do all they can to prevent. This is why we're not seeing 3.5% on average 30 fixed rates today, even with the lower rates experienced in the UST market. The runoff is being artificially stemmed by the servicing banks as best as they can by witholding market pricing to the consumer. Cartel-ish? You betcha!

Also known as contraction risk in MBS space. Since all these MBS are being paid down, investors that get their money back can only rebuy newly issued MBS at lower rates which would lead to less demand which is keeping interest rates from going down further.

Definition: Contraction risk is a component of prepayment risk that increases as interest rates decline. This is because a decline in rates may create an incentive for the borrower to prepay all or part of the outstanding debt, which results in the life of the debt instrument being reduced. As interest rates decrease, the likelihood of prepayment increases.

I am also curious if lenders are going to stretch out the refinancing period...I was told that I can't refinance for 6 payments...that seems like a very long time.

 

[sgip]

If rates are favorable, you can refinance 1 week after closing on your last refi. The opportunity to do so doesn't come along very often, but as rates suddenly torque lower, many borrowers will give it a go.

Two pieces to this:

1) In order to refinance there has to be a "tangible benefit to borrower" and most lenders have to see .125% or a certain monthly payment savings in order to justify the refinance going through. Churning is frowned on by lenders for a great host of reasons which is why benefit to borrower exists.

2) Now why everyone's being told they can't refi for 90-150 days:

Mortgage Banker A gives you a very good rate and "no closing costs". Those fees had to be paid by someone. In this case it's the Investor B willing to buy the loan from Mortgage Banker A. Your $400k loan cost about $3,000 in hard costs and $1000 in commissions. There's also about $3,000 being kept by the loan broker owning the place. Let's work with $7k in payments by Investor B to Mortgage Banker A. 

Bank C gives you a better rate 1 week after you close your loan with Mortgage Banker A. You close in 45 days.

Mortgage Banker A get's a phone call from Investor B asking for their $7,000 back. Their investment value was vaporized by Bank C's refinance. That $7k doesn't all come from the owner of the mortgage bank, but clawed back sometimes from the manager, loan officer, and others involved. Much tears. Very money.

Bank C will have a somewhat similar policy. Most of the majors will allow employees to flip a borrower within 90 days, but they won't pay the loan officer when it's done. There isn't any $$$ in the deal. Banks sell loans to investors (retaining the servicing though) so the $$$ loss isn't so hard.

Should you refinance 30 - 60 days after your last refi or purchase? Why not?  "It's not personal, just business....". 

My .02c

Soylent Green Is People.

 

[rkp]

SGIP - why don't all loans just have an 6 month early payoff penalty which would protect lenders from serial refinancing?

 

[ps99472]

Because we're not N. Korea

 

[sgip]

RKP - the payback to the investor might be longer than 3 months, 9 months, etc. It's also not in the better interests of the consumer or the banks that want to attract both the loan and the borrowers deposits.

Anti-Churning rules have stopped many of the abuses that took place in the 2005-2008 time period. People would play musical chairs with their refi business, then when the tune stopped, we know now what kind of problems that behaviour caused. ( example: I knew of an Accountant in Huntington Beach area who would spin his $900k Neg Am 1.0% rate ARM loan every 90 days, barely making a house payment until he had to... then the SHTF for him. How'd you like THAT guy handling your financials! )

I'm A-OK with Anti-Churning rules. There should be a realistic benefit to borrower when the deal is done. Most readers here know there has to be a compelling reason to refi, but for others out there, predatory LO's still swim these waters, restrained only by the sort of consumer protections put in place over the past few years.  As for a blanket 6-9 month prepayment penalty? Not a great idea.

My .02c

 

[ps99472]

MBS going up, so mortgage rates going down today?  If you haven't locked yet, I would watch carefully the next few days.  If we take a tumble today and tomorrow, good time to lock.

 

[ps99472]

Just got the appraisal done and going with USCtrojans rec on escrow.  Should be another slam dunk, but my FICO has been taking a hit with all these hard inquiries, might take a pause after this.

 

[ps99472]

Got this in the mail from MorganStanley, so a 10 yr interest only mortgage that can adjust monthly on LIBOR rates.  After 10 years, its 15 years of P&I payments.  I'm actually considering this... pros cons?

 

[irvinehomeowner]

1st con is you are not paying down your principal.

This was the main issue with the OptionARMs during the 90's and oughts.

 

[ps99472]

Since you are paying less interest, more can be funneled into principal payments.  That's what I'm thinking.  Yes dangerous for people not financially mature, or stretching their budget to afford a home price out of their range, but if you have the funds to pay your principal down to zero, shouldn't the lowest interest/month product be first choice?

 

[bones]

IO loans are popular with the finance set that get a lot of income from YE bonuses.  Smaller monthly interest only payments during the year and then they take a portion of their huge bonus to pay down the principal once a year.  I say do it if you're interested.  What's the worst that can happen?  You refi again?