Interest Rates

NEW -> Contingent Buyer Assistance Program
<p>We got a 25 year fixed, and paid if off in about 11 years. Given the state of the economy, I am very very happy about this.</p>

<p>Now, fellow blogsters, hear this, most people who didn't put the money into the mtg would WASTE it. They would not put in a savings account or Microsoft or some safe personal consumer thing like Proctor and Gamble. they would buy cruises and expensive purses.</p>

<p>I would have wasted it too. Books and plants and restaurants are my vices.</p>

<p>You guys, assuming you walk the walk as well as talk the talk (and I think you do), are in the upper 10 % or higher of the savings curve. don't forget everybody else.</p>
 
<img height="231" width="250" alt="" src="http://uk.gizmodo.com/fake_pot_plants.jpg" /><img alt="" src="http://images.jupiterimages.com/common/detail/16/88/23038816.jpg" />
 
<p>Nah.</p>

<p>I don't even like twinkies. In fact, I'm not sure they sell them in Fla, tho they certainly did in Balto, where I grew up.</p>

<p>I'm more a cheesecake person. Or an expensive chocolate bar person.</p>

<p>By the way, my granddad sold his butter and egg business the year before the Great D I, and he bragged about being financially astute for the rest of his life.</p>

<p>I suppose we shall brag about paying off the mtg months before the beginning of Great D II.</p>

<p> </p>
 
So . . . lending people, if one, hypothetically, in this environment were looking to get a traditional conforming (equal to or less than $417K) and putting 30% to 40% down for an owner occupied SFR, would such mortgage be available? I would think so (i.e., GSEs), but I'm hearing that things in the mortgage market are so volatile and I haven't shopped for one in years, I really don't know.





Or should I ask this question next week once things hopefully settle down a tad? TIA!
 
EvaL, Rates are looking good today, but like you said it is very volatile. Last week one major lender had 5 reprices in one day, very unusual.



SocalGals quote is down to 5.625% today.
 
<p>Jumbos still look bad unfortunately:</p>

<p><a href="http://www.mtgcapital.com/ratesheet-fixed.html?state=ca&rs=fixed">http://www.mtgcapital.com/ratesheet-fixed.html?state=ca&rs=fixed</a></p>
 
Very interesting... I just checked a particular local wholesale lender, who reached the 10% NPA *cough* read housingwire *cough*, and their rates for conforming were in the 5.625%-5.875% range.





But... they have a new "jumbo conforming" loan, and their rates were in the 6.50%-6.875% range. Looks like my 100 BPS risk pricing add was about right. Again I ask, how much does this <em>really</em> help?
 
If we have one more up day, there will be a firmly established trend even more upwardly, but three days up is about all traders will go (lately) before they take profits.



The price add on (to fee, not rate) for jumbo conforming is .25 to FRM and .75 to ARM.
 
<p><em>The price add on (to fee, not rate) for jumbo conforming is .25 to FRM and .75 to ARM.</em></p>

<p>The lender I looked at priced the "jumbo conforming" completely separate from the conforming loans. I am not saying you are wrong, because every lender is different, and I don't think the pricing is really out yet.</p>
 
What I meant was, .25 / .75 is Fannie's add-on; individual lenders may price higher, depending on the "reps and warranties" they maintain with Fannie. Most lenders have indicated they're on-board to lock rates and accept submissions.
 
<a href="http://www.marketwatch.com/news/story/bank-america-lowers-prime-rate/story.aspx?guid=%7B39C565E1%2D4DED%2D44F7%2D8CB5%2DB674E1CA8BFC%7D&dist=hplatest">http://www.marketwatch.com/news/story/bank-america-lowers-prime-rate/story.aspx?guid=%7B39C565E1%2D4DED%2D44F7%2D8CB5%2DB674E1CA8BFC%7D&dist=hplatest</a>



Bank of America lowers prime rate to 5.25% after Fed cut











By Wallace Witkowski

Last update: 2:28 p.m. EDT March 18, 2008



























SAN FRANCISCO (MarketWatch) -- Bank of America Corp. (<a class="lk001" href="http://www.marketwatch.com/quotes//bac">BAC</a>:



<img class="pixelTracking" height="1" width="1" border="0" alt="" /><a href="http://www.marketwatch.com/tools/quotes/quotes.asp?symb=BAC">BAC</a> 38.93, +2.97, +8.3%) said it lowered its prime lending rates to 5.25% from 6%, after the Federal Reserve cut the federal funds rate by 75 basis points. Bank of America said the rates apply to Bank of America NA, LaSalle Bank NA and LaSalle Bank Midwest NA. Other banks are expected to lower their prime lending rates similarly. <img height="10" alt="End of Story" width="10" src="http://i.mktw.net/mw3/News/greendot.gif" />
 
Etheran wrote



Warren Buffet did not use leverage and look at him now. The richest person in the world. Bill Gates also didn't use leverage -- of course he came from a wealthy family.



WRONG.



Warren Buffet ALWAYS uses leverage. What do you think investing insurance float is??? His entire empire is built on the banking model which is, utilize a cheap source of financing (insurance premiums), and invest those premiums in long dated or riskier assets (equities).
 
Got a rate sheet from Chase after the Fed Funds cut. The add on (to fee, not rate) for jumbo conforming is 2.00 for purchase and--get this--3.00 for cash out in Orange County. Sickening. Why bother.



(It's simply not possible to get as rich as Buffet, Gates and Trump without leverage.)
 
<em>"The add on (to fee, not rate) for jumbo conforming is 2.00 for purchase and--get this--3.00 for cash out in Orange County."</em>





I wonder if this is more risk premium due to the losses they are seeing or inflation expectation due to the rate cut? Probably a little of both.
 
socalgal - Buffett did not buy Geico or Gen Re until much later in his career. He used little to no leverage. Even now, the float from his insurance companies is a trivial number compared to Berkshire's market cap, so in essence berkshire is still unleveraged. Gates did not use leverage.<p>



Capworks - I was wondering if anybody was going to pick up on that. But, I still haven't decided if insurance float is leverage in the classical sense. I am not saying it isn't. I am just thinking it through.
 
Buffet purchased National Idemnity in 1967. I wouldn't call that late in his career.



Quote, Insurance float had produced a "fountain of funds" that he used to buy other businesses.



http://www.insurancejournal.com/news/national/2005/03/08/52382.htm



Of course its leverage. He is investing money that is not Berkshires. If all the claims hit at once (a liquidity event), he would be forced to sell his direct holdings in order to meet those obligations. The result would be spiraling prices on the assets he holds. It is possible, assuming weak underwriting (and given that Ajit Jain is an underwriting genius this is quite a leap), that claims could exceed premiums. For many insurance companies this is the case, and they count on the return on the portfolio to meet those obligations.



Furthermore, if Berkshire was unable to generate new premiums, the existing float would roll off the books through claims. Again the net result would be a shrinking investment portfolio that would be liquidated over time to satisfy claims.



Buffet's magic is simple and is contained in two elements. (1) Adhere to very strict underwriting standards. Berkshire does not underwrite unprofitable business, so there should always be a net zero or positive cost of carry on float (if I understand correctly this is pretty rare in insurance) (2) Maximize the return potential of the float. Rather than investing a typical actuary driven portfolio focused on immunization, Buffet is counting the strength of his underwriting the diversification of insurance (law of large numbers) and his ability to deploy capital in excess of his very low cost of financing.
 
<em>"Of course its leverage."</em>





How does GAAP define this? In one sense it is leverage, but in another sense it is not because no claims could be filed at all. With debt you are supposed to know how much you are repaying and when, but with insurance you only have actuarial estimates. What about all the people who never file a claim? They are not <em>owed </em>anything, so they have no creditor claim to their premiums, unless of course they have some kind of annuity contract. I have never really thought about the semantics involved with the insurance company business model.
 
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