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NEW -> Contingent Buyer Assistance Program
Very interesting. What are the consequences for housing inventory and prices?





How much will this really affect buyer demand in the short run? Buyers were not buying as it was, thus leading to the dismal Spring/Summer selling season we've just seen. Demand is dead; these rate increases just mean it's not going to be resurrected anytime soon. I expect the only new sellers entering the market between now and next Spring will be REOs and those who must sell. Underwater homedebtors won't have a prayer and will likely just stop making payments and stay in their houses till foreclosure.





This gets really interesting in Spring 2008. If rates stay high and prices don't fall, it will be a standoff between buyers and sellers just like this year. If prices do fall, I think it's still only the "must sell" inventory entering the market, as anyone who bought since 2003-2004 won't be able to sell except in a short sale. It will still take a couple of years for enough "must sell" inventory to come into the market to drive prices down to reasonable levels.





Your thoughts?
 
I am not finding any articles regarding this move, I wonder if it is slow to catch on in the media because there were no announcements? In any case, this will affect some markets more than others. SoCal will be impacted quite a bit since non-Jumbo loans are few and far in between with the high prices. Does that mean we eventually fall under $500K median? Possibly, if those rates persist for 12 months or longer. I think demand will dwindle to near historical lows, which has to drive the price down. I thought mid-2003 price was a reasonable level, and we might see that now, or maybe even a bit lower. If rates stay high, prices has to fall, since REOs and new homes must still get rid of the house. They will get new comps, and resellers have to follow. With so many resets in the next few years, it’s going to go down.



This could be bad, but I have to see something in the media for it to sink in.
 
Sorry guys, but I'm not quite understanding the impact of news. I just checked bankrate and the rates look about the same to me.





The inputed value I used: 5/1 ARM (Interest Only), 500K borrowed at 20% down





6.125% interest rate (6.875% APR) with no points (5/2/5)





6.00 % interest rate (6.919% APR) with 1 point (2/2/6)





5.25 % interest rate (6.893% APR) with 1.5 points (2/2/6)






 
You probably wouldn't hear about it unless you actually tried to price out a loan yesterday. I've been saying all along how little financial media really understands the situation. Bankrate.com is a joke. It is an advertiser sponsored site. Those mortgage rates aren't legit. The rates offered on different deposits are pretty accurate though. They aren't actually pricing the loans, or speaking with the borrowers. This will crush, utterly crush, the housing market. The good news for buyers is that PRICE matters more than rate. a 500 K loan @ 6.5% yields an IO payment of $2,708. An 400K loan @ 7.5% is only 2500 a month. This only equates to a 20% price reduction in the purchase price. You also pay less taxes, insurance, and upkeep costs. What is happening will be superb for future buyers, but life altering for current homeowners.





SCME stands for Southern California Mortgage Executives. They are a privately held REIT.





Portfolio lenders like, Chevy Chase, Paul Financial, World Savings, etc. may not have any price change at all. These portfolio lenders not only service the loan, but also retain the debt., so while they may see a flood of broker submissions, their situation is dire in the long run. Conforming pricing is largely unaffected, but still somewhat affected. The problem is only a select few (almost none n California) can qualify for a conforming loan.





it is only a matter of time before portfolio lenders will raise their rates on the loans they do not sell as well. A large interest rate disparity will not be allowed to exist for too long, as market forces will correct it. If you knew your major competitors were offering a rate of 8.25% and you were still offering 6.75%, wouldn't you think about raising rates?
 
<p>lm - Please excuse my ignorance, but in asking the following questions, I am assuming there are others reading this who may have the same questions.</p>

<p>What are broker submissions? And conforming pricing?</p>

<p>In the short term, does this 3% or 3 1/4% difference only effect the loans which are sold? If I am understanding this correctly, instead of paying the originator 3%, the secondary is now charging the originator 1/4% to take the loan off their hands?</p>

<p>How can one lender offer 6.75% and another offer 8.25%? Isn't the cost of funds fairly close for all the lenders? And doesn't that transfer into similar, but not exactly equal, rates for all lenders? Or will the secondary market dissappear, but lenders will still lend until such time they run out of funds?</p>
 
<p>>>>A large interest rate disparity will not be allowed to exist for too long, as market forces will correct it. If you knew your major competitors were offering a rate of 8.25% and you were still offering 6.75%, wouldn't you think about raising rates? <<<</p>

<p>Isn't it the other way around? It seems like this disparity won't last long because rates from portfolio lenders haven't changed. If you are offering a rate of 8.25% vs 6.75%, how are you going to drum up business?</p>
 
I am always surprised when I see these abrupt changes. Many observers of the credit industry knew the subprime lending was in trouble, but few expected its overnight demise. Many observers speculated that mortgage interest rates would rise, but few expected it to happen overnight.





To speculate on the impact of this reread: <a title="Permanent Link to Your Buyer?s Loan Terms" rel="bookmark" href="http://www.irvinehousingblog.com/2007/05/07/your-buyers-loan-terms/" linkindex="12" set="yes">Your Buyer’s Loan Terms </a>and <a title="Permanent Link to The Anatomy of a Credit Bubble" rel="bookmark" href="http://www.irvinehousingblog.com/2007/05/14/the-anatomy-of-a-credit-bubble/" linkindex="13" set="yes">The Anatomy of a Credit Bubble.</a>
 
I work for a bank and we have realtor's calling us for prices. They always go to brokers since they will make no money from us. I thought it was stange.
 
<p>awgee...a broker submission is when a mortgage broker submits a full loan application to an originating bank. The term conforming loan is a Fannie Mae and Freddie Mac term. These two companies, while in business to earn a profit, were commissioned by the US government to start buying mortgages from banks. Banks can only originate so many loans until they don't have enough deposits to offset those loans. Fannie and Freddie were the first MBS writers. The cost of funds and the FED funds rate is closely tied to the rates banks pay on deposits. It is very loosely tied to mortgages.</p>

<p>A portfolio lender can offer whatever rate they feel will still make them profitable, but it isn't as easy as just offering a lower rate than a competitor SInce they do not sell the loans, they cannot continue to originate loans forever. Traditional capitilism will tell you that competition will naturally drive the prices of goods and services lower. Mortgages are debt financing options however and have the opposite reaction. Portfolio lenders will need to originate less loans for higher rates.</p>
 
<p>UPDATE:</p>

<p>Wells Fargo has just clipped all ALT-A financing through mortgage brokers. You can still get an ALT-A loan if you are a borrower calling Wells Fargo directly.</p>

<p>Also: The new Minnesota Lending laws from hell we discussed have taken effect. Starting yesterday all purchases and refinances may only be done FULL-DOC. No neg ams allowed and no prepayment penalties allowed. Say by-by to the state's economy.</p>
 
<p><a href="http://www.forbes.com/feeds/ap/2007/08/01/ap3978758.html">http://www.forbes.com/feeds/ap/2007/08/01/ap3978758.html</a></p>

<p>Here's the link</p>
 
<strong>I'm still trying to figure out why this is the most important post ever...exaggerate much?</strong> This is huge! You can't buy a house without money! Brokers have always been more shady when it comes to giving out the money. I can't tell you how many people I see who have over $10K income per month per person. The job does not even match the pay. Wells Fargo is usually a trendsetter. Others will follow. It makes sense for the banks.
 
<p>I've discovered the depth of my ignorance through reading this thread. Help me out please...</p>

<p>Real examples on how it will affect Irvine/OC? I mean, bottom line is it's basically tighter lending standards right? That's been the trend hasn't it?</p>
 
<p>Lending standards and the price paid for mortgage-backed securities are related but not exactly correlated.</p>

<p>A bank may tighten it's lending standards on it's own without regards to rates. Because of the recent turn in the housing market we've seen this happening. What happened yesterday was a knee-jerk reaction caused my pent up frustration in the secondary market. We now have BOTH rising rates, coupled with tightening lending standards.</p>
 
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