ARMs: One Year Arms Rates Spike

Short Term Rates Increase Strongly

The Freddie Mac Weekly Survey shows a decline in all mortgage rates except the short term rate.
The 15-year FRM this week averaged 6.12 percent with an average 0.5 point, down from last week when it averaged 6.18 percent. A year ago, the 15-year FRM averaged 6.14 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.35 percent this week, with an average 0.6 point, up slightly from last week when it averaged 6.34 percent. A year ago, the 5-year ARM averaged 6.11 percent.

One-year Treasury-indexed ARMs averaged 5.84 percent this week with an average 0.8 point, up from last week when it averaged 5.60 percent. At this time last year, the 1-year ARM averaged 5.59 percent.

Freddie Mac

The short rate is up almost 24 basis points this week. We understand that the Arms will begin to reset in October. This is the next shoe that many have been fearful of. The ARM mortgages will reset and are certain to increase monthly costs to home owners. The big unknown - how many more will we see in the listings.....

On a more positive note: According to the Mortgage Bankers Association - "Commercial and multifamily mortgage bankers' loan originations were once again strong in the second quarter, according to the Mortgage Bankers Association's (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. Up from the first quarter, second quarter originations were 40 percent higher than compared to the same period last year. The increase was seen across most property types and investor groups."

Howard Bell for yourpropertypath.com

Two Strategies for Getting Buyers into Homes

The Washington Post had a very good article about how buyers must work around the credit crunch. Basically the lack of trust in the mortgage markets is forcing investors to shun all loans that are no "conforming" loans. Freddie Mac Govt limitations will not allow them to purchase or guarantee a loan above $417.000. Anything above this amount is called a Jumbo Loan and the rates are much higher, if you can get one at all.

Two Strategies for Getting Buyers into Homes

1. In many areas homes selling for under $417,000 after a buyers down payment should be much easier to finance with lower interest rates. Concentrating on buyers for homes around $500,000 may see less deals dissolve

2. If you do have a buyer for homes above $500,00 you should split the loan into one for $417,000, the maximum Freddie Mac will insure. This will get you the lowest rate available as a Govt insured loan. Then take a piggy back loan for the difference at a higher rate. You can then average the two loans for an overall lower rate and provide a litle more safety to the lender because the bulk of the laon can have a Govt backed assurance.

* This is why jumbo rates were rising and a conforming 30-year fixed-rate loan is the lowest it has been since June today.

As of 08/29/07

30-Year Fixed 6.08% 6.25%

15-Year Fixed 5.76% 6.02%

Jumbo 30-Yr Fixed 7.16% 7.27%

Thanks for Reading
Howard Bell for yourpropertypath.com

The Insurance Hoax

Property insurers use secret tactics to cheat customers out of payments--as profits break records.
By David Dietz and Darrell Preston

When there's a disaster, the companies homeowners count on to protect them from financial ruin routinely pay less than what policies promise. Insurers often pay 30-60 percent of the cost of rebuilding a damaged home--even when carriers assure homeowners they're fully covered, thousands of complaints with state insurance departments and civil court cases show.

The insurance companies routinely refuse to pay market prices for homes and replacement contents, they use computer programs to cut payouts, they change policy coverage with no clear explanation, they ignore or alter engineering reports, and they sometimes ask their adjusters to lie to customers, court records and interviews with former employees and state regulators show.

This is contested by Robert Hartwig, chief economist at the Insurance Information Institute. He says about 1 percent of policyholders contest what they're offered. Do we have the financial ability to fight a long case?

Then there is Katrina...the article goes on to say
The August 2005 storm killed more than 16,000 people in Louisiana and Mississippi, left 500,000 people homeless and cost insurers $41.1 billion. More than 1,000 homeowners sued their insurers in the wake of the storm--the largest- ever number of insurance lawsuits stemming from a U.S. natural disaster.

For insurers, the multibillion-dollar question regarding Katrina was how much of the destruction was caused by wind and how much by water. Property insurance policies don't cover damage caused by flooding; homeowners have to purchase separate insurance administered by the U.S. government. The wind/water issue has spurred allegations that insurers manipulated the findings of adjusters and engineers.
Even the former Federal Flood Insurance Commissioner felt that the claim,s settlement procedure was skewed in favor of the insurance companies. David Dietz is a senior writer at Bloomberg News in San Francisco and did an excellent expose of the P& C industry.

Your Property Path: When Katrina first happened I thought that insurance stocks would drop like a rock. Not so...at first I couldnt understand and then it became clear. Unless you had Federal Flood Insurance the property and casualty companies didnt have to pay for flood damage. Now the claimant contest was whether the damage to many of those homes was caused by the storm surge or wind and rain...anyway you get the picture. I just wonder how many of the reps that sold homeowners actually made that clear .

Bloomberg

Howard Bell for Your Property Path

The Mortgage Crunch is on

Following the stock markets is a good way to understand whats next. We have a full on panic right now and the mortgage originator and mortgage hedge fund owners will continue to show us weakness. Although the Fed and other world banks have injected a lot of money into the system, its being reported that they are not meeting the demand.

What this means to me is that we will continue to see the weakest players make headlines as they pass. This should keep buyers away and credit very tight. The NY Times reports:

When an investment banker set out to buy a $1.5 million home on Long Island last month, his mortgage broker quoted an interest rate of 8 percent. Three days later, when the buyer said he would take the loan, the mortgage banker had bad news: the new rate was 13 percent.

The investment banker’s problem was that he was taking out a so-called jumbo mortgage — a loan greater than the $417,000 mortgage that can be sold to the federally chartered enterprises, Freddie Mac and Fannie Mae. The market for large mortgages has suddenly dried up.

NY Times

The worlds central bankers will not let the system falter, but it will not save everyone either. So, I think more to come. Heres what they have been up to this week. According to CBS Marketwatch

Central banks in Europe, Asia and the U.S. injected billions of dollars into banking systems Friday, moving to further boost liquidity in markets suffering the ripple effect of the subprime-credit crisis and saying they stood willing to provide more cash.
The European Central Bank said it had provided 61 billion euros ($84 billion) to banks in a three-day tender offer, and the U.S. Federal Reserve carried out two three-day repurchase agreements totalling $35 billion, while the Bank of Canada injected C$ 1.68 billion ($1.78 billion).
In Asia, the Bank of Japan supplied 1 trillion yen ($8.48 billion) after a rise in the overnight call rate. And The Reserve Bank of Australia added A$4.95 billion ($4.17 billion).

Marketwatch

Micro-Booms Defy the Downturn

Although real estate sales and prices are flat or down in dozens of metropolitan areas, micro-markets within them are performing differently, with prices and sales up over last year and plenty of buyers still wanting to move in.

Good Markets Have These Things in Common

• Above median income -- often well above -- with home prices to match. Typically, these are not first-time-buyer markets, nor do they have a lot of new subdivision construction. Residents' education levels exceed regional norms, local school systems are highly regarded, and crime rates generally are low.
• Prime, not subprime, mortgage territories, with little to none of the negative neighborhood impacts of rising foreclosures caused by payment-shock loans going sour.
• Close-in, established neighborhoods convenient to the urban center's employment and cultural attractions. They don't require residents to make long commutes, sit in traffic for hours or worry about gas prices.

Wall Street Journal

Thanks for reading

Your Property Path

Jumbo Loans Get Pricey

In Credit Crisis, Large Mortgages Grow Costly

When an investment banker set out to buy a $1.5 million home on Long Island last month, his mortgage broker quoted an interest rate of 8 percent. Three days later, when the buyer said he would take the loan, the mortgage banker had bad news: the new rate was 13 percent.

The investment banker’s problem was that he was taking out a so-called jumbo mortgage — a loan greater than the $417,000 mortgage that can be sold to the federally chartered enterprises, Freddie Mac and Fannie Mae. The market for large mortgages has suddenly dried up.

NY Times

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AIG warns mortgage defaults spreading

While saying that most of its mortgage insurance and residential loans were safe, AIG made a presentation to analysts and investors that showed delinquencies are becoming more common among borrowers in the category just above subprime.
It said 10.8 percent of subprime mortgages were 60 days overdue, compared with 4.6 percent in the category with credit scores just above subprime.

msnbc.com

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Central banks inject billions more in cash

Central banks in Europe, Asia and the U.S. injected billions of dollars into banking systems Friday, moving to further boost liquidity in markets suffering the ripple effect of the subprime-credit crisis and saying they stood willing to provide more cash.
The European Central Bank said it had provided 61 billion euros ($84 billion) to banks in a three-day tender offer, and the U.S. Federal Reserve carried out two three-day repurchase agreements totalling $35 billion, while the Bank of Canada injected C$ 1.68 billion ($1.78 billion).
In Asia, the Bank of Japan supplied 1 trillion yen ($8.48 billion) after a rise in the overnight call rate. And The Reserve Bank of Australia added A$4.95 billion ($4.17 billion).

MarketWatch.com

Mortgage Crunch

Housing Market Weakens As Mortgage Industry Takes Cure
By James R. Hagerty

"This week is going to be a nightmare," says Melissa Cohn, chief executive of Manhattan Mortgage in New York. Lenders are scaling back so fast that it isn't clear which loans are available or on what terms, and rates are jumping even on large loans, known as jumbos, for prime borrowers.

These stricter lending standards reduce demand for homes and nudge some people who can't refinance toward foreclosure. Higher foreclosures add to a glut of homes on the market in most of the country. And, completing the vicious circle, a weaker housing market comes back to bite the lenders by wiping out owners' equity in their homes and increasing the risk of even more foreclosures down the road.

"The market is in a panic," says Larry Goldstone, president of Thornburg Mortgage Inc., a lender in Santa Fe, N.M. He says he thinks the mortgage-bond market, which supplies most of the money for home mortgages, will calm down within a few months, but the housing market may need at least another year or two to heal.

Wall Street Journal

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Central banks moves to counter liquidity crunch
ECB, Fed, Bank of Canada take steps to calm jittery market

The European Central Bank loaned 49 firms a total of nearly 95 billion euros ($131 billion) -- the most it has ever provided -- after rising worries about spillover from difficulties in the U.S. subprime mortgage market left banks uneasy regarding lending to each other.
Across the Atlantic, the Federal Reserve carried out a $12 billion one-day repurchase agreement, on top of an earlier $12 billion 14-day repo.
Later Thursday, the Bank of Canada said it also provide liquidity "to support the stability of the Canadian financial system and the continued functioning of financial markets

CBS MarketWatch

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Mortgage crunch hits Bay Area hard because of jumbo loans

Many lenders now only want to make loans that can be purchased by Fannie Mae or Freddie Mac, the two quasi-governmental entities that help provide liquidity in the mortgage market. Those two entities cannot buy jumbo mortgages.

"If your (mortgage) is above the Fannie Mae/Freddie Mac limit, even if you're a prime borrower, you will see a significant increase in the rates being charged," said Doug Duncan, chief economist with the Mortgage Bankers Association in Washington, D.C. "If you're not a prime borrower, you will have a hard time getting credit today."

Duncan said jumbo loans are carrying interest rates of 7.5 percent to 8 percent, 1 to 1.5 points higher than a month ago. "This is a big run-up, and we expect it to significantly delay the housing recovery, if it stays there for a while," he said.

Another category feeling the pain: Home buyers who can't make a 20 percent down payment.

SF Chronicle

Its more important than ever to use the search capacity for mortgage rates at Your Property Path