Interest Rates Inch Up a Bit

Interest rates nudged up a bit this week but remained near record lows. The following are some excerpts from this week's newsletter on interest rates from HSH Associates :

"In a week where a "landmark" forclosure-abuse lawsuit finally came to a close, mortgage rates held close to record low levels. One happenstance is good for potential homebuyers, the other not so much. Inasmuch as $25 billion in penalties for perceived wrongdoing must be paid, and the money ultimately must come from somewhere, we can only be left to conclude that the cost of mortgages will eventually be higher than it would be absent the settlement.

And what of the foreclosure and loan servicing "abuse" settlement, which ran longer than a year, with tens or possibly even hundreds of millions in legal costs? Well, homeowners who weren't directly subject to any kind of foreclosure abuse might be able to get as much as $20,000 chopped off their loan balance, if they are in trouble or in danger of becoming so and if their loan is not a GSE (FNMA or Freddie Mac owned loan ) or FHA-backed model. That's expected to eat up maybe $17-$20 billion of the settlement, while another three to $5B is expected to be distributed in the form of checks to up to perhaps 750,000 folks who lost their homes to foreclosure between 2008 and 2011. Other funds will provide some refinance opportunities for certain borrowers, and most of the rest will go to states for foreclosure prevention programs and such.

Where are the borrowers who were making payments per the terms of their contracts whose homes were taken from them? If they exist, what is $2,000 to them? Conversely, why should a borrower who lost their home to foreclosure for failing to make payments (sometimes for years) be eligible for compensation at all? Does the fact that a human did or did not fully review the paperwork during the foreclosure process change that simple fact? It does not.

Principal reductions are all well and good, but they are being offered to folks who haven't been "abused" by the system per se, but are as much victims of the downturn as anyone else who owns a home. That said, if the house is underwater by perhaps $50,000 (a working figure, according to CoreLogic), the homeowner will remain underwater for many years yet to come. Although it does move the needle closer to zero for some, it fails to solve the problem. Also, if the loan isn't re-amortized after the principal reduction (that is, if the $20,000 is simply treated as a one-time prepayment), there will be zero effect on the borrower's monthly payment, which is stipulated in the loan contract. Rather, the value will come in total interest savings from shortening the loan term. That's great, but is not immediate relief of any sort. It would, however, change the mix of principal and interest due in a borrower's payment, moving them toward solvency at a slightly accelerated pace.

For reasons hard to discern, we seem more intent upon trying to penalize the issues of the past than trying to solve the issues of today. We'd argue that the $25 billion (or more) would better have been used to help promote homebuying. Given how many properties are now going to be dumped into the market as the foreclosure disposition process comes back up to speed, fueling homebuying by whatever means possible should be a priority. Twenty-five billion would cover a lot of GSE-required MI premiums, pay for a pile of crisis-created GSE loan-level pricing adjustments, paid for some of the FHA insurance premium for first-time homebuyers or other ideas.

As we move slowly away from the crash of the housing market, it's of course natural to want vengeance for wrongdoing and to lash out at whatever the closest party might be. "Victims" of virtually every sort can be found if one looks hard enough, but untangling the thorny mess which produced the market collapse to find a responsible party who can be forced to pay damages is harder. It took decades of good intentions (and perhaps some bad ones) to build the mess we have today, and the parties involved range from regulators and politicians at the top to people flipping homes for profit at the bottom and everything in between. Good or bad, the settlement is done. More lawsuits are likely to follow, with mortgage-backed securities up next. More costs to be passed along, more effort expended addressing yesterday's problems, and less on today's troubles.

Mortgage rates are holding pretty steady at very favorable levels. A larger batch of economic data is due next week, including the latest from the National Association of Homebuilders and data on housing starts. The new home market has been showing some signs of enthusiasm over the last couple of months, and it seems likely that this gradual improvement will continue. Minutes from the last Federal Reserve meeting are also due and should prove interesting, given the new communications and policy direction they started last month. There will be inflation news, retail sales for January and more.

We thought rates would tick a little higher this week and they did. That might again be the case next week, just enough to again keep us a whisker or two above record lows.

The following are interest rate quotes from Al Hermann of American California Financial :

30 Yr Fixed FHA
Rate	APR
3.600	4.280	Details

Conforming 30 Yr Fixed up to $417000
Rate	APR
3.750	3.895	Details

Conforming Jumbo 30 Yr Fixed $417001 - $625500
Rate	APR
3.875	4.014	Details

Jumbo 30 Yr. to $1.5 Mil
Rate	APR
4.625	4.761	Details

Jumbo 7/1 ARM $1.5 Mil (higher loan amt available)
Rate	APR
3.375	3.458	Details

The following are interest rate quotes from Jan Schott Bank of America, Home Loans jan.schott@bankofamerica.com 310-802-2300 :

Conforming Loans to $417,000

5 Yr Fixed: 2.375% @ 1.000/pts 2.875% @ 0/pts

30 Yr Fixed: 3.875% @ 1.000/pts 4.375% @ 0/pts

Conforming High Balance to $625,500

5 Yr Fixed: 2.500% @ 1.000/pts 3.000% @ 0/pts*

30 Yr Fixed: 4.000% @ 1.000/pts 4.500% @ 0/pts

Non-Conforming Loans to $2,000,000

5 Yr Fixed: 2.625% @ 1.000/pts 3.000% @ 0/pts

30 Yr Fixed: 4.125% @ 1.000/pts 4.375% @ 0/pts

FHA Fixed Loans to $729,750

30 Yr Fixed: 3.750% @ 1.000/pts 4.125% @ 0/pts