patrick.net

Ten-year Note rates are up. Fed rate cuts will not help mortgage rates, only banksters.

@skibum,

I hear ya', and I HAVE been on the fence about Chris. However in this crazy, upside down world (as HARM rightly notes) it looks like the fear this time is that a correction in housing prices will lead to a recession, NOT vice versa?

The economy was never all THAT good to begin with, or certainly not "good" enough to drive home prices where they've been.

It's like going to "intervention" where alcohol, cocaine and strippers are provided in abundance (think Henry T. Nichols the 3rd type helpings). Then, after the abuser goes into cardiac arrest he's hauled off to the ER and we declare the "intervention" a success! (It's hard to abuse when a nurse has to come by once an hour to check your monitor).

DinOR:

In many ways, the limit on conforming loans is a ruse. Does it really matter what the limit is -- $1mm, $2mm, hell, $10mm -- if it's coupled with a traditional 28/36 DTI ratio, verifiable income, and a 20% (even 10%) downpayment? $1mm at 6% on a fixed 30 yr is about $6000 P&I plus another (at least) $1k for taxes. So that would require a verifiable of $25k per month -- $300k per year. Only about 1.5% of families make over $250k per year; virtually all of them own houses.

Unless the conforming limit is coupled with a replication of the underwriting standards of 2006, a change isn't going to do a thing -- except make Fannie/Freddie a convenient scapegoat as prices decline (e.g. "Well, if the government had raised the limits, then people could get mortgages").

Peter P,

I think we may see 2 markets emerge. 30 year rates have gone with the bond markets for years now since that was the cheaper rate. However, if Wall Street refuses real estate as collateral, then the mom and pop savings and loans that do NOT sell their loans may be offering the most attractive rates. It may be hard to tell though since they are not now, nor will be, the bulk of the market given their restrictions: owner occupied, 20% down, DTI ration of 35% or less.

Dunno, it will be very netersting to see how that micro-market plays itself out.

Anyone know what the traditional spread on Fed Funds to 30 year rate is for small savnings and loans that wanna cover for their low risk and low profit portfolio? Assuming these small banks can go get money from the Fed at 4.5% they should be able to pass that on to borrowers at 6.5%? 7%? At some point it would seem that would have to be able to beat a fear driven Wall Street/foreign investor in terms of an attractive rate to a borrower.

Only about 1.5% of families make over $250k per year; virtually all of them own houses.

Though in the BA, it's quite a bit greater than 1.5%...

Y'all see that thing way off in the distance?
I'm not sure what it is, but it could be a liquidity trap.

Ed S.

That is such an excellent point. And... I imagine someone with a respectable FICO, decent income and a down payment big enough to make their monthly payments tolerable this is all pretty moot.

You're right, for the most part it won't change a thing. Still, it's pretty amazing what these loan salesman won't do to keep "the game" afloat for just a little while longer? Or rather what they "think" will kept afloat a little longer.

eburbed,

"Only about 1.5% of families make over $250k per year; virtually all of them own houses.

Though in the BA, it’s quite a bit greater than 1.5%…"

Actually this chart doesn't even show 250k+.

It's from 2006 and it shows that those who are at the 200k range here in the BA are at 7.5% or so. So while that's considerably more than 1.5% in the rest of the USA it's still not enough to sustain prices.

1985:
20% down, on deposit for at least year, proof of origin
28ish% TOTAL DTI
On the job for at least 2 years
Excellent credit
3 months mortgage left on deposit after the transaction

2006:
Pulse

How did this happen again, Mr. looks like he ate 10 bunches of carrots?

And here's another interesting article about Silly Valley's income levels and affordability:

http://www.siliconvalley.com/thevalley/ci_7200727

Anyone know what the traditional spread on Fed Funds to 30 year rate is for small savnings and loans that wanna cover for their low risk and low profit portfolio?

There are too many other variables involved, e.g. inflation expectations, shape of yield-curve, etc.

It’s from 2006 and it shows that those who are at the 200k range here in the BA are at 7.5% or so. So while that’s considerably more than 1.5% in the rest of the USA it’s still not enough to sustain prices.

In Japan, the majority of families make much more than 250K Yen a year.

USD is heading towards that direction anyway.

OT, but I just won "most creative" Halloween costume at work. I went as "Mr. Subprime".

I went as “Mr. Subprime”.

Pictures please. :)

"2006

Pulse"

When I got my first home loan in the late 80's the process took about 3 months. Additionally they wanted to see that your assets had "aged". You couldn't just borrow 5K from a buddy just long enough for it to show up on an account statement. They wanted to several months worth.

2006? Like going up to the drive-thru.

@Peter P,

I will have to email you or upload to another site. Patrick shut off the upload tool a few months ago due to spam/security issues.

Some of our predictions are coming true at a frightening pace. The Canadian $ is at 1.065 and Aus$ is over 0.93.

I joked a month ago that US$ will soon have parity with Aus $, then Yuan, then Indian Rupee and finally Yen. This is crazy. When has a major developed nation saw its currency plummet so fast ?

My FXA holding has performed better than GOOG. I am not sure if I should be happy about it.

I will have to email you or upload to another site. Patrick shut off the upload tool a few months ago due to spam/security issues.

Sure. You have my e-mail address. Thanks HARM!

Love to see it. :)

When has a major developed nation saw its currency plummet so fast ?

Wiener Germany.

Peter P,
I believe you meant Weimar Germany...

I do like wieners, though. :)

I believe you meant Weimar Germany…

Yes. Sorry. I love wieners too. Mustard. No ketchup.

Actually, "Wiener" is kind of appropriate given our central bank's actions.

Franks a lot, Bendover Ben...

The more I see that picture on top, the more I can't help but hear in my head, things like, "Whyz don't youz guyz give me my way soz I can dooz some more loan shaakin'".

Admittedly, I pulled the 1.5% as a national average; incomes are much higher in the Bay Area than in most other places in the US. And house prices are much, much higher. A 1000 sq ft 2br 1ba "starter" house for $600k?

My point is that an increase in the conforming limit is nothing more than a political attack point rather than a realistic response to THE key problem: a typical family cannot afford a typical family house in many areas of the US based on mortgage standards of the last 60 years. The pain that many families are feeling today (or will tomorrow) is in learning that they can't afford the house they're in (and that maybe those mean, old bankers with 40 years of lending experience did know something).

The increase in the conforming limit is a back-door way to try to get Fannie/Freddie to take the never-to-be-paid back mortgages off of CWC's books.

Step One is to get the limits raised; then when that's done and folks can't meet the income/DTI guidelines comes Step Two: have Congress pressure Fannie/Freddie to "modify" the guidelines. And voila, CWC's bad paper is Fannie/Freddie bad paper.

Step Three is to have CWC (or its successor organization) then complain loudly about unfair government competition. And we're back to where we started.

@ Duke

I agree that we will see a major collapse due to housing. My only question is how long do you think it will take? I am 27 years old and have about $10,000 in savings in one of those internet banks for downpayment purposes. I am getting nervous about my money being there. I have no idea how long it will take the FDIC to repay my money back if Emmigrantdirect decides to fold. I have watched the interest rate of my account drop ever since Sep18,2007. I don't want to be catching a falling knife. The industry I work in requires me to be somewhat mobil. I would like to start a family in a place I can call my own, but I can't afford any mistakes.

Please anyone, post theories or projections for the next 6-9 months. Will we see a major bank/company go bankrupt? I am eyeing CFC as the front runner to a collapse. They took 11 billion dollars out on their lines of credit!

"maybe those mean, old bakers with 40 years of lending experience did know something"

You know Ed I was just making that very point on our local PDX blog.

The example I gave was say for instance getting an SBA loan. Yeah. Balance sheets, annual reports, time cards etc. etc. Mind you THIS for a well established business on a loan of maybe... 250K! Yet we'll lend out 750K to berry pickers for a house in Gilroy, CA no questions asked!

Just think of it, had the SBA been doling out cash-ola like that!?

http://www.siliconvalley.com/thevalley/ci_7200727?nclick_check=1

A new study on the cost of living in the Bay Area and the rest of California says that a family of four in Santa Clara County and the other nine greater Bay Area counties now needs an annual income of $77,069 - nearly quadruple the federal poverty threshold of $20,444 for a family that size - to afford housing and other basic needs.

By comparison, a family of four with two working parents needs to earn $74,044 in Los Angeles County, and $70,648 in San Diego, to afford basic needs. Those estimates do not include any savings for retirement or a child's college education, nor items such as high-speed Internet or cable television.

Does anyone know what the numbers are for places outside of CA? Like NYC, DC, or BOS?

HARM Says:
I guess my expectations of the Fed have gotten so low that even a modest bad move looks like good news now.

Exactly. It is as if Bernanke is a mentally retarded child, who everyone cheers when he manages to sing Jingle Bells without screwing it up.

"Wow - 25 point cut! Gooood job! What a trooper!!"

SP

HARM Says:
I will have to email you or upload to another site.

If you upload to a public site (flickr, picasa), let us know. I would like to check out what the costume looked like...

One guy at the halloween party at work was in a Casey Serin costume - but then he always looks like that, so I am not sure if that counts :-)

SP

Beware of Big Boomer!

That's all I've got to say.

Those "in the know" know what I mean.

Don't trust 'em as far as you can throw them.

OK, you have been warned. I did my duty.

Good luck soldier!

I am thinking about putting the ARM reset chart on my front door and writing BOO! on it. Dipped my toe in GLD today before the Fed did their dirty work. Oh the humanity....

HARM :

If you can describe the costume that would be fine too. Or if you want to email me the photo - you should have my email address from the posts - that will work as well.

Thanks.

from www.jsmineset.com

"Dan Duval’s Commentary

Listed below are a few price comparisons I put together between the USA and Canada this morning on some basic consumer goods. Prices are MSRP directly from the respective US and Canadian retail sites for the given companies.

Think it is more likely to see the Canadian prices drop or the US prices go up? This may be a good barometer for the real inflation coming in the US.

Canon SD870 8.0mp Digital Camera - $168.58CAD (33.7%) Difference
-Canada Price (BestBuy.ca) $499.99CAD
-US Price (BestBuy.com) $349.99USD ($331.41CAD)

2008 Honda CBR600rr Motorcycle - $3413.13CAD (27.3%) Difference
-Canada Price (MSRP) $12,499CAD
-US Price (MSRP) $9599.99US ($9086.86CAD)

2008 Ford F150 King Ranch 4x4 - $9889.52CAD (21.3%) Difference
-Canada Price (MSRP - Discounts) $46,249CAD
-US Price (MSRP - Discounts) $38,420US ($36,359.48CAD)

Ikea Hemnes Bed Frame - $83.68CAD (26%) Difference
-Canada Price (Ikea.ca) $319.99CAD
-US Price (Ikea.com) $249.99USD ($236.31CAD)"

Back on topic-

I think the only pay these snake oil salesmen should get is the snake oil! Tan Man, your stock options vest into sub prime CDOs - enjoy! Same with with the Merril situation and so on.

I just looked at the back of a book of Neruda poetry I just got from Amazon. The prices are:

$24.95 American
$36.95 Canadian

What year's foreign exchange are these book publishers using? The book is a new edition, so it was quite recently printed, and the prices on the back are on a sticker anyway. You'd think the Canadians would request that publishers more accurately price the books.

Response to "thenuttyneutron":

"I have no idea how long it will take the FDIC to repay my money back if Emmigrantdirect decides to fold."

Highly unlikely that Emigrant Bank will fold. Very stable bank, been around for over 100 years in New York City.

"I have watched the interest rate of my account drop ever since Sep18,2007."

Just about every financial institution has cut their savings rates in the past month. Any time the Federal Funds Rate is cut, virtually all financial institutions follow suit.

"Will we see a major bank/company go bankrupt?"

It has already happened. Netbank.com went belly up in September and their deposits were taken over by ING Direct.

SFWoman Says:

> How’s the housing market up in the Pacific Northwest
> area? Has Bend turned yet?

Then DinOR Says:

> Bend is (according to a local MB) a disaster area! However
> he feels the impact to the community will be minimal. For
> the most part the growing, out of control inventory was to a
> large extent, simply REIC players flipping homes, lots etc.
> to one another. That’s a relief!

When I was up in Bend last summer fly fishing I saw a lot of locals with fancy cars, trucks, boats and fishing gear. One guy bragged that he only working three days a week and fishing and hunting the other four days. The fancy new $60K trucks parked on the banks of the Deschutes and John Day rivers made my little 2004 Range Rover look like a little dull toy (since it was the only truck without big rims, a lift kit and diamond plate). When the flippers and developers stop paying big bucks to all the contractors it is going to be a big shock to the greater Bend/Central OR economy (I predict that things in Bend will get worse than they get here in the Bay Area)…

nuttneutron:

Please be patient!

I was your age with similar motivations when I "stretched" to buy my starter home / sh*tbox in 1989, it was a collossal mistake that framed all sorts of choices for a long time afterwards. It's one thing to be house poor. It was a good five years or so (or should I say a "bad five years") before my house was "liquid" enough that I wasn't a slave to it anymore. So it's one thing to be house poor for a few years after buying a home, but it's quite another thing to be house poor during a long, drawn out housing recession.

And that long, drawn out housing recession was during a time of declining interest rates, which was because of a strengthening dollar. And of course, while there were some distressed new FB's like me, we FB's from that era only stretched within the parameters of "prime" (and non-Jumbo) loans as subprime ones did not dominate then. And I don't think there even were such things as option-ARMs.

Nowadays we face a housing recession with a falling dollar, not a rising one. As the dollar collapses we'll be facing rising borrowing rates (at least for mortgages), not falling rates, tightening of lending guidelines, not loosening of them. And unlike in the early 1990's, we don't have a legion of option-ARM resets to look foward to. So this housing recession will be worse than the last one.

The good news is that the value of housing will fall faster than the value of the dollars you've squirreled away. Good thing you're saving for a house and not for food or energy.

Unless of course if you covet a home in the "fortress" so you can buy your kids' way into an elite "public" school, that's a different matter. The buyers there are mainly wealthy Asians, it (The Fortress) is a different market based on the USD purchasing power of the wealth they've got from Asia.

Note from the hinterlands. . .

My badly-rendered link from last night was a Bloomberg item reporting that Mozillo and others had succeeded in establishing and making generous use of credit lines at the Federal Home Loan Banks. Some of the discussion I saw over at CR and at Yves Smith's site indicated that FHLB was accepting collateral which would not have been suitable - or would have been rated as high-risk - at the discount window. Essentially, the Mozillos of the world have found a cheaper alternative.

I don't know enough about FHLBs to know if the Congress would be forced to cover losses if or when these loans default but, again, the online consensus seems to be that ultimately the taxpayer will get the bill. Bloggers - some of them - clearly see this as an end run and a betrayal. Malinvestment rewarded.

Another comment was that FOMC would garner all the media attention today, with the result that FHLB news would pass below the radar. Looks as if that's true so far. Anyway, we know now where the Tan Man got his new credit lines.

FAB, those 'elegant' trucks are increasingly turning up here on street corners as FSBOs. No idea what our roofing contractors will now drive 'for best.' I'm with you for what it's worth: Rover, not diamond plate, for off-road.