I am officially calling today D-Day for housing as the president has now said he will not veto the housing bill. Rates will never be the same after this bill passes.
Rates have soared in the past week , and mortgage applications have plummeted in the last week as a result. Reports have applications down as much as 20% since rates started climbing.
A 30 year mortgage is now at 6.5% up from 6.14% a week ago. Jumbo mortgages have now hit 7.5% up from 7.1% last week. CNBC reported that this is a 5 year high for mortgage rates.
The effects of this housing bill are already forcing mortgate rates through the roof. Folks, Congress is putting the final nail in the housing coffin by passing this. The bond market is going schizo. The 10 year was sharply higher again today.
Congress will deeply regret passing this housing bill. We are less than two hours from the vote.
Sit back and enjoy the fireworks after it passes.
7 comments:
Hi Jeff,
So far it seems this new bill will reduce lending, which will cause further drop in property values, similar to what happened in 1920 as I previously posted.
What are other implications?
Hi Art
There are deep implications. The first being rising interest rates which will reduce lending becuase people will no longer be able to qualify for mortgages.
Some buyers may stop looking because they know they can't afford anything.
As a result, higher rates will then kill housing prices because they need to drop dramatically so people can qualify at the new higher rates.
Moral Hazard Risks:
It risks the credit rating of our government because we will be adding potectially $5 trillion to our balance sheet. This DOUBLES our national debt.
In a worse case scenario it puts treasuries at risk because the USA's balance sheet will look so horrible.
Many countries may decide we have too much debt and stop buying treasuries which will could yields up even further. This could send interest rates to the moon.
This was really a bad decision by our government. The risks that we face after doing this are so multi-faceted.
We have crossed the line of "moral hazard". We will soon see where this takes us.
Good post! Scary to see that the housing crisis in our economy is now going to get worse! Homeowners need to take matters into their own hands to stay out of foreclosure.
Thanks Doc
Working on another post right now. Today has been an interesting trading day.
Reality is setting in on the economic slowdown. Housing #'s were god awful today.
After the Senate & House reconcile their versions, and Bush approves, it gets translated into regulations for HUD, Fannie, Freddie, Fed Reserve and every impacted agency. The language in these regs will be key (I’ve been thru this re: housing program regs). Assuming nothing is lost or added in translation (a mighty BIG assumption) the key point in actually restructuring the existing underwater mortgages will be whether lenders in a 2nd position or with a HELOC allow themselves to get 100% losses while the 1st mortgage gets a haircut that might be only 15% but prob will be 25% (50% in Ca, Fla,AZ, NV?). Delinquent borrowers might have to jump enuff hoops to make it hard to predict how many will be qualified to participate. So its hard to know how many banks w/ 2nds or HELOCs will see 100% losses. HELOCS are recourse so lenders can go after borrowers and squeeze blood from those turnips.
But, the more mortgage restructurings, the more write-downs and actual bank losses.
Does Paulson really want this in 2008?
The end result actually might accelerate posting of losses/write-downs. Sounds good? Isn't there a likelihood of no establishment of a floor in home prices in any markets, just less friction on the ride down? A bad combo?
This may trump all the bill’s add-ins on greater roles & goodies for GSEs.
Paulson's not dumb...but is he desperately throwing out so many things just to see what sticks?
avl
good stuff. Yeah I think Paulson looks like a deer in the headlights.
the answer to this problem seems so simple to me. No bailouts and let housing crash back to levels of affordability.
The government needs to stay out of this mess. They can't stop the housing bubble from bursting because its unsustainable.
WHoever made bad bets in a greedy rage needs to go bankrupt. They shouldn't be bailed out for their bad behaviour.
We can survive without investment banks. We can start new ones. the point I guess I am making is this cannot be stopped, however it can be made worse by intervening in the collapse.
I guess I need to get back to that bottle of vodka!
Well you don't have to toss the vodka, remember, hard liquor will be great for bartering if we cant use checks or credit/debit cards, and stores shy away from accumulating too much cash. And clear liquor can be a decent disinfectant.
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