Crime...boy I just don't know

Uncle Bernie's run off with rich people's money and now they are broke like the rest of us. The newspapers are full of articles about Madoff's scheme and the repurcussions of it on the victims, the community and the financial community as whole.

Meanwhile it seems that we are in a bona fide refi boom. 30 year fixed rates are the lowest since 1971 according to Freddie Mac. Borrowers must pay a discount point to truly get into the mid 4s, but points are no longer the devil. PMI is the devil now. Borrower's cannot seem to qualify for it, unless they really don't need it. That's going to be difficult for borrower's who purchased a home with less than 20% down and now want to reduce their rate and thus their payment. This could mean the difference between staying in their home or not.

Something needs to be done about some common sense Private Mortgage Insurance qualifications. There are good paying borrowers out there who could find some relieif right now if the mortgage insurance qualifications weren't so unruly.

Libor Schmibor

It's all crazy now. TARPs funds rolling through the system, mostly being used by recipients to buy smaller banks on the cheap. Insurance companies are even getting into the "buy a bank cheap" fray. There is a total disconnect between the 10 year Treasury Yield and the Mortgage Backed Securities (MBS) market that seems to be here to stay. Jumbo rates are as high as they've been in years, conforming rates aren't that great either, frankly. Unemployment is shooting up, while retailers are telling us "no one has any money out there" with their declining numbers.

What's a lowly loan officer to do?

So much happening it's hard to stay on top and blog

The Libor rate has been called into question lately as perhaps being artificially low, this will affect many borrowers who have an ARM that will adjust based on Libor. A Citibank analyst was quoted in the Wall Street Journal last week saying that banks may not be disclosing their true borrowing costs when reporting the rate at which they borrow, and more importantly there is no way to calculate a 1 year Libor rate when the longest one bank will loan to another is 3 weeks.

Also the Fed is meeting again this week, so it's bound to be a bumpy ride in the mortgage rate market this week. So far so good this week, with rates dipping slightly, but I'm unsure what's going to happen if the Fed cuts their rate this week, are inflationary concerns going to drive up rates, or will the recent economic slip allow rates to be maintained at their current levels.

Fed Slashes Their Rate

The Fed has cut their rate twice in the last 2 weeks dropping the Prime Rate to 6%. That's very good news for long suffering Home Equity Line of Credit borrowers. They've paid as their rate went from 4% (yeah that's right) to 8.25%, now back down to 6%. Some jumbo mortgage borrowers now have a Home Equity Line of Credit at a rate lower than their 30 year fixed 1st mortgage.

The Fed Rate is not directly tied to 1st mortgage rates, as many think. The Fed Rate is the the interest rate at which banks borrow money for day to day business needs, or to shore up their overnight reserves. 1st mortgage rates are more closely tied to the 10 year Treasury bond yield. That's what consumers should be watching to find out if it's time to refinance.

The Fed Rate is directly related to the Prime Rate though, so Home Equity Line of Credit borrowers should keep track of that rate closely. There should be some payment reductions coming the next billing cycle. One suggestion as the Home Equity Line of Credit rates drop: Keep making the same payment as when the rate was much higher, that way you will pay down some of the principal. Generally, the payment due on your statement is an interest only payment. If that amount is paid the principal balance remains the same, the debt is being serviced, but not paid down. A discretionary principal payment must be made each month in order to payoff this type of mortgage loan. And the way this loan's rates fluctuate up and down, it's a good idea to pay it down as much as possible.

The Making of CDO

Today I found an explanation on The Wall Street Journal of the Making of a Collateralized Debt Obiligation or CDO. This is a big part of that murky (mostly unknown by consumers) secondary mortgage market that essentially dictates most of the guidelines, interest rates and availability of mortgage financing.

This is a step by step explanation that might clear up some of the fog surrounding this type of investment vehicle.

Check it out here.