patrick.net

OO,

I suspect, It might show up tomorrow.

PermaRenter Says:
Tivo layoff:
EXPECTS PRE-TAX CHARGES OF APPROX $1 MILLION PRIMARILY FOR EMPLOYEE-RELATED severance benefits and out-placement costs

If the charge is only 1 million, it probably is a small layoff. (Temps and contractors are not counted, of course)

I just called a loan agent, 5.5%, already reflected in this rate, for $417K conforming or below, 75% LTV max, that is the best they can do.

No drop for non-conforming jumbo.

The funding for the above quote is from Chase and Wells Fargo and reflects the latest drop.

If we really just dropped the 30 year rate to 4.875 by direct governeent intervention - wow. Just wow.
That will: help clear inventory, prop up prices, re-emply people into finance (to handle the re-fi load), help stabailize property tax incomes to states. It is an amazing, if expensive, method to buy time until the public works programs can ramp up. In fact, that lower rate in interest paid savings may compare directly over a 30 year period to current lost equity.

Normally I would hate this kind of massive housing intervention, but in terms of staving-off our spiral into Depression, at first blush this looks really smart.

Yeah, and as a result of this intervention, Euro is again above 1.3

So, its boosting exports and hindering imports. . .

(lets just ignore the destruction of value of the dollar and savings)

Hmm. Gentleman, I give you the Bigger Bubble. The Government.

OK, just called up Chase, my home loan servicer and bag holder, here is what they are offering, all fixed

5.25% for 30 years, fee $2,500
5.25% for 15 years, fee $4,100
5.25% for 10 years, fee $3,600

Now can you tell me which loan do the banks and the government want to herd everybody into?

If it really drops below 5%, I will refinance to the 10yr fixed, but so far I will still wait for our government to pull an even bigger wonder :-)

@OO

I thought you sold your house and were renting. Are you planning to buy again soon?

I don't understand one thing, if they are encouraging good behavior, why don't they intervene while letting the market reflect the risk of time lag.

Shouldn't 10-yr loan be always priced lower than 30-yr? The loan is paid off faster, it is subject to shorter time lag in which any black swan can happen, why would the government herd everyone to a 30yr loan?

No, I didn't sell, when I was planning to sell came the deleveraging in which everything was whacked down very violently and it looked like things were coming off the wheel very fast. I didn't want to be caught in the middle of that.

I am not actively looking for refi, but if the terms are good, why not?

@Danville,

If they really manage to manipulate rates to below 5% for 30-yr fixed loan, and if you have a load of cash which can qualify for conforming, it may not be a bad time to buy.

While price can still come down, you won't see such a good rate for a long time to come, because our government cannot get away with rates being so low and USD being so high. This will be a brief window of deflation coupled with low interest rate that you can take advantage of. What you should look at is not just the housing price, but the total housing payment. You may buy at a higher price but a lower interest payment, or at a lower price but a higher interest payment, you need to look at what the TOTAL payment is, not just the housing price.

We have enjoyed a very low interest rate for a long time, this will have to change. And if our government is raw printing to keep the Treasury yield down, at some point USD will simply collapse and you'd better off to hold some land than cash.

That will: help clear inventory, prop up prices, re-emply people into finance (to handle the re-fi load), help stabailize property tax incomes to states

I do see some people would try to refinance and few people might be hired for it. Propping up prices would be more difficult. I have a 15 year fixed at 5.125%. I wouldn’t be excited till I see a 3 handle on rates. We are entering a phase of steepest job losses and I can’t think of any sector of economy that is holding up strong. More inventory would be dumped onto market due to job losses. No interest rate could help people without a paychek.

My loan agent sounded pissed that I didn't want to go through with refinance (I unfortunately have a 10-yr fixed @5.5%, and only 8.5 years left). So I need the rate to get down to at least below 4.5% for me to be motivated to contribute pts and closing fees to my loan agent.

But I do think that if the rate can get down to 4.x% or even below 4%, the economy will get a big boost, we will have added a few music chairs to keep it going. It is not like half of the country is unemployed, there are still people with jobs, and nobody doesn't like refinancing to a lower rate if they already have a job and a home, which will be more than 50% of the American household. That is a lot of refinancing. But of course, after this is done, then what?

It is of course given that USD will be worthless by then, but don't you love to lock in a long-term low rate to pay back worthless dollars?

Mick,

Whelp, the ole' chestnut about the Fort Knox being full of nothing but hot air is a favorite amongst the conspiracy theory buffs.

http://en.wikipedia.org/wiki/United_States_Bullion_Depository#Conspiracy_theory

So I calls 'em like eye sees' em'.

Peter Schiff has tinfoil headgear in the family; ever hear of Irwin Schiff?

http://en.wikipedia.org/wiki/Irwin_Schiff

So no surprise he has a chip on his shoulder against a US government. A very costly chip I might add, as his funds got *murdered* this year.

The mistake he made was to think the bubble was in the U.S. and all the real growth was in emerging markets, oil and foreign currency. He bet the farm on a dollar collapse against these asset classes. Unfortunately for him, it turns out the bubbles overseas were just as bad (if not worse) than the ones here and everything fell the other way.

I freely admit that we are in deep doo-doo as a debtor nation; as we are either going to end up being indentured servants to our Asian overseers or sell off our assets (including that gold bullion) at fire sale prices to pay off our creditors.

Re:Ron Paul. He is Magneto at the end of the last Xmen movie. Cranky, crazy old fart sitting alone in the park feeding pigeons, trying to move chess pieces with his mind.

OO, I wouldn't get a new loan either. 5.5% fixed is still nothing to sneeze at.

Just to do the math I ran:
30 year fixed at 4.875% for a $500,000 loan. After 30 years, total interest paid is $452,574.80
Compare against the same but with 9% loan (where I think loans will go as soon as the recession is over) and you get interest of $948,320.71, which is $495,745.91 more than the first loan. It is also the same in difference as the entire pricpal of the house.
So, for those planning to buy and hold - no moving, no losing your job, no trading up, etc. The math looks pretty interesting.

@OO
Have you checked Fremont Bank recently? A few years ago my husband and I used them to get a no fee loan with a slightly higher interest. It worked well for us because we only needed the loan for a short period of time.

Compare against the same but with 9% loan (where I think loans will go as soon as the recession is over)

Duke,

Are you kidding? 9% home loans?

Duke Says:
Just to do the math I ran: 30 year fixed at 4.875% for a $500,000 loan. After 30 years, total interest paid is $452,574.80. Compare against the same but with 9% loan (where I think loans will go as soon as the recession is over) and you get interest of $948,320.71

The arithmetic is only one part of the math. :-)

With rates at 9%, that 500,000 loan (and your down-payment) is going to buy you a nicer house than when the rate is less than 5%.

Also, by buying now, you are putting your down-payment directly at risk- especially if you expect rates to go to 9% or if you expect more layoffs in the area.

If you already have a loan at a higher than 5% rate - i.e. you are stuck with a principal already - this is a great opportunity to lower your rate. But if you are holding cash and looking to buy, it isn't very tempting.

Anyone with a decent down-payment in savings should be praying for a high mortgage-rate environment to bring prices down. :-)

[not investment advice]

sa Says:
Are you kidding? 9% home loans?

Wells-Fargo's 30-year-fixed Jumbo was at 9.875% a month ago. And you needed a proctological exam of your finances before they gave you the loan.

It has dropped now to 8.625, but is not too far south of 9%.

Conforming rates are below 6%, but in the parts of the Bay Area that Surfer-X likes, a conforming loan won't buy you much.

I doubt that mortgage rates will go up in the next year or so. But once we start to see inflation from the current policies rates could go up a lot.

As SP points out, when rates get higher than normal prices tend to get depressed further. So, buy when prices are depressed, even if you must pay high interest rates. Then refinance a few years later at lower rates, and you get the best of both worlds (low price and low rate). This strategy worked well for me in the early 1980s and the 1990s. It should work again.

So.....Volker, eh?
Interesting choice. Hope he lives long enough to do some good.

Right now, obama can do no wrong. He can take in a puppy and name it something, the stocks could go higher. Bush that bad?

There are so many arguments against buying now. . .

I just wanted to throw out to some the view that with the govt intervening in the mortgage market, that a run-out loan cost compared to principal destruction is pretty interesting. Especially for those who feel that this period of deflation is going to be followed by a period of inflation.

Given how fast home prices are collapsing it looks like the gummint has no qualms throwing the speculators under a bus. Which is as it should be.

A friend who short-sold his house for $500k just found out it got short-sold again for $370. Talk about knife catching!

I'm actually curious exactly *how* anyone could prop up home prices.

How do you entice/force someone to overpay for something? And if the banks are doing loan modifications, why not just stop paying every six months and force another cram-down?

Um, Kewp. I would think the period from 1997 to 2006 is a pretty good example of how to get someone to overpay for something. . .

Well, that's kinda my point. Once that incentive is gone, whats left?

Nobody wants to be a bag-holder.

Say, weren't rates at this level like 6 months ago?

It didn't seem to help housing then.

I don't see this development as being anything significant for the general public. It was just another way to stuff money into the banks. If they actually wanted to help the people, and the economy, they would force the banks to cram down a certain number of mortgages (with shared future profits) for every government program they participate in.

By the end of this mess we're going to have some rich ass banks, and zero middle class. Woopee!

Here is one scenario that you'd be better off buying now. Not applicable to a whole lot of people. Location is only confined to desirable areas that everyone wants to get into.

1) you have lots of cash, at least 25% down, or even more.
2) secure jobs, no fear of job loss, can easily support payment with one income.
3) can lock in a low, long-term FIXED rate
and most importantly
4) you believe (which is what I believe) that the government will do everything to reflate, including trashing the USD. If they don't give a damn to dollar, then it becomes an asset allocation issue, it is no longer about buying a home.

Most people cannot satisfy the first 3 criteria, so 4) is mute. But for those who have a big wad of cash with no exposure to real estate at all, it may not be a bad time, especially if the government is really able to get the long-term fixed rate down. 5.25% is not good enough, 4.25% will be very enticing.

kewp,

just theoretically speaking, not that I believe it will happen, hyperinflation or high inflation (15-30% a year) can absolutely hold up the nominal housing price, if not propping it up.

It is again based on your belief that the government is capable of releasing rampant inflation, I believe that they can, and they will.

Bernanke is not doing it right.

The whole problem of wasted $2 trillion so far is because they didn't stimulate from a bottom up approach, but it seems that Obama is getting it. You cannot just sprinkle the money to the banking system which will just distribute money among themselves. You need to sprinkle money through tax rebate, stimulus checks, government job creation, and FDR projects.

Inflation is also about expectation. The key here is get everyone to buy into the "vision" that things will get more expensive nominally, then people will not hoard money any more, making inflation or stagflation a self-fulfilling prophecy.

SP,

if you expect the inflation rate to be 30% a year for another say, 5 years, it will be a no brainer to buy a home now at 5% locked in rate. If I expect 100% inflation a year, I will max out my borrowing at every single bank to buy as many houses as possible at FIXED rate.

The problem for most of us is, we are not sure if inflation rate will run that high, and we are not sure how long it will last. Some are not even sure if the current deflation will be followed by inflation.

It is again based on your belief that the government is capable of releasing rampant inflation, I believe that they can, and they will.

They can't do that without a massive, fundamental change to our banking system. The paradox of our fractional reserve system is that the more the Fed prints, the more debt Americans take on and ultimately, the bigger the deflationary collapse when it ultimately hits.

It's pretty amazing when you think about it, but in the long term printing makes our currency stronger once deflationary pressures begin to manifest themselves.

Anyways, I only see two paths to hyper-inflation.

One, the government starts stimulating right from the printing press. Someone here had the idea that the Fed just circulate debit cards to everyone with a social security number and they just credit them as needed to stimulate the economy. Sad to say that's not too far fetched an idea.

Two, the dollar falls enough to cause a run on it and all our cash circulating abroad gets shipped back home. Again, not likely but not impossible either. Thank God the rest of the world is apparently more screwed up than we are (which really surprises me).

There is an interim solution that I actually like, where the Fed just socializes one large bank that issues low-interest loans (@ the Fed Funds rate) to citizens regardless of credit score. Defaults would be made up via the printing press.

Our currency cannot be stronger, because as our currency gets stronger, we will have to default, period, no other alternatives. We cannot pay our debt off as our currency stands today, if we do not print and devalue, default is the only option, and once we default, our currency is game over.

I don't like hyperinflation and don't believe in it. But I think the best scenario for us to have a soft landing is to have USD devalue 15-20% a year, which means we have a 15%-20% inflation (inflation not uniform across all sectors, some more, some less) each year for a period of, say, 10 years. So in the end, USD will have devalued to 20% of its current value, all problem solved. I believe that is the most likely plan of the government as well.

The only issue is how do we do this gradually and simmer USD bag holders like frog in a pot of lukewarm water, so that they don't get startled and jump out all at the same time.

I disagree.

Keep our currency strong, keep deflating overpriced assets, cut our federal spending and balance our budget.

Clinton did it, so will Obama.

See: http://zfacts.com/p/318.html

Reversing Dubay's tax cuts for the elite will go a long ways to solving this problem.

OO,

The bagholder frog has no choice. Who is going to dump their foreign reserves which are almost solely in USD ? And convert to what ? In the crowd of fiat currencies the USD stands tall.

All fiat currencies will devalue. Against food, energy and eventually real estate. Gold is also a likely beneficiary.

The problem is - now it's going to be much harder to preserve the buying power of current savings and future earnings. It's not that easy to store wealth in form of food and water. Real estate is still deflating. Energy will always remain tied to supply-demand and political whims.

Gold is a logical bet. But that doesn't mean much. The world is inherently irrational. Gold may remain stuck in this range and actually devalue against food.

Gone are the easy days when one could simply invest in FXE or FXA. I enjoyed the ride up on MERKX, got out in time. And now dabbling in GLD. But not as sure now as I was while putting money in other currencies.

# OO Says:
for those who have a big wad of cash with no exposure to real estate at all, it may not be a bad time, especially if the government is really able to get the long-term fixed rate down. 5.25% is not good enough, 4.25% will be very enticing.

You forgot one thing - for those with a big enough wad of cash, the how-much-a-month means nothing - no mortgage means no interest payment, so a lower rate does no good. In fact, it is all the more reason to want higher interest rate (ergo lower prices), so the wad-o-cash goes even farther.

Even if you needed a mortgage on top of the wad-of-cash down-payment, the equation is the same. I see your point about getting your wad-of-cash caught in a hyperinflationary currency-collapse situation, which is a risk. But there are _other_ ways of mitigating that risk than buying a house in a low interest-rate environment. IMO.

OO said:
if you expect the inflation rate to be 30% a year for another say, 5 years, it will be a no brainer to buy a home now at 5% locked in rate. If I expect 100% inflation a year, I will max out my borrowing at every single bank to buy as many houses as possible at FIXED rate.

I see the point in theory, but there are two counterpoints to that:
1. Even in an inflationary environment, will _housing_ inflate? Inflation in house prices has already run well ahead of wages and other supports, so it is possible that houses will tread water while everything else inflates.

2. There are other ways to protect against hyperinflation, than to put all your eggs into immobile assets like houses.

Again, just IMO, and probably biased by my personal circumstances. YMMV. NIA.

The whole recession, stimulus and rescue situation really is only about ONE matter:

***WHO is going to be assigned the losses caused by the falling asset prices, and WHEN are the losses going to be recognized.***

All the actions being taken at the public/government, corporate and personal level really are about this one matter. My statement may seem overly simplified, but the effective assignment and timing of loss recognition will have profound effect on who will be the haves and who will be the have-mores for many tens of years to come.

I wonder if Obama and his economic team thinks of the situation in this way.