March 6, 2008-Home Warranty of America announced the availability of one of the first-ever green home warranty options in the nation. According to HWA, real estate professionals can now offer their buyers a comprehensive home warranty from HWA with the option to purchase GreenPlus. This new option provides replacement of the appliances and systems shown below with Energy Star rated products, if the unit cannot be repaired.
Dishwasher
Refrigerator
Clothes Washer
Heating System (with 90% efficiency)
Water Heater (with a tankless water heater)
Oven, Range, Cook Top
“This is an incredible breakthrough in the home warranty business. It means that many of the thousands of replacements we handle each year for our customers with these appliances and systems will upgrade to much more energy efficient units, helping to save money for our customers. It will also reduce energy consumption and positively impact the environment through less greenhouse gases” said David Sobel, vice president of sales, Home Warranty of America.
“We know from Energy Star that if just one in 10 homes used Energy Star qualified appliances, the change would be like planting 1.7 million acres of trees. We believe real estate professionals and consumers want this and so do we. It can only be a win-win for all of us,” said Marc Roth, president & CEO, Home Warranty of America.
The company says that HWA has made GreenPlus also available through its direct-to-consumer home warranty programs to expand its reach and impact. This allows those consumers not selling or buying a home to also participate.
“We want to be a part of reducing greenhouse gases and saving our customers real money. Doing our part in this global action is imperative to secure our children’s and grandchildren’s futures,” added Sobel.
Heating, ventilation and air conditioning (HVAC) can account for up to 45% of a homes energy costs. Energy Star HVAC equipment can save up to 20% on heating and cooling costs. Source: www.energystar.gov
For more information, visit www.hwahomewarranty.com.
The company says that GreenPlus is now available to real estate professionals in Texas, California, Nevada, Oregon, Washington, Kentucky, Indiana, Ohio, Arkansas, Mississippi, Alabama, Georgia and Tennessee. It will be available nationally by April 1, 2008.
Thursday, March 6, 2008
Home Warranty of America, Inc., Offers Green Home Warranty Option
March 6, 2008-Home Warranty of America announced the availability of one of the first-ever green home warranty options in the nation. According to HWA, real estate professionals can now offer their buyers a comprehensive home warranty from HWA with the option to purchase GreenPlus. This new option provides replacement of the appliances and systems shown below with Energy Star rated products, if the unit cannot be repaired.
Dishwasher
Refrigerator
Clothes Washer
Heating System (with 90% efficiency)
Water Heater (with a tankless water heater)
Oven, Range, Cook Top
“This is an incredible breakthrough in the home warranty business. It means that many of the thousands of replacements we handle each year for our customers with these appliances and systems will upgrade to much more energy efficient units, helping to save money for our customers. It will also reduce energy consumption and positively impact the environment through less greenhouse gases” said David Sobel, vice president of sales, Home Warranty of America.
“We know from Energy Star that if just one in 10 homes used Energy Star qualified appliances, the change would be like planting 1.7 million acres of trees. We believe real estate professionals and consumers want this and so do we. It can only be a win-win for all of us,” said Marc Roth, president & CEO, Home Warranty of America.
The company says that HWA has made GreenPlus also available through its direct-to-consumer home warranty programs to expand its reach and impact. This allows those consumers not selling or buying a home to also participate.
“We want to be a part of reducing greenhouse gases and saving our customers real money. Doing our part in this global action is imperative to secure our children’s and grandchildren’s futures,” added Sobel.
Heating, ventilation and air conditioning (HVAC) can account for up to 45% of a homes energy costs. Energy Star HVAC equipment can save up to 20% on heating and cooling costs. Source: www.energystar.gov
For more information, visit www.hwahomewarranty.com.
The company says that GreenPlus is now available to real estate professionals in Texas, California, Nevada, Oregon, Washington, Kentucky, Indiana, Ohio, Arkansas, Mississippi, Alabama, Georgia and Tennessee. It will be available nationally by April 1, 2008.
Dishwasher
Refrigerator
Clothes Washer
Heating System (with 90% efficiency)
Water Heater (with a tankless water heater)
Oven, Range, Cook Top
“This is an incredible breakthrough in the home warranty business. It means that many of the thousands of replacements we handle each year for our customers with these appliances and systems will upgrade to much more energy efficient units, helping to save money for our customers. It will also reduce energy consumption and positively impact the environment through less greenhouse gases” said David Sobel, vice president of sales, Home Warranty of America.
“We know from Energy Star that if just one in 10 homes used Energy Star qualified appliances, the change would be like planting 1.7 million acres of trees. We believe real estate professionals and consumers want this and so do we. It can only be a win-win for all of us,” said Marc Roth, president & CEO, Home Warranty of America.
The company says that HWA has made GreenPlus also available through its direct-to-consumer home warranty programs to expand its reach and impact. This allows those consumers not selling or buying a home to also participate.
“We want to be a part of reducing greenhouse gases and saving our customers real money. Doing our part in this global action is imperative to secure our children’s and grandchildren’s futures,” added Sobel.
Heating, ventilation and air conditioning (HVAC) can account for up to 45% of a homes energy costs. Energy Star HVAC equipment can save up to 20% on heating and cooling costs. Source: www.energystar.gov
For more information, visit www.hwahomewarranty.com.
The company says that GreenPlus is now available to real estate professionals in Texas, California, Nevada, Oregon, Washington, Kentucky, Indiana, Ohio, Arkansas, Mississippi, Alabama, Georgia and Tennessee. It will be available nationally by April 1, 2008.
Huge Changes May be Coming for Lenders and Appraisers
This article is relevant information to the Charlottesville Area and Real Estate in general. There have been quite a few past clients where appraisals came in higher than expected and we had conversations about this exact scenario.
Bloomberg News reported on Wednesday that Fannie Mae is proposing to ban the use of appraisals by a lender's employees or those arranged by mortgage brokers.
The proposal was contained in what Bloomberg referred to as a "talking points" memo distributed to lenders this week and was in response to an investigation of the mortgage industry by New York Attorney General Andrew Cuomo. In November the AG filed suit against First American, parent company of one of the country's largest appraisal management companies, charging them with folding under pressure from Washington Mutual, a major client, to use only those appraisers that provided property values acceptable to WaMu.
WaMu was not included in the original suit but Cuomo demanded that Freddie Mac and Fannie Mae each appoint an Independent Examiner to review mortgages and the underlying appraisals that the two GSEs have purchased with particular emphasis on those purchased from WaMu.According to the Bloomberg article, the memo was part of an on-going effort by Fannie Mae to cooperate in the Cuomo probe.
The proposed change would mean that Fannie Mae would no longer authorize its lending partners to use appraisers employed by a wholly owned subsidiary and, while we have not seen the memo, apparently it contains reference to the eventual establishment of an appraisal clearinghouse which we assume would assign appraisers to a project.
Bloomberg quotes Jonathan Miller of a New York appraisal company Miller Samuel, Inc. as saying that about three quarters of residential mortgage appraisals are arranged through brokers who only get paid if a loan closes. Miller called the practice "laughable" because it creates a financial incentive for mortgage brokers to push appraisers toward higher valuations. Higher appraisals also mean more homeowners qualify to refinance their homes and take cash out, he said.
The appraisers themselves have long urged that appraisers be required to keep arms-length from the lenders. Many complain that honest appraisers who refuse to match the values that the lenders want soon find them selves without work and that they are frequently pressured by the loan officers who assigned them to a project to raise their values.
The proposed restrictions would apply to loans acquired after Sept. 1, according to the memo.
Huge Changes May be Coming for Lenders and Appraisers
This article is relevant information to the Charlottesville Area and Real Estate in general. There have been quite a few past clients where appraisals came in higher than expected and we had conversations about this exact scenario.
Bloomberg News reported on Wednesday that Fannie Mae is proposing to ban the use of appraisals by a lender's employees or those arranged by mortgage brokers.
The proposal was contained in what Bloomberg referred to as a "talking points" memo distributed to lenders this week and was in response to an investigation of the mortgage industry by New York Attorney General Andrew Cuomo. In November the AG filed suit against First American, parent company of one of the country's largest appraisal management companies, charging them with folding under pressure from Washington Mutual, a major client, to use only those appraisers that provided property values acceptable to WaMu.
WaMu was not included in the original suit but Cuomo demanded that Freddie Mac and Fannie Mae each appoint an Independent Examiner to review mortgages and the underlying appraisals that the two GSEs have purchased with particular emphasis on those purchased from WaMu.According to the Bloomberg article, the memo was part of an on-going effort by Fannie Mae to cooperate in the Cuomo probe.
The proposed change would mean that Fannie Mae would no longer authorize its lending partners to use appraisers employed by a wholly owned subsidiary and, while we have not seen the memo, apparently it contains reference to the eventual establishment of an appraisal clearinghouse which we assume would assign appraisers to a project.
Bloomberg quotes Jonathan Miller of a New York appraisal company Miller Samuel, Inc. as saying that about three quarters of residential mortgage appraisals are arranged through brokers who only get paid if a loan closes. Miller called the practice "laughable" because it creates a financial incentive for mortgage brokers to push appraisers toward higher valuations. Higher appraisals also mean more homeowners qualify to refinance their homes and take cash out, he said.
The appraisers themselves have long urged that appraisers be required to keep arms-length from the lenders. Many complain that honest appraisers who refuse to match the values that the lenders want soon find them selves without work and that they are frequently pressured by the loan officers who assigned them to a project to raise their values.
The proposed restrictions would apply to loans acquired after Sept. 1, according to the memo.
Mortgage Rates and the Fed - Get it Straight ! !
I ran across this article today by Matthew Graham. I thought it would be useful information for those looking to buy property. Here it is:
"I can't decide what was more troublesome yesterday: the comically uninformed questions put to Big Ben regarding mortgage rates, or the comically inaccurate article printed by CNBC on the same subject. Whatever the case, the media is awash with analysts, experts, officials, and laypersons offering rather strong opinions on a subject about which they have such a painfully shallow understanding.
Today Bernanke testified before congress on the state of the economy. I'll leave it to the 1000 or more other articles to bring you up to speed on the salient points. I'm more concerned with something that no one has really talked about yet: the lack of understanding of our mortgage problems. My concern began to peak after overcoming my amazement at a question I heard today from Luis Gutierrez. CNBC has kindly saved me from needing to type the exchange, listen here.
This question would not be that troublesome at all if it came from a mortgage consumer in the general public (if you don't know why it's troublesome yet, that's OK, we will cover that in a moment). But it comes from a member of the House financial services committee, a member of the subcommittee on financial institutions/consumer credit, and the chair of the subcommittee on domestic and international monetary policy. This guy should know something about this topic! For all I know, he and the rest of his ilk are quite knowledgeable in the rest of their purview, but his question, in conjunction with previous communications from members of congress, illustrates an appalling lack of understanding about the very specific topic of the macroeconomic role of mortgage finance.
Simply put, mortgage rates are tied to Fed policy decisions about as much as they are tied to the price of pork bellies! OK, that's a slight exaggeration. But I've previously written on just how unconnected the two can be. We've seen some Fed rate cuts that have preceded decreasing mortgage rates, and other rate cuts that have preceded increasing mortgage rates. It's enough to confuse anyone! (sarcasm) Wait! Maybe Fed rate cuts don't have a direct bearing on mortgage rates! (sarcasm) Sure, Home Equity Lines of Credit are tied to Prime, but that's about it. Maybe there is more than just one thing that affects mortgage rates! (sarcasm)
Since I know you're burning with curiosity, I'll give you a short version of the answer Bernanke should have given. Here goes... Almost all mortgage rates are in direct relationship with the yields of Mortgage Backed Securities (MBS). MBS are basically bonds: when the price goes up, the yield goes down. Their yields vary directly with mortgage rates and they are responsive to macroeconomic forces in a similar way to other types of bonds. So since inflation decreases today's value of a dollar, and since bonds return a fixed income, inflation makes bonds less valuable. (do you see where I'm going with this yet?). When something is less valuable, less people want to buy it, so the price goes down to attract buyers. When the price goes down on a bond, the yield goes up. And we just said that MBS yields equal mortgage rates. Ipso facto, ergo, therefore, rising inflation is a stimulus for rising mortgage rates.
Granted, this is not the whole story, but it is one of the most easily understandable reasons that mortgage rates have not fallen in concert with the Fed rates. Yes, money is cheaper for banks when rates are cut but BANKS DO NOT SET MORTGAGE RATES!!
Countrywide has to get together with Fannie Mae or Freddie Mac, pour a couple billion dollars of 30 year fixed mortgages into a cauldron, mix well with eye of newt and leg of toad, go down to the flea market, and auction off very small cups of this witch's brew (individual Mortgage Backed Securities) to investors. It's these investors: Saudi oil barons, overseas governments, institutional investors, and billionaire Chinese businessmen, who really hold the note on your mortgage. It's their appetites and goals that truly determine mortgage rates. Luis Guitierrez should know that. And you should too.
The fun continued when I read CNBC's article. I don't even have the space in this article to go line by line on this one, but suffice it to say that, should our bovine friends (especially bulls) not feel up to the task, the assertions herein could serve as equivalent fertilizer.
Mortgage rates high? Historically we're quite low! Perhaps it is referencing the fact that mortgage rates haven't fallen as much as they "should have" considering the yield on the 10 year treasury, which even mortgage brokers believe (incorrectly) is a good indicator of interest rate direction.
Yes, the spreads between mortgage rates and treasury rates are wider than they've been in the past. Maybe that has something to do with the perception of quality decreasing in the wake of a massive mortgage crisis! (understatement) Mortgage yields have always been higher than treasury yields in order to compensate investors for the extra risk.
So don't be surprised when the Fed cuts rates and mortgages hold steady. As long as inflation is a concern and the quality of MBS as an investment is in question, there will not be a direct relationship. My Scoff-O-Meter was tripped all the more abruptly as yesterday was a fantastic day for mortgage rates, a very inopportune day to write such an article.
In conclusion, even if it's not feasible for the average consumer to digest and understand the complex macroeconomic forces that govern mortgage rates, the more people in congress and the news media that understand, the better equipped the general population will be to mitigate our freefall towards and stimulate our recovery from what will be one of the lowest points in our economic history."
Thank you matthew for you wonderfully written post. Leave comments and let's discuss this!
"I can't decide what was more troublesome yesterday: the comically uninformed questions put to Big Ben regarding mortgage rates, or the comically inaccurate article printed by CNBC on the same subject. Whatever the case, the media is awash with analysts, experts, officials, and laypersons offering rather strong opinions on a subject about which they have such a painfully shallow understanding.
Today Bernanke testified before congress on the state of the economy. I'll leave it to the 1000 or more other articles to bring you up to speed on the salient points. I'm more concerned with something that no one has really talked about yet: the lack of understanding of our mortgage problems. My concern began to peak after overcoming my amazement at a question I heard today from Luis Gutierrez. CNBC has kindly saved me from needing to type the exchange, listen here.
This question would not be that troublesome at all if it came from a mortgage consumer in the general public (if you don't know why it's troublesome yet, that's OK, we will cover that in a moment). But it comes from a member of the House financial services committee, a member of the subcommittee on financial institutions/consumer credit, and the chair of the subcommittee on domestic and international monetary policy. This guy should know something about this topic! For all I know, he and the rest of his ilk are quite knowledgeable in the rest of their purview, but his question, in conjunction with previous communications from members of congress, illustrates an appalling lack of understanding about the very specific topic of the macroeconomic role of mortgage finance.
Simply put, mortgage rates are tied to Fed policy decisions about as much as they are tied to the price of pork bellies! OK, that's a slight exaggeration. But I've previously written on just how unconnected the two can be. We've seen some Fed rate cuts that have preceded decreasing mortgage rates, and other rate cuts that have preceded increasing mortgage rates. It's enough to confuse anyone! (sarcasm) Wait! Maybe Fed rate cuts don't have a direct bearing on mortgage rates! (sarcasm) Sure, Home Equity Lines of Credit are tied to Prime, but that's about it. Maybe there is more than just one thing that affects mortgage rates! (sarcasm)
Since I know you're burning with curiosity, I'll give you a short version of the answer Bernanke should have given. Here goes... Almost all mortgage rates are in direct relationship with the yields of Mortgage Backed Securities (MBS). MBS are basically bonds: when the price goes up, the yield goes down. Their yields vary directly with mortgage rates and they are responsive to macroeconomic forces in a similar way to other types of bonds. So since inflation decreases today's value of a dollar, and since bonds return a fixed income, inflation makes bonds less valuable. (do you see where I'm going with this yet?). When something is less valuable, less people want to buy it, so the price goes down to attract buyers. When the price goes down on a bond, the yield goes up. And we just said that MBS yields equal mortgage rates. Ipso facto, ergo, therefore, rising inflation is a stimulus for rising mortgage rates.
Granted, this is not the whole story, but it is one of the most easily understandable reasons that mortgage rates have not fallen in concert with the Fed rates. Yes, money is cheaper for banks when rates are cut but BANKS DO NOT SET MORTGAGE RATES!!
Countrywide has to get together with Fannie Mae or Freddie Mac, pour a couple billion dollars of 30 year fixed mortgages into a cauldron, mix well with eye of newt and leg of toad, go down to the flea market, and auction off very small cups of this witch's brew (individual Mortgage Backed Securities) to investors. It's these investors: Saudi oil barons, overseas governments, institutional investors, and billionaire Chinese businessmen, who really hold the note on your mortgage. It's their appetites and goals that truly determine mortgage rates. Luis Guitierrez should know that. And you should too.
The fun continued when I read CNBC's article. I don't even have the space in this article to go line by line on this one, but suffice it to say that, should our bovine friends (especially bulls) not feel up to the task, the assertions herein could serve as equivalent fertilizer.
Mortgage rates high? Historically we're quite low! Perhaps it is referencing the fact that mortgage rates haven't fallen as much as they "should have" considering the yield on the 10 year treasury, which even mortgage brokers believe (incorrectly) is a good indicator of interest rate direction.
Yes, the spreads between mortgage rates and treasury rates are wider than they've been in the past. Maybe that has something to do with the perception of quality decreasing in the wake of a massive mortgage crisis! (understatement) Mortgage yields have always been higher than treasury yields in order to compensate investors for the extra risk.
So don't be surprised when the Fed cuts rates and mortgages hold steady. As long as inflation is a concern and the quality of MBS as an investment is in question, there will not be a direct relationship. My Scoff-O-Meter was tripped all the more abruptly as yesterday was a fantastic day for mortgage rates, a very inopportune day to write such an article.
In conclusion, even if it's not feasible for the average consumer to digest and understand the complex macroeconomic forces that govern mortgage rates, the more people in congress and the news media that understand, the better equipped the general population will be to mitigate our freefall towards and stimulate our recovery from what will be one of the lowest points in our economic history."
Thank you matthew for you wonderfully written post. Leave comments and let's discuss this!
Mortgage Rates and the Fed - Get it Straight ! !
I ran across this article today by Matthew Graham. I thought it would be useful information for those looking to buy property. Here it is:
"I can't decide what was more troublesome yesterday: the comically uninformed questions put to Big Ben regarding mortgage rates, or the comically inaccurate article printed by CNBC on the same subject. Whatever the case, the media is awash with analysts, experts, officials, and laypersons offering rather strong opinions on a subject about which they have such a painfully shallow understanding.
Today Bernanke testified before congress on the state of the economy. I'll leave it to the 1000 or more other articles to bring you up to speed on the salient points. I'm more concerned with something that no one has really talked about yet: the lack of understanding of our mortgage problems. My concern began to peak after overcoming my amazement at a question I heard today from Luis Gutierrez. CNBC has kindly saved me from needing to type the exchange, listen here.
This question would not be that troublesome at all if it came from a mortgage consumer in the general public (if you don't know why it's troublesome yet, that's OK, we will cover that in a moment). But it comes from a member of the House financial services committee, a member of the subcommittee on financial institutions/consumer credit, and the chair of the subcommittee on domestic and international monetary policy. This guy should know something about this topic! For all I know, he and the rest of his ilk are quite knowledgeable in the rest of their purview, but his question, in conjunction with previous communications from members of congress, illustrates an appalling lack of understanding about the very specific topic of the macroeconomic role of mortgage finance.
Simply put, mortgage rates are tied to Fed policy decisions about as much as they are tied to the price of pork bellies! OK, that's a slight exaggeration. But I've previously written on just how unconnected the two can be. We've seen some Fed rate cuts that have preceded decreasing mortgage rates, and other rate cuts that have preceded increasing mortgage rates. It's enough to confuse anyone! (sarcasm) Wait! Maybe Fed rate cuts don't have a direct bearing on mortgage rates! (sarcasm) Sure, Home Equity Lines of Credit are tied to Prime, but that's about it. Maybe there is more than just one thing that affects mortgage rates! (sarcasm)
Since I know you're burning with curiosity, I'll give you a short version of the answer Bernanke should have given. Here goes... Almost all mortgage rates are in direct relationship with the yields of Mortgage Backed Securities (MBS). MBS are basically bonds: when the price goes up, the yield goes down. Their yields vary directly with mortgage rates and they are responsive to macroeconomic forces in a similar way to other types of bonds. So since inflation decreases today's value of a dollar, and since bonds return a fixed income, inflation makes bonds less valuable. (do you see where I'm going with this yet?). When something is less valuable, less people want to buy it, so the price goes down to attract buyers. When the price goes down on a bond, the yield goes up. And we just said that MBS yields equal mortgage rates. Ipso facto, ergo, therefore, rising inflation is a stimulus for rising mortgage rates.
Granted, this is not the whole story, but it is one of the most easily understandable reasons that mortgage rates have not fallen in concert with the Fed rates. Yes, money is cheaper for banks when rates are cut but BANKS DO NOT SET MORTGAGE RATES!!
Countrywide has to get together with Fannie Mae or Freddie Mac, pour a couple billion dollars of 30 year fixed mortgages into a cauldron, mix well with eye of newt and leg of toad, go down to the flea market, and auction off very small cups of this witch's brew (individual Mortgage Backed Securities) to investors. It's these investors: Saudi oil barons, overseas governments, institutional investors, and billionaire Chinese businessmen, who really hold the note on your mortgage. It's their appetites and goals that truly determine mortgage rates. Luis Guitierrez should know that. And you should too.
The fun continued when I read CNBC's article. I don't even have the space in this article to go line by line on this one, but suffice it to say that, should our bovine friends (especially bulls) not feel up to the task, the assertions herein could serve as equivalent fertilizer.
Mortgage rates high? Historically we're quite low! Perhaps it is referencing the fact that mortgage rates haven't fallen as much as they "should have" considering the yield on the 10 year treasury, which even mortgage brokers believe (incorrectly) is a good indicator of interest rate direction.
Yes, the spreads between mortgage rates and treasury rates are wider than they've been in the past. Maybe that has something to do with the perception of quality decreasing in the wake of a massive mortgage crisis! (understatement) Mortgage yields have always been higher than treasury yields in order to compensate investors for the extra risk.
So don't be surprised when the Fed cuts rates and mortgages hold steady. As long as inflation is a concern and the quality of MBS as an investment is in question, there will not be a direct relationship. My Scoff-O-Meter was tripped all the more abruptly as yesterday was a fantastic day for mortgage rates, a very inopportune day to write such an article.
In conclusion, even if it's not feasible for the average consumer to digest and understand the complex macroeconomic forces that govern mortgage rates, the more people in congress and the news media that understand, the better equipped the general population will be to mitigate our freefall towards and stimulate our recovery from what will be one of the lowest points in our economic history."
Thank you matthew for you wonderfully written post. Leave comments and let's discuss this!
"I can't decide what was more troublesome yesterday: the comically uninformed questions put to Big Ben regarding mortgage rates, or the comically inaccurate article printed by CNBC on the same subject. Whatever the case, the media is awash with analysts, experts, officials, and laypersons offering rather strong opinions on a subject about which they have such a painfully shallow understanding.
Today Bernanke testified before congress on the state of the economy. I'll leave it to the 1000 or more other articles to bring you up to speed on the salient points. I'm more concerned with something that no one has really talked about yet: the lack of understanding of our mortgage problems. My concern began to peak after overcoming my amazement at a question I heard today from Luis Gutierrez. CNBC has kindly saved me from needing to type the exchange, listen here.
This question would not be that troublesome at all if it came from a mortgage consumer in the general public (if you don't know why it's troublesome yet, that's OK, we will cover that in a moment). But it comes from a member of the House financial services committee, a member of the subcommittee on financial institutions/consumer credit, and the chair of the subcommittee on domestic and international monetary policy. This guy should know something about this topic! For all I know, he and the rest of his ilk are quite knowledgeable in the rest of their purview, but his question, in conjunction with previous communications from members of congress, illustrates an appalling lack of understanding about the very specific topic of the macroeconomic role of mortgage finance.
Simply put, mortgage rates are tied to Fed policy decisions about as much as they are tied to the price of pork bellies! OK, that's a slight exaggeration. But I've previously written on just how unconnected the two can be. We've seen some Fed rate cuts that have preceded decreasing mortgage rates, and other rate cuts that have preceded increasing mortgage rates. It's enough to confuse anyone! (sarcasm) Wait! Maybe Fed rate cuts don't have a direct bearing on mortgage rates! (sarcasm) Sure, Home Equity Lines of Credit are tied to Prime, but that's about it. Maybe there is more than just one thing that affects mortgage rates! (sarcasm)
Since I know you're burning with curiosity, I'll give you a short version of the answer Bernanke should have given. Here goes... Almost all mortgage rates are in direct relationship with the yields of Mortgage Backed Securities (MBS). MBS are basically bonds: when the price goes up, the yield goes down. Their yields vary directly with mortgage rates and they are responsive to macroeconomic forces in a similar way to other types of bonds. So since inflation decreases today's value of a dollar, and since bonds return a fixed income, inflation makes bonds less valuable. (do you see where I'm going with this yet?). When something is less valuable, less people want to buy it, so the price goes down to attract buyers. When the price goes down on a bond, the yield goes up. And we just said that MBS yields equal mortgage rates. Ipso facto, ergo, therefore, rising inflation is a stimulus for rising mortgage rates.
Granted, this is not the whole story, but it is one of the most easily understandable reasons that mortgage rates have not fallen in concert with the Fed rates. Yes, money is cheaper for banks when rates are cut but BANKS DO NOT SET MORTGAGE RATES!!
Countrywide has to get together with Fannie Mae or Freddie Mac, pour a couple billion dollars of 30 year fixed mortgages into a cauldron, mix well with eye of newt and leg of toad, go down to the flea market, and auction off very small cups of this witch's brew (individual Mortgage Backed Securities) to investors. It's these investors: Saudi oil barons, overseas governments, institutional investors, and billionaire Chinese businessmen, who really hold the note on your mortgage. It's their appetites and goals that truly determine mortgage rates. Luis Guitierrez should know that. And you should too.
The fun continued when I read CNBC's article. I don't even have the space in this article to go line by line on this one, but suffice it to say that, should our bovine friends (especially bulls) not feel up to the task, the assertions herein could serve as equivalent fertilizer.
Mortgage rates high? Historically we're quite low! Perhaps it is referencing the fact that mortgage rates haven't fallen as much as they "should have" considering the yield on the 10 year treasury, which even mortgage brokers believe (incorrectly) is a good indicator of interest rate direction.
Yes, the spreads between mortgage rates and treasury rates are wider than they've been in the past. Maybe that has something to do with the perception of quality decreasing in the wake of a massive mortgage crisis! (understatement) Mortgage yields have always been higher than treasury yields in order to compensate investors for the extra risk.
So don't be surprised when the Fed cuts rates and mortgages hold steady. As long as inflation is a concern and the quality of MBS as an investment is in question, there will not be a direct relationship. My Scoff-O-Meter was tripped all the more abruptly as yesterday was a fantastic day for mortgage rates, a very inopportune day to write such an article.
In conclusion, even if it's not feasible for the average consumer to digest and understand the complex macroeconomic forces that govern mortgage rates, the more people in congress and the news media that understand, the better equipped the general population will be to mitigate our freefall towards and stimulate our recovery from what will be one of the lowest points in our economic history."
Thank you matthew for you wonderfully written post. Leave comments and let's discuss this!
Thursday, February 28, 2008
Charlottesville Real Estate Blog
Charlottesville VA Real Estate Information and Resources. Articles such as Buying a Foreclosure, What to do if you can't pay your mortgage, Buyer Representation, How to Sell you home and much more...by Rob Alley, Roy Wheeler, Avery Group
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