When This Chart Gets to $1,250,000,000,000 – Mortgage Rates Are Going to Go Up….

So what does this chart represent?   The Fed’s purchase of mortgage backed securities.   They committed last spring to spending $1.25 Trillion worth of our money buying mortgage backed securities and originally planned on doing it by November.    They then decided to “ease” out of things and take until March to do it.

Rates at that point dropped by .375% overnight and have since dropped further.    I’ve read a variety of analysts predictions that rates will go up by anywhere from .25 to 1.25% when the Fed steps out of the market.   My personal opinion is that we aren’t going to see a dramatic reversal, but rather a slow increase once it becomes evidence that they aren’t going to extend it out further than they already have.

Tomorrow’s Federal Reserve Open Market Committee meeting (which is held behind closed doors) will potentially give some insight into the question of whether, how long, how far they might extend or shorten their market stimulus.   My prediction is that we won’t see them make any dramatic moves but reaffirm that they’ll be done in March.    I also don’t anticipate we’ll see the effects of the market dealing with a huge buyer leaving the marketplace until well after the New Year when we get closer to them really being finished.

Stay tuned and if I can help, let me know.

Tom Vanderwell

The System is Broke? Humpty Dumpty

I’m just quoting the conclusion of the article that was up on Calculated Risk over the weekend.  It was about a lot of the technical aspects of mortgage servicing and the way that mortgages are sold and bundled.    A couple of main comments and then read the conclusion below:

• Many of the problems in the mortgage world are because of the way that the mortgage world is structured.   That means that it is going to take systematic and structural changes to get us back to a system that really works.
• When there is a lack of accountability, things won’t work the way they are planned.
• Do you think that this lack of accountability and lack of responsibility is part of the reason why short sales and foreclosures are so hard to get approved?   There is no incentive for the servicer to make the decisions that need to be made.

Check it out below…..

Tom Vanderwell

Calculated Risk: Thanksgiving Weekend Mortgage Litigation Roundup

In other words, as many of you suspected all along, “hoocoodanode?” was officially part of the plan for creating mortgage backed securities. Systematic and willful ignorance was incentivized. If Wall Street created a system where each bogus mortgage passed through the hands of a couple of intermediaries who had no ability to do any due diligence on the quality of the loan, then the end buyer of the loan would, legally speaking, be in a better position to collect than the original lender by virtue of BFP status. Did the mortgage broker tell the borrower the loan was fixed rate when it really wasn’t? Oh well, no way the mortgage pool trustee could have known about that after the loan passed through the hands of an originating lender, an unrelated depositor and a legally separate issuer.

Whether for better or for worse, this system is pretty clearly not playing out as intended. BFP status does nothing to protect lenders from broke borrowers and half price houses, both of which were foreseen by knowledgeable people who were not willfully ignorant of details about loan origination. And even the limited protection of BFP status may not be available in cases that are actively litigated, since it won’t be hard to prove that everyone in the industry knew brokers were filling in the blanks on stated income loans with whatever numbers were needed to make the applications go through.

So I guess this is just one more reason why all the Fed’s ponies and all the Treasury’s men are not going to be able to put Humpty Dumpty back together again.

Technorati Tags: Mortgage Backed Securities, Systemic Fraud

Eventually, this will affect mortgage rates….

It seems weird to be talking about rising rates when we’ve been in a falling rate environment for a while, but eventually the fact that the government is backing off of their purchase of mortgage backed securities will ease it’s way into the mortgage rate market.

Check back on this in 120 to 180 days and I expect we’ll see rates starting to inch closer to the .375% increase that I talked about a couple of weeks ago in the “Why Rates Are Going Up” post.

Keep in mind, this is a long term dynamic, not something that affects the day to day fluctuations of the market (like we’ve seen in the last week).

If you recall from what I’ve written in the last few days about the jobs report and it’s impact on the mortgage market, I’d say that we’re looking at a “small likelihood” of additional easing in the near future but the longer term trend remains higher for mortgage rates.

Tom Vanderwell

NY Fed Slows Weekly MBS Purchases : HousingWire || financial news for the mortgage market

The New York Federal Reserve Bank detailed purchases of $29.1bn of mortgage-backed securities (MBS) issued by Freddie Mac (FRE: 1.66 -4.05%), Fannie Mae (FNM: 1.42 -2.74%) and Ginnie Mae.

The Fed’s weekly net purchases brought total net purchases to $904.9bn, according to a securitization research bulletin this week by Barclays Capital (BarCap). Of those net purchases, Fannie represents the largest share (59%), while Freddie represents 33% and Ginnie represents 8%.

Net of $9.1bn sales the same week ending September 30, the Fed’s $20bn of purchases showed a steady decline from $23bn in the week ending September 23 and $25.5bn in the week ending September 16.

The weekly slow-down confirms the Federal Open Market Committee’s (FOMC) report that the Fed is on track to buy $1.25trn in agency MBS, and intends to wind down the purchasing program before its anticipated conclusion at the end of Q110.

Technorati Tags: Mortgage Backed Securities, Mortgage Rates

Banks ricochet as Fed details planned mortgage purchases – MarketWatch

The Federal Reserve late Tuesday released details on its plan to buy mortgage-backed securities guaranteed by the federal agencies that support the secondary market for home loans. It will start buying mortgage-backed securities in late January, it said. Previously the Fed said it would buy up to $500 billion in mortgage-backed securities.

Banks ricochet as Fed details planned mortgage purchases – MarketWatch.

Okay, I don’t really get what the big deal is here.   Let me explain how I see it:

1. The Fed said, “We’re going to buy Mortgage Backed Securities.”   The market (and many writers) wrote lots and lots about it (if you want to read some of my thoughts, let me know and I’ll send you the information.
2. Now the Fed comes out with some details and essentially says, “Yes, we really are going to do what we said!”   And the market is all in a “tizzy” (that’s a technical term.)

So what’s the big deal.   They said they are going to do it, now they say, here’s how we’re going to do it.   To me, it doesn’t seem like it’s a big deal (or even close to a big deal) until we get to the Jerry MacGuire point and can say, “Show me the money!”

I’ll have more as I’ve got time, but I’m off enjoying the California weather and time with the family.   A full blogging schedule will resume next week.

Have a Happy New Year!

Tom Vanderwell