Wednesday, December 03, 2008

Mortgage Refi's Save the Day?

The markets were directionless for much of the day until people seized on the idea that a surge in mortgage applications last week must mean the end of the housing bust (snark alert).

"Mortgage applications filed last week rose a seasonally adjusted 112.1%, compared with the week before, as borrowers rushed to lock in lower rates, according to the Mortgage Bankers Association's weekly survey, released on Wednesday.

"Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the GSEs were placed under conservatorship," said Orawin Velz, associate vice president of economic forecasting for the association. GSEs refer to government-sponsored enterprises Freddie Mac and Fannie Mae.

"When rates plummeted following the Fed's announcement that it would buy GSE debt and MBS [mortgage-backed securities], many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound."

There are so many reasons why this data is bad --- 1) The is week to week data - Millions of people were off last week for the holiday. Applications probably soared in part because people were sitting around. 2) Rates hit a new low last week which inspired many people that were in the application process to cancel existing applications and re-apply for the lower rate. One industry estimate indicated that 80-90% of applications last week were caused by this cancel/re-apply scenario.

With that being said, the markets have held up through a ton of very bad data this week. We'll see how the markets weather the retail sales data and jobs report on Friday.

Further evidence that consumer credit is one of the next big shoes to drop.... This is a note from a banker on the lax standards that still exist in the banking industry -

"I recently had a client apply for a credit card. She is a homemaker, with no personal income. The house she lives in is in her husband’s name.

She would have asked for a $3,000 credit line, just to pay miscellaneous expenses and to establish some credit on her own. So the computer is told that her household income is $150,000; her mortgage/rent payment is zero. The fact is that her husband’s mortgage payment is $7,000 a month (which he got with a no income verification loan). She had a good credit score, but limited credit since she has only lived in this country for the last three years. The system gave her an approval for a $26,000 line of credit!"



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