4.5% Rates…What 4.5% Rates?, Fed Cuts Not Working, Capital One Buys Chevy Chase for $520m
The big 3 Detroit automakers now say they need $34 billion to fix the industry. The base price is still $25 billion, but they say they need another $9 billion for parts and labor.
4.5% Rates, What 4.5% Rates?
Every loan agent and broker in the United States who is trying to move their borrowers along and lock are probably facing the same question: “Why lock now when I keep hearing that rates are going to be 4.5%? I talked to my buddy down at the local branch of _____ Bank and he said…” And after 4.5% doesn’t ignite things, are we going to 3%? The rumor is definitely out there in the press about the Treasury Department contemplating a proposal that would cut mortgage rates for new loans for homes through Fannie Mae and Freddie Mac. They, according to the rumors, since no one seems to be commenting, would offer mortgages with rates as low as 4.5%, about 1% lower than current rates as part of the Treasury Department’s effort to limit foreclosures and support housing. I don’t quite see how this fixes the problem of borrowers defaulting on homes where they borrowed money that they shouldn’t have borrowed in the first place…
Mortgage Volumes
Many mortgage company’s volumes dropped dramatically in November compared to October, leading owners to re-evaluate overhead costs for December. Of course, now lenders are hoping that the locks taken last week will make December a good month, and tide them over into 2009. Others, with limited warehouse capacity are hoping to avoid too big of a year-end funding crunch, but with lots of agents trying to squeeze fundings in prior to lock expirations, this may be an issue.
Fed Funds Rate Cuts Not Working
Should anyone care about moves in Fed Funds? Credit market conditions have deteriorated in the last several months, in spite of the FOMC taking overnight Fed Funds from 5.25% down to 1.0%. In fact, some analysts believe that the $800 billion which has been committed is an admission that Fed rates cuts have not worked, and that they will have to do something more aggressive like buying mortgage securities directly from the sources like mortgage companies or buying corporate debt directly from corporations. Still, a recession and contraction in GDP is now expected to continue in the near term, and credit spreads over treasuries have now widened to record levels.
Jobs Report Doesn’t Have Huge Impact On Rates
This morning’s news won’t help the economic picture. (No, not the report that former Culture Club singer Boy George has been convicted of falsely imprisoning a male escort.) Nonfarm Payroll dropped by 533k, almost twice the expectations, and back months were revised downward by 199k. This is the largest drop in payrolls since 1974. The Unemployment Rate is up to 6.7%, the highest since 1993. Hourly earnings were +.4 and the Average Workweek stands at 33.5 hours. On the news, the 1-month Treasury Bill is at .01%, the 6-month T-Bill at .18%, and the 10-yr Treasury is in the mid 2.5% area. (Heck, even the 30-yr bond is down to near 3.00%!) Mortgage prices are better by about .125, pretty good considering the confusion about where mortgage rates should be.
Capital One To Buy Chevy Chase
Capital One is going to acquire Chevy Chase Bank for $520 million, and which is reportedly going to enhance Capital One’s local banking business, including an expanded branch presence in the Mid-Atlantic and increased retail deposit base. Capital One, who is the largest retail depository institution headquartered in the Washington, D.C. region, will now have the largest branch and ATM network in the area.
Daily Humor
Two friends, a little short of a full set of genes, decide to go hunting one day. They get their gear together and take off for the woods where they park the pickup at the base of their favorite mountain to deer hunt. They plan a stalking strategy and begin to climb until they hit a game trail where one goes left and the other goes right.
After an hour one of the hunters see’s movement ahead and takes the shot, runs about a hundred yards down the trail only to find his friend on the ground in great pain, the victim of another terrible hunting accident. He takes off his belt and begins to apply a tourniquet. After a few moments he runs down the mountain, gets in the truck to drive into town to get a doctor.
He runs into the clinic, quickly explains the crisis and drives the doctor back to the mountain. After a few minutes of impatient anguish the hunter unable to stand it any longer and asks the doctor, “Doctor, doctor…how is he?” The doctor says: “Well, he’d probably been ok if you hadn’t field dressed him before coming to get me, fella!”