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Mortgagegrapevine.com Posters Take Rate Guesses

The voice of reason: Listening to the talking heads yesterday, one mentioned that the 10-year bond could go down to 2%. That would mean the stock market is going to continue to go down as money pours into bonds. We are looking at 4% money now for 30-year fixed. I believe the great Barry Habib even got this wrong as he forecasted higher rates by midyear. I have said that 3% rates would get the economy humming but really didn't believe it could happen with all the printing presses running on currency. Seriously, what do you think rates are going to do the next 12 months?

TheVirginiaGentleman: I think no one knows but it would be fantastic if they would continue to go down.

Mortgageguy70: The same thing our economy will do, stay stagnant. Things will not change until mid-next year and then Obama will take all the credit, in time for re-election. Just like Clinton all over again.

Miramar: I think they will stay within a quarter of where they are now. We will see a little up and down action, but not much. Our economy is much worse than everyone wants to admit, which bodes poorly for the stock market. Overseas, no real investment options. I think U.S. bonds are going to be an attractive investment for a while. Even though our economy is bad, I think we are still ahead of the curve of everyone else and will see recovery before Europe. China is just now admitting pain, so I think they are delayed behind us as well.

Getmedone: They will drift downward, and we will be shocked at how little the low rates have helped the economy. Now when lending guidelines loosen up, low rates do, and will, make a big difference.

TheGoblinKing: Doesn't matter how low rates are if no one can qualify for them. Question for the informed among us (of which I do not claim membership!): If TARP had actually been implemented to "quarantine" all the crappy mortgage-based assets like it was supposed to, would that have led to us being in better shape with the UW guidelines we're forced to deal with now?

Brokerjack: It doesn't matter how low rates go if the unemployment numbers stay high.

BuySide: If there is no rate at which a particular borrower can afford the payment, does it make sense to then liberalize the qualification criteria? There is some "point" at which a borrower will repay. There is also a "point" at which the borrower cannot. Multiply that analysis by many multiples of "points" (FICO, DTI, downpayment, etc.).

Add in the uncertainty of a borrower's choice to not pay and you find the state of our industry. We know, and have known for years, the general matrix of factors that indicate a loan is likely to perform. Sure there are exceptions and market influences but generally we know where the sweet spot is supposed to be.

Having pontificated about all that, just what made those loans (that were supposed to go into TARP segregation) bad? Liberalizing the qualification criteria maybe? Therefore we should do it again, why? Interestingly, one of those "points" happens to be lender profitability. In our current market spreads are pretty reasonable. Cost of funds is very low relative to mortgage rates. Understand that there are two sides to the equation. Cost of funds will not, in absolute terms, go below zero. Reducing mortgage rates gets TVOR all excited but he always forgets about who will be willing to invest long term in those mortgages.

Reducing mortgage rates in the vain attempt to get more folks to qualify does more damage by simply squeezing the spread to cost of funds. If, by chance, the lender community forgets about one of the primary causes of the '80s S&L crisis then they will seek to lock in relatively short-term cheap borrowings and lend it out in relatively longer-term mortgages. Been there, done that, didn't like it much.

TVOR's original question, which he keeps asking in hopes someone will agree with him, is where rates will go and why. I think we will not see significant change in rates between now and the election next year (sans some crazy market shaking event or disaster). Dropping long-term rates further would be disastrous. The best solution would be to increase interest rates modestly but slowly across the curve. That would give an opportunity for some reasonable ROI over time and remove some uncertainty that pushes folks to try for windfall gains instead of true investment.

Personally I think we run a serious risk of deflation and no hope for economic growth (necessary for jobs). Even though it may sound contrary, I also think that careless fixes could whipsaw us the other direction and unleash equally serious inflation. There are a lot of dollars being printed to pay for a lot of debt that has been incurred over the last 15 years.

The voice of reason: if you think I agree with the Obama/Bernanke/Pimco/Gross policy of "the sky is falling and we need to lower rates to 3% to stimulate growth" you have misread my posts from day one. The world has been turned upside down. Everything you think needs to happen the opposite occurs.

Rates should have been 7% to 8% in 2005 and Bush failed, too, so I put this entire interest rate manipulation with Greenspan/Bernanke/Pimco/Gross. Rates should be higher now but they are going lower. But mark my words, we will inflate our way out of this mess and rates could go to the extreme by 2012. Wait until Obama spends another trillion! It is a coming. In the meantime, I hope to grab a few loans while the getting is good.

BuySide: Rates will never hit 3% nor should they. Unfortunately they won't get up to where they need to be due to the lack of fortitude at the Fed, the Treasury, the White House and Congress.

TheGoblinKing: I approached that from the wrong angle, I guess. I was thinking of the correlation between the secondary market tanking and all the subprime paper flocking into the FHA world (ruining it for the rest of us).

My brain jumped over too many steps at the same time there methinks-got too drawn up in the little picture there to see the big picture.

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