Just Who Are These Serial Mortgage Refinancers?
I caught a snippet about the mortgage weekly application survey over at The Golden Truth blog and I have been thinking about it all day.
From the survey we see that refinance activity increased quite a bit (regular buying applications were falling, but that got skipped over by most media channels, go figure) and this really makes me confused. I need help!
From the press release:
“The recent plunge in rates on US Treasury securities, due to a flight to quality as investors worldwide sought shelter from the Greek debt crisis, benefited US mortgage borrowers last week. Rates on 30-year mortgages dropped to their lowest level since mid-March. As a result, refinance applications for conventional loans jumped, hitting their highest level in six weeks,”Flight to quality makes me chuckle but let's stick with the topic on hand!
Does anyone out there seriously think home re-financers by and large were watching the Euro drama, saw US Treasuries yields dropping, and decided to refi their home? Really? Most people I know do not even know where their mortgage rate comes from much less how to time it.
So let's say I buy the idea that a nation of savvy rate watchers were ready to pounce on lower rates. How much are we talking? From the press release:
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.96 percent from 5.02 percent, with points decreasing to 0.91 from 0.92 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The effective rate also decreased from last week.So now I am supposed to believe THE SAME savvy rate watchers scrambled to catch these minute changes in mortgage rates? Mortgage rates (so far against my very confident call!!!!) are still so close to all time lows a re-finance makes no sense at all unless your mortgage note is older than the hills. But these are smart rate watchers so we now they have all refinanced before, right?
The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.32 percent from 4.34 percent, with points increasing to 0.81 from 0.80 (including the origination fee) for 80 percent LTV loans. The effective rate also decreased from last week.
The average contract interest rate for one-year ARMs decreased to 6.86 percent from 7.03 percent, with points increasing to 0.35 from 0.28 (including the origination fee) for 80 percent LTV loans.
I find this to be impossible to square with any reality I know. Two idea I am throwing around:
-Refinancing has become the home ATM again, maybe on a lower scale, but it has returned
-Banks are somehow allowing or alerting folks in mortgage trouble to refi loans to keep them in homes they will lose
Anyone else have a guess? I welcome answers in the comments.
FED Rate Hikes and MBS Sales: Just Shut Up Already
With the re-opening of swap lines with Europe and the never ending purchase of all mortgages through Fannie, Freddie, The FHA and even the Veterans Program it should be clear that the FED will not raise rates nor sell off any of the Trillion plus mortgages they have bought. If you are still trying that one out I am not sure what else can be done for you. Tim Iacono, fresh off his move to Montana, sums it up very nicely:
The FED and Their Silly Talk of MBS SalesI agree 100%!
Really. Does anyone seriously think that the Federal Reserve is going to be selling any part of their $1.25 trillion stash of mortgage backed securities anytime soon? With home prices already embarking on another leg down (due largely to the absence of $8,000 incentive checks from the U.S. government) and the possibility of the European debt crisis crossing the Atlantic, maybe they should be talking about buying mortgage debt that few others want, not selling it.
In another few months – as home sales stall, mortgage rates rise, and the foreclosure pipeline continues to dump its contents into an already saturated market – comments like these will look even sillier, that is, right along with the idea that the central bank will begin raising short-term interest rates anytime soon.
The FED's actions can be termed:
"Talk Loudly and Carry a Toothpick"
Gold and Silver with a Note of Caution
By now regular readers know that I am invested in Gold and Silver. For anyone new, I am invested in Gold and Silver via physical holdings. That brings whatever bias it does and my long term view of the metals is such that I think much higher prices are in the future. On this blog I have always written that an average portfolio should hold 5% in metals with 10% being a bit more aggressive. I hold about 25% of mine in silver and gold bullion (a bit more silver than gold) which is higher than my normal 20% because I found a few deals over the past few months I liked. I have this up front so you know where I am coming from.
As a metal head I love headlines on bullish blogs like these:
via Gold Versus Paper:
Gold Bull, Bitches!
The line "Gold, Bitches" cracks me up every time.
via Zero Hedge (where I think the above line was born):
First Gold, Now Europe Running Out Of Silver
Of course some headlines are not as happy; here is an absurd one from Clusterstock:
Every Doctor, Dentist, And School Nurse Bought Gold This Week
Now I know for a fact that my doctor and my dentist have no gold or silver. They think I am a nut for buying it so this one is over the top. I would also doubt school nurses bought much either. Only one person I know in real life (ie, non blog connected) has any gold or silver. I cannot even get anyone to buy a little though I hammer them all the time. Some do trade in and out of some ETF's, but that's about it. So my own experience is that not many people own gold and/or silver. Results may vary in your circles.
After a strong couple of weeks I feel that it would only be fair to try and offer some thoughts I have regarding the metals that are more cautious in nature. While nothing here is investment advice (nobody in their right mind would listen to me!) I do harp on the metals a bit so some things have me a bit more cautious short term and I thought I would share.
In no particular order:
-Gold right now is being termed a "safe haven". While that may well turn out to be more true than you will believe, in the short term metals are about as safe as shaving with a samurai katana sword. It will work if all goes perfect but.....
Volatility can run heavy in metals (especially the miners) so a smooth ride is not really a fair expectation. Silver tends to move much more than gold up and down as well.
-Near term (3-6 months) I think gold $1500 and silver $25 are realistic targets. I also think that at some point gold (to a lesser degree silver) may become a target for government caps or restrictions on price movements. Of course this will only make physical metals go wild to the upside, but the paper proxies like GLD and SLV may fall on really hard times. There could be two metal markets; the paper and the real. It's kind of like the real housing market with no government help and the one we have now. Still, the paper proxies do have some tether to real bullion and this thought does bother me quite a bit. Of course if it comes to this I think it will resolve in gold's favor.
-Gold is money, real money. It has been for as long as gold was mined. Gold is the anti currency. Gold can be seen at times as all of the following:
waste of time
Contrary stock market play
And many more. Obviously gold cannot be all these things all the time. There may well be people buying gold for reasons that make little sense and this could change.
Of course I am still of the mind that over the next year we will see ever more currency issues and debt problems. Gold is "hard money" and it should be clear by now that many debts of all kinds are extremely "soft money" which depend on so much else to be made good. In the face of the wave of sovereign country issues, US state issues, pension issues, and back issues of Sports Illustrated I hold that more paper will be made to keep the system "liquid". The balance will be the metals. Stocks may well go up as well, maybe even more so than the metals, but there is only one true "hard asset" at the base of the value pyramid.
Have a good night.