Mortgage Rates Rise as US Market Soars
We get a big, even historic, upward bounce in the US stock market. Meanwhile mortgage rates are taking a negative bounce. The interesting part is that one of the stated US government bailout objectives was to preserve or even increase mortgage affordability. However, these same interventions into markets are causing precisely the opposite (possibly short-term) effect:
With so much government debt guarantees in the bond market yield spreads between mortgage bonds and other debt categories are dramatically spreading. A combination of money leaving the bond market for the rising equities market and avoidance of still toxic mortgage paper are likely to continue this trend in the immediate future.
Misery Index at Historical High
Paul Kedrosky points us to the Peterson Institute’s documentation of an all time high in the misery index, a cross-index of inflation and unemployment (Peterson Institute Study [PDF]):
Paul is a favorite of mine for his masterful way of finding and capturing incredible financial market visuals. You should definitely put him in your RSS reader or Email.
Homeowners Getting Help with Foreclosures
Loan modification programs seem to be kicking in and getting notable results:
The California Department of Corporations reported Tuesday that state-licensed lenders and loan servicers modified 38,085 home loans in the third quarter to help homeowners avoid foreclosure, up 85% from the first quarter, when the department first began detailed tracking of such efforts.
Most loan modifications involved cutting or freezing the interest rate on the loan. For example, in September lenders reduced the interest rate to the starter rate or lower in 20% of the deals they worked out with borrowers.
California is expected to hold the largest concentration of “toxic mortgages” due to the extraordinary short-term appreciation followed by rapid depreciation, then sprinkle in a lot of exotic option and IO ARMs. This is a great chart giving a lot of hope to mortgage work-outs.
Analyzing Case Shiller Housing Price Models
There are always lots of discussions around the various measures and indices around housing prices. Mike Shedlock and his colleague “TC” take a stab at dissecting the S&P/Case-Shiller Home Price Release.
OPEC Set to Reduce Production Again
OPEC cartel members are in their own economic pinch, may issue another cut in production:
OPEC can’t be happy. It cut production by 1.5 million barrels a day and the price of crude actually dropped toward $60. Last summer if hit $147. The recession had cut the demand for oil enough that traders still think its price move is largely going to be down.
But, cartel members need money. They are being pinched by the slowdown the way most countries are. Saudi Arabia had to bailout one of its banks. Iran says it needs higher prices to cover its budget deficit.
But, no reason to fire up the F150 and SUV production lines again–there may bigger oil demand problems looming.
Understanding the Hidden Specter of Credit Default Swaps
Credit default swaps may hide off-balance sheet calamity just as on-balance sheet begins to strengthen:
So far, the Fed and other central banks have addressed the on-balance sheet liquidity needs of global banks. But as retail and corporate default rates rise, funding the trillions of dollars in notional off-balance sheet speculative positions in CDS, which become very real and require funding when a default occurs, could prolong the economic crisis and siphon resources away from the real economy.
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I am Bill Rice the Managing Editor of MortgageLoan.com. These are my morning notes. If you have comments, feedback, or pointers to something interesting email me or follow me on Twitter.
About Bill Rice