| 10-Year Treasury Yield Up 100 Basis Points Since May; What's That Mean for Mortgage Rates and Housing Affordability? Posted: 24 Jun 2013 11:49 AM PDT Curve Watchers Anonymous note the yield on the 10-year treasury note hit as high as 2.657% today, up a whopping 104 basis points since the early May low in yield of 1.614%. $TNX: 10-Year Treasury Yield  The 10-year yield has been falling since the open today, but the overall rise since May has clobbered mortgage affordability. Treasury Rise vs. Mortgage Rate Rise My friend Michael Becker, a mortgage broker at WCS Funding Group writes ... Hello Mish
As bad as Treasuries are selling off, the sell off in MBS is much worse. I looked at some charts this morning and the prices of Fannie Mae and Ginnie Mae coupons continue to drop.
The FNMA 3.5 coupon was trading at 106 22/32 on May 2nd, and this morning it was trading at 99 9/32. Ginnie Mae is worse. The GNMA 3.5 coupon was trading at 109 1/32 on May 2nd, and this morning it was trading at 99 24/32.
In terms of interest rates, I locked an FHA purchase on May 2nd and the rate was 3.25%, and that rate carried a 2 point lender credit to help pay for closing costs. In order to get the same deal today, (a 2 point lender credit) the rate would have to be 5% today.
This as an apples to apples comparison illustrates that FHA rates have increased 1.75% in 7 weeks. You could get 4.625% on an FHA purchase, but you wouldn't get any closing cost help.
I was locking well qualified borrowers at 3.50% on conventional loans (Fannie Mae) at the beginning of May, and now they are looking at 4.875%.
Most of this pain has occurred since the FOMC meeting last Wednesday, and I am sure the talking heads at CNBC have no idea how much interest rates have spiked. They keep saying that housing is strong enough to withstand this rise in rates, but I think they are deluding themselves.
I have people who I pre-approved for a mortgage early last week prior to the FOMC meeting, and now that they are getting their contracts accepted and ratified are shocked to learn mortgage rates have spiked one percentage point in just the last few days.
MB Affordability Check A one percentage point rise in rates affects affordability by 10-11%. With mortgage rates up 1 3/8 to 1 3/4 points, that equates to a rise in monthly payments (or a drop in affordability) by as much as 17%. Anyone who stretched to buy is no longer qualified unless they locked some time ago. Refinancing will soon be dead in the water (anyone who has not already locked no longer has any incentive) and new home affordability has taken a big hit. Mainstream media talking heads say this will not affect the housing recovery. Assuming this trend sticks (even if rates simply level off now), how can this bond revolt not affect housing? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Bank Transfers and Services Suspended in China: ATMs, POS Machines, Online Banking Paralyzed 50 Minutes Posted: 24 Jun 2013 10:03 AM PDT Several readers sent a link to an article regarding online bank outages and suspended services in China. The translation show below is very choppy. If a reader has a better translation or a different source I will post it. Please consider Bank of China, Bank of suspension of transfers morning counters were unable to apply for online banking WASHINGTON (correspondent with Xuan) Following the ICBC, the Bank of China also go awry again. This morning, the Bank of China Bank moratorium on transfers, online banking, counters are inoperable.
10:00 many, many people began to receive messages sent to the Bank of China, "the end result of the Bank of China Bank failures, bank customers can not carry on through the Bank transfers, please Bank online banking, bank counter or use of other bank transfer system, Bank system will be restored promptly notify you. "large number of transfer business banking needs of the people turned to online banking, counter, but according to the instructions of the public still found text messages can not handle.
Reporters call the BOC, customer service said, now silver has been fully suspended phase transfer services, online banking, the counter can not be handled, and now has the background system response, recovery time is not yet known.
As of 12:00, the Bank customer service said handle part of the user's online banking has been restored.
Just yesterday, 10:35, Shanghai and other places ICBC system failures, ATM machines, POS machines, online banking appeared paralyzed more than 50 minutes, all kinds of businesses can not properly handle.
The ICBC bank system failure comes trouble "money shortage", inevitably lead to speculation that many people guess the bank is not money.
To solve this problem, ICBC relevant person in charge told reporters that morning, business process slow, the analysis on the host software upgrade, emergency treatment, 11:27 various businesses all returned to normal.
As for speculation that the crash might be the last two days the inter-bank "money shortage" relevant, ICBC has denied. The above is an unedited Google translation. Is this a massive software glitch or is something else in the works? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Currency Stress Hits India: Rupee Near Record Low, Emerging Nations Face Capital Flight; Global Currency Crisis Awaits Posted: 24 Jun 2013 12:29 AM PDT Numerous foreign exchange issues have simultaneously hit the global economy recently. Latest on the list is India where a Funding Strain Grows as Fed Outlook Hurts Rupee. India faces growing strain to fund the widest current-account deficit in major Asian nations after the rupee slid to an all-time low on concern the U.S. will curb monetary stimulus as its economy improves.
The rupee touched the weakest level versus the dollar on June 20 after Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank will probably taper bond purchases this year if the American economy performs as it projects. The potential for reduced stimulus exposes emerging nations from India to Indonesia and Brazil to the risk of capital outflows.
"The prospect of the U.S. unwinding stimulus means that funding the shortfall will get more challenging," said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. "Even if the deficit narrows, it will remain too high for comfort."
The rupee, which touched an all-time low of 59.98 per dollar last week, fell 0.6 percent to 59.6475 as of 11:33 a.m. in Mumbai.
The currency's 9 percent tumble this quarter is the worst in Asia, according to data compiled by Bloomberg. India is prepared to take action to reduce volatility as needed, Raghuram Rajan, the top adviser in the Finance Ministry, said June 20.
The imbalance in the current account, the broadest gauge of trade, is the biggest risk to an economy that grew a decade-low 5 percent in the year ended March, according to the Reserve Bank.
Foreign-direct investment in India fell the most in more than a decade last fiscal year, increasing reliance on stock and bond inflows to fund the shortfall.
Currency reserves stood at $290.7 billion as of June 14, Reserve Bank data show, about 9.4 percent lower than an all-time high of $321 billion in 2011. They "provide a cushion" against shocks, Fitch Ratings said June 12, when it boosted the outlook on India's sovereign rating to stable from negative.
The currency won't stabilize until the central bank is able to "recoup" foreign-exchange reserves, Bank of America Merrill Lynch said in a note, adding the monetary authority will try to "defend expectations" at 60 rupees per dollar for now. Defending the Rupee Just like Brazil defending the real, India now feels compelled to defend the rupee. Good luck with that idea if capital flight takes off in a major way (and I suspect it will). India does have currency reserves, but those can vanish in a hurry if things get out of hand. And if India does use currency reserves to defend the rupee, I rather doubt the India bond markets will take all that kindly to it. Thus defending the rupee against further declines is easier said than done if the markets have indeed soured on the country, and that is precisely how it looks now. Global Currency Crisis Awaits A global currency crisis awaits. I do not know what country triggers first. It could easily be Japan, China, Brazil, India, Australia, Canada, the UK, or any of many countries in the eurozone (as well as numerous countries not on anyone's radar). This sad state of affairs is courtesy of mad central bank monetary policies coupled with inane can-kicking fiscal policies everywhere you look. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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