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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: loantech who wrote (24764)	1/18/2005 9:19:55 AM
From: russwinter	Read Replies (3) of 110194

Tom, since you are in the mortgage biz I'm interested in your and/or others take on how borrowers are going to cope with the ARM tsunami. My questions: 1. You see the numbers 4.16% being quoted for ARMs. Are lenders still making loans at that rate, or is a big teaser move underway? As I have posted, the real ARM rate today on the 1 CMT is 5.59%, and on 1 Libor is 5.97%. Are lenders cutting the margin rate lower? What's going on here? Finally how many of these teaser ARMS were made in 2004, and now face the music? Do you think lenders will back away from offering teasers, there isn't that much of a markup on resells to the secondary market anymore. What's the point of making them, just fee generation, and not worry about secondary resell profits? Something's going to crack here? idorfman.com 2. How do borrowers respond? Do they just wait to see the new sticker shock, and then run down to replace with a 5/1 hybrid which because of teaser rates (I'm seeing 5 1/8%?) and the yield curve, at least for now offers some rate protection (at least for five years) and minor relief from the reset adjusted rate sticker shock? Or do they track this stuff ahead of time and act preemptively. Judging from the low refi index, preemptive moves on refis don't seem to be employed, which suggests as the shock continues to hit over the next several months, the escape route may be closed. 3. I imagine 5/1's are the choice for purchases? Can lenders subsidize 50 bps below the real 1 CMT for a full five years? Big upfront fees to make up for it? 4. What's the scuttlebutt on the big bloated mortgage lending employment base? Have you spotted any large scale layoffs yet? See page 2: raymondjamesecm.com

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