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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (41350)	9/12/2005 1:29:27 PM
From: russwinter	Respond to of 110194

Echos my earlier comments about how people are refinancing at same or even higher rates than their old loans: Monday, September 12, 2005 Cash-Out Refinancing Continues thehousingbubble2.blogspot.com Jeff Brown at Knight Ridder looks at the recent refinancing. "Here's a surprising and somewhat disturbing statistic released Wednesday by the Mortgage Bankers Association: Refinancing accounted for a whopping 44.8 percent of all mortgage applications last week. Why surprising?" "Because mortgage rates have been at rock bottom for years. You would think any homeowner who'd taken out a high-rate loan years ago would have refinanced to a lower rate long before now." "I suspect the data is not the result of laggards. Rather, I think it's caused by people who are refinancing to take cash out of their homes, and that's what's so disturbing. It suggests they aren't cutting their interest rates at all; rather, they're just increasing their debt." "Borrowing against your home looks, to many people, like a no-brainer. But whether it really is depends on how that freed-up cash is used. So here's a rule of thumb: Long-term borrowing should be used only for long-term needs." "For example, it can make sense to refinance to get cash to put an addition on your home that you'll enjoy for decades. It's not OK to pay interest for 30 years to fund this evening's dinner out, this winter's ski trip or a fancy car that will immediately start losing value. With the interest included, that $40,000 car financed with mortgage debt could cost more than $80,000." "In theory, it would make sense to take cash out of your home if the money could be put to a more profitable use. If you could borrow at 5.6 percent and invest the money at 8 percent, you'd be making 2.4 percent a year." "But it's hard to make it work out this neatly in practice. Safe investments such as bank savings and government bonds don't pay much more than 3 percent or 4 percent. To get more than 5.6 percent, you'd have to invest in something riskier, such as stocks. You could end up losing money, but still have that long-term debt to pay off." "If you're mortgaged to the max, the property might not fetch enough in a sale to cover the debt. To get free of the too-costly mortgage, you might have to tap your retirement fund to make up the shortfall. That's the nightmare scenario. The people most likely to experience it are the serial refinancers, the folks who treat home equity like a windfall from a rich uncle."

To: Ramsey Su who wrote (41350)	9/12/2005 1:35:49 PM
From: ild	Read Replies (4) \| Respond to of 110194

Gain On Sale (GOS): Spread between primary and secondary mortgage rates. Look for GOS in the CFC release about.countrywide.com Competition in sub-prime is killing margins Mortgage Banking Segment* Quarter Ended (dollars in millions) June 30, 2005 March 31, 2005 June 30, 2004 Prime Production $84,610 $63,943 $75,119 Loans sold $84,935 $58,921 $74,517 Gain on sale ("GOS") $674 $729 $790 GOS as % of loans sold 0.79% 1.24% 1.06% Nonprime Production $9,669 $8,187 $8,133 Loans sold $11,491 $12,486 $8,784 GOS $218 $351 $409 GOS as % of loans sold 1.90% 2.82% 4.66% Home Equity Production $6,875 $6,619 $5,239 Loans sold $3,020 $4,025 $6,110 GOS $122 $156 $151 GOS as % of loans sold 4.02% 3.89% 2.47% Total production $101,154 $78,749 $88,491 Total loans sold $99,446 $75,432 $89,410 Total GOS $1,014 $1,237 $1,350 Total GOS as % of loans sold 1.02% 1.64% 1.51%