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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Sam who wrote (160)	9/24/1998 11:04:00 AM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 2794

Sam, Part of he reason spreads are where they are is because of the pressure LTC had been putting on the market as they tried unwind their positions. So it is possible that once the LTC situation is stabilized the spreads will tighten again, the old buy on rumour sell on news. The real question for the mortgage market at the moment is what it means for the general level of interest rates. Last week I would have pointed out that Treasuries were already discounting very large rate cuts and that a Fed cut would actually see a sell off in bonds from the current overdone levels. However today I would say that a rate cut of even 50 basis points will be viewed as a first step and even more rate cuts will be anticipated. As much as I have pointed out that the system is resilient and will survive it is unquestioned that we are about to see some very large and prestige names admit some very big losses. This will be taken badly and there will be a crisis atmosphere. We will survive it but it is likely to cause the market to take interest rates even lower. For the record I just refinaced into a one year ARM. I do this annually. The costs for refinancing in Connecticut are low enough to make this cost effective. So right now I am not in a rush to lock in. If you are going to refinance within the next several weeks I don't think mortgage rates will go up off that period so the risk of waiting is probably not high. Also fwiw mortgage spreads can go out wider. They were much wider in the mid 80s. Henry

To: Sam who wrote (160)	9/24/1998 11:23:00 PM
From: ahhaha	Read Replies (1) \| Respond to of 2794

You should purchase the house independent of interest rate considerations. You can't predict the cost of money. If you need to buy a house, buy it based on cost, locale, maintenance, and utility. As soon as you predicate a decision on random factors, factors that require you to predict how stupid people can get, you will make the wrong choice. Anent to that don't look at your house as an investment. Look at it as a personal possession. Looking at it as an investment causes a distortion of its intended function and you will make decisions towards it based upon resale value instead of the important things like comfort. You become disjoint with respect to what it is, just like Merton and Scholes who regard a bond as a bond price dynamic, a variational derivative of the proportionate bond price, which is an independent variable in the Merton version of the Fokker-Planck stochastic diffusion equation. You'll be computing discounted future values as your neglected house slides down a cliff.