Jumbo Rates Spike

By Dave Fratello | August 7th, 2007
From today's Wall Street Journal:
Turmoil in the U.S. home-mortgage market is starting to pinch even buyers of high-end homes with good credit records, in the latest sign of rising anxiety among lenders and investors.

This surge in rates on so-called jumbo loans is particularly notable because rates on 10-year Treasury bonds have been falling....

Lenders were charging an average 7.34% for prime 30-year fixed-rate jumbo loans yesterday, according to a survey by financial publisher HSH Associates. That is up from an average of about 7.1% last week and 6.5% in mid-May.

The higher costs for such loans will put further downward pressure on home prices in areas where homes typically bought by middle-class people can easily cost $500,000 to $700,000.
Where are those houses?

On a related note, the Journal also has a briefer today about the state of the mortgage market, entitled, "How Credit Got So Easy, and Why It's Tightening." Short take-away: It's the CDOs.

And while we're lifting from the WSJ, there was an oped there Friday by former Fed governor and Bush economic adviser Lawrence B. Lindsey. Lindsey argued that a bill, S. 1299, by Sen. Charles Schumer (D-NY), threatens to limit consumers' choice of mortgage products and crash the housing market. Bad idea. Instead:
The key to getting America out of its current housing and mortgage market mess is to do everything possible to maximize the availability of credit.
Wow, did he really just say that amid the near-panic regarding mortgage credit on Wall Street?

Yes, he did. What's the argument?
Credit is crucial to making sure there are buyers. Buyers maintain home prices. Sustainable home prices are the key to minimizing foreclosures.
So, pushing more credit out there at, or after, a market peak will lead to "sustainable" home prices? This is an interesting argument that sounds pretty fringey right here today, but might look better in a couple of years. In the meantime, Lindsey warns against legislating a solution:
The Schumer bill would depress [housing] demand still further...

[T]he cost of [Schumer's] approach to every existing homeowner and would-be homeowner is potentially staggering...

The values of every existing home in America are at stake.
While Lindsey is warning everyone to beware Washington, D.C., it seems the problems are flaring in NYC. Are we already playing the blame game?

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