On Wednesday morning mortgage rates collapsed close to 5 percent — just under for fee-heavy deals, just above for fee-light, and all were a tad higher today.

Some notes on mortgage pricing:

  • These super-low rates are limited to 740-plus FICOs and 80 percent or less loan-to-value. Fannie and Freddie, despite 90 days in federal hands, still maintain punitive FICO pricing — 695 FICOs have to pay a fee just to get 5.5 percent.
  • The normal fee-versus-rate progression has been distorted for two weeks. Usually it’s a bad idea to pay fees to get a lower rate (payback out at six years); however, a confused and fearful investment world, far removed from retailers’ pricing interests and the "secondary market," wants to buy loans only at a discount. The result from time to time favors paying a fee even to refinance.
  • Prior large-scale rate drops have quickly reversed under pressure from waves of refi rate-locks. This time that wave is a ripple. Demand is huge, even desperate, but availability has been crushed by fallen values, the total absence of "stated" and "no-doc" underwriting; piggyback-second lenders who will not subordinate to first-mortgage refis; too-tough pricing for investors; no market for fixed jumbos; and the FICO hits above.
  • Despite diminished volume, it is enough to prevent another rapid rate drop.

Global financial markets have paused today to attend a public-policy ballet performed by "The Sugar Plum Idiots."

Chrysler and GM have no plan for reinvention, and a bankruptcy-equivalent event is inevitable. The UAW’s three-decade hostage racket has concluded upon the demise of the hostages.

The Democrats, desperate to save jobs that cannot be saved, want to punt themselves into their own "coffin corner" of procrastination and subsequent blame.

Senate Republicans with filibuster power for another 40 days — 20 days longer than GM’s cash — have intercepted the Democrats’ punt. These senators are certain that taking credit for cratering Detroit will be a great start on a reconstituted party, offering supply-side blindfolds and cigarettes to the nation.

Even better, while these senators pose, they know the White House will not allow an uncontrolled bankruptcy in a free-fall economy. So, the same president who would not allow TARP (Troubled Asset Relief Program) money to be used as a bridge for Detroit has now been forced to do so by his own party, rescuing Democrats.

Just when the descendants of Herbert Hoover could hope that his infamy would be replaced by the malpractice of another president … damn.

Briefly, a little TARP clarification, and a kind word for bankers (Honest.):

Partly pandering, the rest in ignorance, half of that willful, Congress is angry about TARP. "We were misled; we didn’t want to do it; we don’t know where the money went; it didn’t work; and we would rather have wasted the money ourselves."

This snit is remarkable deceit even for Congress. The Western banking system was broke, capital exhausted, 18 months ago. By last July, markets closed to new capital-raising, toxic losses not recognized but in plain sight, and the capital shortage was near $1 trillion.

After September’s seizure, Henry Paulson and the president — late and in free-market mental shackles, fumbling for a moment with toxic extraction — unaccountably came to the correct solution: provide capital! (As the Europeans already had.)

Of $350 billion TARP released so far, only $250 billion has been used as capital, and we know exactly where it is. The only error: It was only one-quarter the need last July. Tardiness and inadequacy have led to deep recession and more losses ahead — cyclical, as opposed to prior "structural" toxics.

We’re going to need twice as much capital as we did in July. There are many ways to do the job, even without borrowing. Norway figured out how to recapitalize with non-tradable securities. Just paper the hole.

Banks cannot lend without capital. Today bankers are staring into a bottomless hole of future losses, most aware that their credit clamp will cause more losses. Perhaps the Norwegian ambassador is available. Beats watching the Sugar Plums.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.


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