Industry NewsMarkets & Economy

Intercepting the credit-default spiral

Future-Proof: Navigate Threats, Seize Opportunities at ICNY 2018 | Jan 22-26 at the Marriott Marquis, Times Square, New York

The Fed's purchases of agency MBS (mortgage-backed securities) have succeeded in capping mortgage rates near 5 percent with the lowest fees (1 percent origination easily buys high-fours). Those terms are limited to the best credits (80 percent or less, 740 FICO or better), which is why the Fed's program is working. Of the nation's $10 trillion in first mortgages, not more than one-third qualify, and more than half of those borrowers already have rates too close to 5 percent to consider refinancing. The remaining fraction "in the money" now, at least $1 trillion worth, without the Fed's intervention would have choked what's left of the mortgage and credit markets, with rates then rising to shut off demand. The Fed may be able to buy rates down to the 4.5 percent promised land by spring or summer, but even at its $25-billion-per-week purchase rate the best short-term hope is for this lid to hold while we work off demand. Not helping: obvious profiteering among th...