Mortgage Weekly Update - Last Week in Review
Foster Weeks publishes a weekly mortgage report which is updated every Monday morning. How is this affecting the San Francisco real estate market? Read our weekly and monthly market reports. Here's what Mr. Weeks says about last week's activity:...Bonds and home loan rates just experienced one of the most volatile, crazy weeks ever seen, with fixed home loan rates rising by about .375% by the time the smoke cleared.
During the first four days of last week, Bonds underwent a crazy 313 basis point sell-off - more than they sometimes move over the course of six months. Why the insane action? Uninspiring commentary from Federal Reserve officials, renewed fears of inflation...and another very interesting story playing out last Thursday. Losses from The Carlyle Capital Group and Thornburg Mortgage decreased their capital to the point where their financial backers had asked for cash back in the way of a "margin call". What does this mean?
Imagine a home that received a loan for 50% of the value...but a provision in the loan stated that under no circumstances could the equity fall below 50%. And the home would need to be appraised every day to evaluate this. If the home lost significant value, the lender would be entitled to an immediate payment to retain the 50% equity position. So if the home did indeed decline in value, the lender would make a call for capital to make sure their 50% margin of loan-to-value remains intact...hence the name margin call. If the homeowner had the cash to meet this call - all is well. But if the homeowner did not have the cash, the only way to satisfy the lender would be a sale of the home. And that is basically what Carlyle Capital Group and Thornburg Mortgage had to do last Thursday...they didn't have enough cash on hand to meet their margin call, so they were forced to sell home loans that they were holding. This flood of mortgage paper on the market pushed Mortgage Bond prices lower...much lower.
The week was shaping up to be one of the worst in history for Bonds and home loan rates - but then, remembering that weak financial news is good for Bonds and home loan rates, Friday's utterly dismal monthly Jobs Report came to the rescue. On the report that there were a net loss of 63,000 jobs in the US last month - as well as negative revisions to previous months reports - Bonds rocketed back higher, at least enough to erase the previous day's losses, but still ended significantly worse off for the week overall...
Read the entire report here.
- Foster Weeks
posted by SFResidence.com @ 8:04 AM
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