Why is it that the numbers pad on a computer is “flipped”, opposite to that of the number pad on the telephone? (In case you hadn’t noticed…)
Do higher rates mean that the US economy is going “gang-busters”*? No, but many economies around the world are doing well. Economic growth in the US, while improving, is still tracking below long-term trends, and inflationary pressures appear to be trending down. In addition, any rise in rates now would push the already shaky housing market into further decline. The Mortgage Bankers Association reported their first quarter results of the payments that were 30 days or more past due for subprime ARMs: they jumped to 15.75% from the Q4 2006 rate of 14.44%, the highest rate on record. These new foreclosure increases came mostly from Florida, California, Nevada and Arizona.
Treasuries ended Monday’s session with modest improvements, and this morning the 10-yr is back down to 5.12%. Economic data is light with only today’s May housing starts, which came out this morning as expected, followed by weekly jobless claims data released Thursday. Mortgage prices have improved slightly.
Have you ever heard the term “inflated-sale and-crash” scheme? If not, good! The term refers to a scam in which a buyer, with the help of dishonest real estate agents and appraisers, purchases a home for more than market price, receives cash at the closing of escrow and then lets the property fall into foreclosure. It involves unscrupulous real estate agents who conspire with appraisers to fraudulently declare artificially high market values for homes. Under an inflate-and-crash scheme, for example, an appraiser declares the value of $500,000 property to be $600,000. Based on that appraisal, a lender agrees to a $600,000 loan. The seller agrees to the higher sale price and agrees to give $100,000 cash back to the buyer at close of escrow. Then, when the lender pays the money to the seller, he or she keeps the $500,000 and gives the $100,000 difference back to the buyer and the money is split between the buyer and those who cooked up the deal. Buyers in such schemes typically stop paying their mortgages after a few months; the bank declares default and after a few months forecloses, taking the property back.
*Gang Busters was an American dramatic radio show, from 1935 to 1957, heralded as “the only national program that brings you authentic police case histories.” Beginning with a barrage of loud sound effects (guns firing and tires squealing) this introduction led to the popular phrase “came on like Gang Busters.”
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