Mortgage Pain Ahead

Bankrate.com states that Mortgage rates have soared this week, with the average 30-year fixed mortgage rate rising to 5.95% According to Bankrate.com's weekly national survey, the average 30-year fixed mortgage has an average of 0.42 discount and origination points.

The average 15-year fixed rate mortgage jumped to 5.37 percent, while the average jumbo 30-year fixed rate rose to 6.96 percent. Adjustable rate mortgages were up this week as well, with the average 1-year ARM moving to 5.16 percent and the 5-year ARM climbing to 5.49 percent.

The rising mortgage rates have made it very difficult and undesirable for many homeowners to refinance their existing mortgages, punching a hole into the grand Obama/Geithner/Bernanke plan to save the US Homeowner from foreclosure.

But, there is yet another option left for homeowners: The great ARM...remember those? The ones that got many homeowners in trouble in the first place. Although these got a bad rap from the subprime debacle because they were structured around subprime, low down payment, interest-only, negative amortizing and stated income, the ARM mortgage is making a comeback.

The mortgage meltdown occurred because those loan features were layered on top of ARMs. In many cases, the adjustable rates didn't get borrowers into trouble; people defaulted on their loans because they didn't put any money down and they exaggerated their earnings when they applied for stated-income loans.

A few months ago, only about 1 percent of mortgage applications were for ARMs. Last week, it was 3.4 percent, according to the Mortgage Bankers Association.

But....

Mortgage rates remain significantly lower than one year ago. This time last year, the average 30-year fixed mortgage rate was 6.48 percent, meaning a $200,000 loan would have carried a monthly payment of $1,261.51. With the average rate now at 5.95 percent, the monthly payment for the same size loan would be $1,192.68, a savings of $68.83 per month for a homeowner refinancing now.

Again But....

This was way before the government started subsidizing bank losses, running up the prices of Agency Mortgages which drove down yields, and expanded their balance sheets to epic levels.

30-year fixed: 5.95% -- up from 5.65% last week (avg. points: 0.42)
15-year fixed: 5.37% -- up from 5.06% last week (avg. points: 0.38)
5/1 ARM: 5.49% -- up from 5.20% last week (avg. points: 0.48)

Random Thoughts-

Watching BOFA CEO Ken Lewis is like watching the last days of the Richard Nixon Presidency - Why is he still CEO?

News that the Government strong armed him into the Merrill Deal doesn't show that this guy had the guts to handle the whole situation. He cared more about his job then shareholder value.

News that Wells Fargo needs to repatriate bad loans from Wachovia deal as well as their own bad loans back on to their balance sheets from SPV/OBS has investors worried that what ever money they did raise wasn't nearly enough.