The turn of the tide
I recently had a chance to view a home refi close up. This was an FHA streamline refi: jumbo, low-down-payment on the original 30 year fixed loan which was 3 years old and originated with both a Federal and State first-time buyer credit.
The original rate was 5.25%. The new loan was 30 year fixed with a 3.25% rate and 1.5 points credited towards closing costs.
FHA has been jiggering their mortgage insurance rules regarding mortgage insurance premiums (MIP), just about every year there is a change - for a few years now. The initial loan had something like 2% up front MIP and a 0.5% annual MIP. The new loan has 2% up front MIP (although some of the initial up-front MIP was rebated) and a 1.25% annual MIP, give or take.
However, on April 1st, the FHA rules changed. Annual MIP used to go away after loan-to-value ratio (assessed or from initial appraisial) dropped below 80%. However, as of April 1st, 2013, that no longer obtains; annual MIP is charged for the life of the loan. So that's why the guy getting this new loan needed to have an FHA case number before the end of March; the loan that he would have gotten just a few days later costs several hundred thousand dollars more over the life of the loan. (FHA loans are assumable; in a few years this loan is going to be a shiny 'hood ornament' that attracts some lucky buyer if the homeowner chooses to sell his house.)
Home mortgage rates have been bumping along the bottom for about 6 months. If this refi had been done at the precise low, it might have been a 3.125%, but we think that because of this MIP change, an FHA loan will never in the foreseeable future be as favorable as the loans obtained over the past year.
Put this together with FNM and Freddie making "unexpected" profits this last quarter - I think someone had to stand up and apologize to Congress for it - and I believe we see the beginning of the turn of the tide. Helicopter Ben does not have to stand up in the aisles with a giant spigot and make a dumb show of turning the spigot off; there are subtler ways that this starts, that fixed-rate securities start to become more attractive, to lure investment capital out of equity.
There is a lot of debate about how much the money supply has been inflated, how much our economy can grow structurally at this point, how permanent low-rate policies will be, how badly entitlement spending will drain our economy. Don't know the answers. But I do believe with regard to rates in general, we are at or very near an inflection point.