Let's Talk Loans - Vol. 9
Thank you for reading the 9th volume of Let's Talk Loans. If you're looking to dive deeper into the world of lending, you've come to the right place. I hope you enjoy the content and please share / subscribe with a peer.
So the only thing to talk about this week has been the Fed. Leaked early in the week, the possibility of something greater than a 50bps hike was advertised. Sure enough, the leak was real and we received the biggest hike since 1994 - 75bps. The narrative was last week's inflation number was still running hot, the Fed was playing catch up and it was time to take control of the situation.
Pop quiz. Now that we've had this 75bps hike, the largest since Clinton was in office, are the 2 year or 10 year higher or lower than where we started the week?
For the 10 year, we closed on Friday (10th) at 3.155%. Got as high as 3.47% on Tuesday (14th) and closed for the day Thursday (16th) at 3.195%.
For the 2 year, we closed on Friday (10th) at 3.06%. Got as high as 3.42% on Tuesday (14th) and closed for the day Thursday (3.09%).
After all that...we moved a handful of basis points. But it was a hell of a ride.
Source: Bloomberg
And for those faint of heart, how does a 94 handle to a 97 handle on the 10 year intraday price (Thursday) feel to you?
Source: Bloomberg
After all that fun, this week we got to witness the approach of 6% mortgages. The goal being to slow down the raging housing market. I have to think this splashes some cold water and likely slows the meteoric rise of home values. Take a look at the graph below. That's certainly not the return on my 401(k) in 2022. Mortgage rates have gone straight up.
The average rate on a 30-year fixed-rate mortgage rose to 5.78%, mortgage-finance giant?Freddie Mac?said Thursday, the highest level since November 2008 and well above the 3.11% recorded near the end of last year. Last week, Freddie Mac reported an average mortgage rate of 5.23%.
The surge marks the largest weekly increase since 1987 .
Some lenders were already quoting rates of 6% or more this week.
Speaking of home values. Perhaps we are witnessing the peak but there has never been a better time to have a HELOC program. If you need assistance standing up a program, or looking for an origination partner, give us a call. If you'd prefer to simply lay off your loans at origination and be a flow seller of closed end HELOANS, we can help there too. If mortgage rates truly are headed to 6% and beyond - this product is going to be a must have for mortgage lenders. We hit the highest level of home equity in history this week - with much of it trapped in ultra low rates.
The amount of tappable equity increased by a record $1.2 trillion in the first quarter of 2022, to more than $11 trillion, according to Black Knight. Close to 75% of it belongs to borrowers with mortgage rates below 4%, the Black Knight data show.?
Despite the rapid move in rates, particularly on the shorter end of the curve, auto loans have not yet followed suit. I shared a poll this week asking the following: "Auto originators out there, what's the direction on where your rates are today compared to Jan 1st?" As of close of business on the 16th the 2 year is at 3.09%. January 3rd the 2 year was at 76bps. That's a greater than 225bps rise in the risk free rate and on super prime auto loans and you've barely raised rates 25bps? Admittedly the numbers below from Experian are from end of Q1 but super prime autos are below the 2 year. Back in 2018 many of you will remember my standing on the table rants, shouting at the top of my lungs "RAISE YOUR RATES". A client recently said to me "I liked 2021 John on autos much more than I liked 2018 John on autos". I've got bad news for you, 2022 might not be much better than 2018. Credit to our friends from Experian for the data below and I strongly recommend you tune into Melinda Zabritski's webinar here .
Lastly, how all of this this impacts the consumer. I joked this week that I'm a fixed income guy and I should stay in my lane . We're officially in a bear market for the S&P and some are saying a recession is unavoidable. Starting to hear word of lenders tightening credit, retail sales was a little weak on Tuesday implying the consumer might slow down, inflation still taking a bigger bite out of the paycheck and that stock market piggy bank being 20% lighter. All of these factor into the mentality of the consumer. Credit remains strong in lending for now thanks to several years of excess savings. That's the part of the conversation I'm watching the most in lending today - any cracks in credit.
#banks #creditunions #inflation #markets #economy #lending #mortgage #mortgages #rates 4794996