Mortgage insurers rally on Obama's housing overhaul plan

[Joanne98]

Source: Reuters

Reuters) - Shares of U.S. mortgage insurers rallied on Friday after the Obama administration proposed reforms to revamp the ailing mortgage market that will give private mortgage players a bigger role in the housing market.

MGIC Investment shares (MTG.N) were up 6 percent to $9.75. Shares of smaller rivals Radian Group (RDN.N) and PMI Group (PMI.N) were up 6 percent and 4 percent, respectively.

The administration has proposed to wind down government-controlled mortgage buyers Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) and reduce the government's role in the mortgage market


Read more: http://www.reuters.com/article/2011/02/11/us-mortgage-idUSTRE71A3LZ20110211

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Oh goody! Now the mortgage insurers can do for the mortgage market what the healthcare insurers did for the healthcare industry!

[aquart]

1. Why does that fail to encourage me?

[ProSense]

2. This is a complete

pysche out.

The current structure of these agencies is to funnel government money to banks.

[greiner3]

3. And 30 year mortgages have gone up 5% in one day.

Say good bye to a lot of marginal people becoming owners and staying rental serfs.

[PSPS]

4. Higher mortgage rates would be the best thing for the housing market in a long time.

The cost of a house will be the same. It would just be divided up differently between principal and interest. The cost of the house would go down with higher rates.

The low interest rates make negotiating much harder and are only a canard to sell on the payment rather than the value -- kind of like negotiating a price of a car based solely on the monthly payments, where you end up with an overpriced car you can "afford" because you have a six year loan.

[stockholmer]

6. what? that makes no sense, interest rates hugely affect what you pay in total

example

$250,000 house, with $25,000 (10%) down payment 6% interest, 30 year loan

Mortgage Repayment Summary

$1,609.41 Monthly Payment
$579,385.93 Total of 360 Payments

$252,385.93 Total Interest Paid
Jan, 2041 Pay-off Date



now, same house at just 3% more (9% rate)

$2,070.82 Monthly Payment
$745,494.32 Total of 360 Payments

$415,213.07 Total Interest Paid
Jan, 2041 Pay-off Date


you are paying $160,000 (almost 2/3rd's) more in interest with just a 3% move



now, make the rate 12% (rates were around 20% in the late 70's-early 1980's)


$2,574.80 Monthly Payment
$926,926.20 Total of 360 Payments

$593,269.95 Total Interest Paid
Jan, 2041 Pay-off Date


now you are paying almost $600,000 in interest alone

total payments of $926,000 for a $250,000 house


interest rates matter, and that house will will have to increase in value 4.5% EVERY year (on average) for those 30 years just to break even when if it was sold in 2041

the average US house has lost close to 30% of its value in just the last 3 years, so those people will probbly never recoup if they make all the payments


http://www.bloomberg.com/news/2011-02-09/home-price-decline-leaves-27-of-u-s-owners-underwater-on-loans.html
27% and climbing of all US mortgages are underwater, in many areas, it is well over 50%

[Roland99]

5. ayup

Product Rate Last week
30 yr fixed 5.06% 4.89%
15 yr fixed 4.32% 4.15%
5/1 ARM 3.63% 3.48%