Thursday, August 09, 2007

Credit Crunch grows

Don't listen to the talking heads that keep telling you the 10 year treasury is down, so home mortgage rates are going down - Wrong!

Two things make this untrue:

1) The spread on loans has increased dramatically. See my post below on BofA raising jumbo rates by 150 bps. See also several of the links at the left where this has been discussed ad naseum.

2) This is the more important one. Many (if not most) of the ARM's are tied to LIBOR. It looks like LIBOR rates hit the fan this morning and the credit crunch has hit a new level:

Aug. 9 (Bloomberg) — The British Bankers Association said the overnight lending rate that banks charge each other to borrow in dollars rose to 5.86 percent today from 5.35 percent.
The so-called London interbank offered rate in dollars is the highest since the start of 2001. The benchmark borrowing rate is rising on concern banks face growing losses on investments linked to U.S. mortgages. The European Central Bank said today it is “closely monitoring the situation and stands ready to act to assure orderly conditions in the euro money market.'’
“Liquidity in the market has completely dried up as investors aren’t recycling their money back because of subprime concerns,'’ said Saher Bin Jung, a trader on the commercial paper desk at Commerzbank AG. “Levels have shot up dramatically since yesterday as issuers are trying to entice investors back.'’
Bank of America Corp. and UBS AG said their overnight borrowing costs rose 65 basis points to 6.00 percentage points. Royal Bank of Canada said its costs rose to 6.00 percentage points from 5.37 percentage points. Barclays also said it needs to pay 6.00 percentage points to borrow overnight in dollars, up from 5.38 percentage points yesterday.From Bloomberg

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