The following is from Effective Demand Blog
Needless to say when the guy in charge of monetary policy says he has a exploding ARM it is news so I checked out the public records. While the details are certainly not juicy it leads me down another path of thought which I will get to.
Bernanke bought in May 2004 for $839,000. He had a 5/1 ARM for $671,200 at 4.125% that adjusted to 12 month Libor in June of each year after his fixed period ended. To calculate his rate you take 12 month Libor on that date and add 2.250%, it can’t adjust more than 2% in any one year due to restrictions on the note. He also had a purchase money second $83,900 but for some reason I can’t find the interest rate on that one, nor do I see an ARM rider for it so it could very well be fixed. Both notes indicate they are amortizing loans.
So what does this all mean? Well according to the terms I see for Bernanke’s first and the little information on historic LIBOR I can find (here)… his rate actually went down. So if his rate went down on his first and his second is fixed (an assumption on my part since I see no ARM rider on the second) then ask yourself why refinance now? You would only do so if you expect rates to rise in the future or you don’t think fixed rates will ever be this good again. Winter time is a low demand time for mortgages so rates drop to encourage activity, also the Fed is ending it’s MBS purchases so rates are expected to rise.
So let me see if I have this straight: The head of the Fed has an option arm with a second, and the Treasury Secretary has an underwater jumbo on a prestige home he couldn’t sell and now rents out. And these two guys are are in charge of the asylum America’s monetary system. Hmm…this all gives me a nice cozy feeling.
Read the entire blog post from Effective Demand Blog
File Under: Rates will be going up!
