by Calculated Risk on 8/09/2006 04:39:00 PM

Today's OC Register has an interview with PIMCO's Paul McCulley: Housing drove Fed

Q. How big a role did a shaky housing market play in Fed's decision?

A. Huge.

Q. What does this non-action mean for mortgages?

A. Mortgage rates down a touch over last month, likely to hover 'round here, even as "affordable" products (novel home loans containing pay options or negative amortization) abate with tighter underwriting standards and fear.

Q. Should I keep my adjustable mortgage? Is the rising-payment pain over?

A. Yes.

Q. Which is worse for housing: higher rates previously feared or the economic weakness the Fed's sniffing?

A. What's bad for housing is that it has turned, as a result of hikes plus spent speculative forces. Housing is the most reflexive market in the world. Very momentum driven, hard to turn, but once it's turned, it stays turned.

Q. "Soft landing" or disaster ahead for housing?

A. Somewhere in between. How about a "hard-soft landing?"

My comments:

I'm still trying to find out the timing of the "Nontraditional Mortgage Guidance". I wrote to the FDIC last week, and this was their response:

"The agencies are currently reviewing the comments received and developing final guidance."

Not much help.

I'm not sure if McCulley was referring to this new guidance when he mentioned "tighter underwriting standards" or if he thought the industry would react to higher delinquency rates, like LEND reported today:

"Delinquent loans (30 or more days past due, including foreclosures and real estate owned) were 3.76% of the serviced portfolio at June 30, 2006, compared to 2.47% at December 31, 2005 and 1.79% at June 30, 2005."

And I'm not sure what a "hard-soft landing" means. Housing will probably land hard with the loss of 15% to 30% or more of all housing related jobs over the next couple of years. How can that be anything but a "hard landing"? Maybe "hard-soft" means hard for housing, but soft for the economy (slow growth, but no recession).