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Mortgage Rates Need to be Lowered Now
American's have been told that bank bailouts, the government's take over of Fannie Mae and Freddie Mac, raising the conforming loan limit from $417,000 to $729,750, lowering the prime rate and other "stimulus" is going to help the struggling home owner on Main Street. Hundreds of billions of dollars in relief has been given to the banking and mortgage industries, yet mortgage rates continue to go up.
The 30-year fixed-rate mortgage averaged 6.46% on a national basis for the week ending Oct. 30, up from 6.04% last week and 6.26% a year ago. Actual rates for jumbo loan refinancing (which banks are still considering as anything over the old limit of $417,000) are still over 7.5%. And the LIBOR rate - which many adjustable loans are tied - still remains high.
Even though these rates are historically low, we are in the midst of a unique financial credit crisis with falling home values and thousands of additional ARMs adjusting in the next two years -- which can force even more people out of their homes. We should be focusing on getting tangible relief to homeowners by helping them get into stable 30 year fixed mortgages at a low rate and help buyers establish a floor to the housing market decline.
By stipulating a 30 year mortgage lending rate of around 5% or less, the government can help homeowners refinance their expensive ARMs into lower monthly payments and new homeowners can start buying again. This does not mean we have to go back to weakened sub-prime loan criteria; but that current homeowners are given a real chance to stay in their homes with lower interest rate payments and those new homeowners able to qualify can get an attractive rate and lower monthly payments.
The Feds keep lowering interest rates for banks, but banks don't pass these rate cuts on to consumers via less expensive mortgage rates. The widening spread between bank lending rates and real mortgage rates takes more money from homeowners and puts it into the banker's pocket. Plus, banks lower their CD and savings rates which hurt responsible people with savings and retirees.
So bank margins double, while Americans continue paying high margin bank rates for car loans, mortgages and credit cards. Rate cuts also increase inflation so average Americans are getting doubly hit: no relief on consumer debt, plus paying higher prices for food and other daily expenses.
Since the bailouts have still not trickled down to Main Street, it's time the government starts attaching real tangible benefits to it's economic relief legislation such as mortgage rate cuts for current homeowners and new buyers.
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It's about time that I've heard someone with the same view that I have. And from my vantage point, I don't see anything wrong with lowering the interest rate of current home owners. Again, it would lower our payments and at the same time, put more money in the pocket of the consumer and that just might get them to go out and buy something because they have a little bit extra. Tell me how can we get something like this to go to congress to be voted on, they vote on everything else and force folk do to stuff, why not something like this that could potentially save the economy and help pull us out of a recession.
The word "bailout" is somehow supposed to be more palatable than "cash out," or "free lunch," or "get out of jail free card." It ain't gonna do nuthin' but give a bunch of people some gold in their golden parachutes. (Hey, don't we know human nature better than that? Especially among the ultra-greedy? C'mon...)
You have to re-regulate banks and make it stick. If the collateral has massively devalued, for whatever reason, you have to mark-down the loan to a point where it reflects reality. The borrower suddenly has at least break-even in his equity, and if you're smart you'll give him a little more because you really want him to stay inside that house.
No more through-the-roof interest rates, no more "whups, you missed the deadline by three minutes." No more "we bill every 22 days but send out statements every 30." In short, no more usury.
Mr. Ponzi could not appeal to the State of New York for a "bail out." Nor could any of the people that he swindled. This is just another swindle. It's a bald-faced felony that goes just as high up in our defense-besotted government as you care to go. Wanna turn the "housing market" around? Cut deep.
First of all I will say that the money given to the big banks was never going to make a difference to Main street, common sense should have calculated that much. Did Democrats pushing for the passage of this bill really belive it would? Then they too are severely nieve. One would have to be insane to actually think that banks and lending institutions would just start handing out money to people with bad credit again. The 700 Billion dollar bailout isnt going to change the fact that people have bad credit and cannot get a loan because of that.
I wonder has anyone ever bothered to ask, when did the sub-prime loan emerge? How about in the mid 90s, when a certain popular president was in office. Where was the regulation then? We are just now feeling the effects of that President's policies. President Clinton, whom I once believed could do no wrong. Not only in the Mortgage crisis but also NAFTA. So is Bush a bad President? Yes, but I dont believe this crisis falls on his head alone.
Will Obama "change " the U.S? Are we all that nieve to believe such a "fairy tale", as Bill Clinton put it. Will John McCain be a good President? I believe that he believes it is his duty to serve our country an hes not doing this just to be the "First" at something, so yes I believe he will be a great president.
So that it is fair(ish) mandate a 5% rate for a 30year fixed loan and let those that qualify purchase and refi. It will kick start the market as there are plenty of properties out there and allow those that are capable to refinance out of any adjusting loans. Wheras on a person to person basis this may be seen as unfair keeping people in their houses, in their neighborhoods is good for everyone.
James
2 great options that dont bail out anyone and dont punish anyone either. both sides win (banks & homeowners).
1) increase the 30 year loans to say 60 year loans and that decreases the monthly payments. banks still keep getting paid, homeowner still gets to keep the house. both win.
2) Decrease the outstanding mortgage balance based on current market fair value. A certificate is issued so that in the future if the house is ever sold, the capital gains first goes towards paying off the bank upto the initial balance reduction. the homeowner pockets the rest.
both win. banks still get paid the balance and there is potential they will be made whole in the future when real estate market recovers. homeowner gets to keep the house, payments go lower and htey can actually afford it.
You know what, how about some kind of aleviation on those horrendous property taxes? Those are controlled locally, I know, but, for God's sake, they pack a whallop! Local governments, from what I've experienced in my area, seem to have a habit of tapping into property taxes when they want to increase revenue for some sometimes questionable ventures. Some of us could use a break on that.
"Rate cuts also increase inflation so average Americans are getting doubly hit: no relief on consumer debt, plus paying higher prices for food and other daily expenses."
....Rate cuts are not increasing inflation now. Prices of commodities like gasoline, heating oil, natural gas, and food are all going down. We're are actually seeing deflation now, not inflation. After looking at the data, I'm not sure how anyone could believe otherwise.
See Mike Garibaldi-Frick's Profile
Dear DuganS1-
It is true the inflation has come down in the last few months because of a steep drop in oil prices, deepening recession, the unprecedented credit crisis, etc. But, lowering the Fed Rate will always spark inflation eventually. It's been a time tested formula: Lower rates = Increase inflation, Raise Rates = rein in inflation. It's always a lagging indicator and the Fed will need to keep an eye on inflation next year if the economy starts improving.
All the best,
Mike
Mike you are very polite in your responses but unfortunately this is not always the case. It is a very 101 textbook econ example that does not always play out in reality. We are lowering rates like crazy and 2 things are not happening.
1- inflation is not occurring. We are attempting to actually head off a deflationary spiral right now.
2- Nothing the fed has done has translated to lower rates for anyone looking to borrow. Rates are not set by the Fed despite almost everyones belief to the contrary. The Fed usually follows the bond market and pretends they are in control but look who follows who and it is very obvious although an argument can be made that the market follows expectations of fed actions. Point being the fed can lower rates to zero but a banks capacity to lend might not allow it to regardless. Please look at rates and you will see cuts and little to no change. Going back to 101 is risk/reward. An investor right now sees nothing but risk and is deserving of commensurate reward. He deserves higher rates and not lower ones in this environment. I know I will not finance anyone in this economy at artificially induced rates.
All the best....
Lowering interest rates to close to zero didn't increase inflation in Japan. Second, the decrease in short term rates hasn't resulted in a decrease in long term rates. About commodities, it will be a good year before we see a rise in commodity prices again. The rest of the world just went into recession in the last two months and it will be a long time before they come out of it. In the longer term, I think that we will see inflation; but it may not be for at a couple years yet, and oil may not reach it's prior $149 peak again for much longer.
Mr. Garibaldi-Frick
"By stipulating a 30 year mortgage lending rate of around 5% or less, the government can help homeowners refinance their expensive ARMs into lower monthly payments and new homeowners can start buying again.?"
Wrong,... wrong,... wrong,... wrong,... wrong,... wrong,... wrong,... wrong,... wrong,... and did I mention by the way wrong.
As the proud posessor of a 30 year, fixed rate mortgage at ~6.3%, that I actually had to demonstrate my financial ability to pay, and that I have been making on-time payments for since December,... Why should these overextended be given a better deal (5% fixed) than us responsible people are receiving?
As long as we (the taxpayers in general) are underwriting the stupidity and greed of other taxpayers and their banks that should have known better,... they should not get a better deal than us 'responible' citizens got on our own merits.
exactly. I have a 750+ credit score and i pay 6.5% fixed. Why should someone who bought teaser 3% rate get 5% fixed for life of the loan.
if you wanna reset all arms to fixed, make it at least like 8%-9%. problem is a lot of people who bought houses assumed that house prices will go on up and they will refinance. a lot of people cant afford their homes even if their mortgage rates reset 4% higher
See Mike Garibaldi-Frick's Profile
Dear Drkazmd65-
Keeping mortgage rates low for everyone, including you, will help stimulate the economy from the bottom up. Anyone can refinance at any time into the lower rates (just as with regular market conditions). So, your 6.5% rate can be refinanced to the lower rate also.
I just focused on the new home buyer and those who will need to refinance out of ARMs as stark examples of how this idea could help stem the housing decline and put more money in the pockets of Main Street.
Thank you for your reply, I appreciate it...
I agree that everyone should have the same opportunities to reap the rewards of the bailouts.
Problem is Mr. Garibaldi-Frick,.... who is going to refinance my house, where I am currently (more than likely) underwater on the mortgage equity to a 5% rate without me having to pony-up the difference between what is owed and what they are willing to refinance? Somebody somewhere would want points, or a second morgage to cover the difference.
I CAN make my current payments for the forseeable future. Because my wife and I made sure we bought a level of house and mortgage we could afford - even if the market turned against us.
So,... because we were smart, planned accordingly, and are attempting to live within our means and honor our mortgage contract,... we get penalized for being the 'good guys'? I don't think so.
Saying "can refinance at any time into the lower rates" doesn't make it so. Fact is,... not everybody can do so. And, rigging the system so that those that made bad choices (banks and individuals) get a bailout at better terms that I can get is just not fair.
No rates need to be left to market for once and let the market tell you where it wants to finance things. Half this mess if from trying to manipulate rates too low for too long. The correction for that mess is going to be painful but is unavoidable. If you think rates should be lower then you go risk YOUR money and loan to someone.
The solution to a problem is not more of what caused the problem.
See Mike Garibaldi-Frick's Profile
Hi WorldTraveller-
This would not be the same situation as the subprime mess. If someone cannot afford their loan, they will still need to default. This suggestion will, however, give some breathing room and stability to those who can afford a 30 year fixed at a lower rate. The mortgage lenders still make money on the rate spread, just not as much.
Actually, due to the 1 trillion dollar bailouts, we all are loaning our money. So, this is the way I would risk my portion (lending directly to responsible people who need it and can repay it), instead of just going to banking profits and the bottom line of corporate book keeping.
Thank you for your post, I appreciate it...
the only way it makes sense is if there is a reduction in mortgage principal, then any time the house is sold in the future, the govt. pockets the capital gains first up to the amount of the initial principal reduction, and only then the remaining capital gains goes to the owner.
think that idea will fly?
Ok, what is prime right now...I have no clue, but historically the banks from 1950 to 1975 kept lending rates at about 1.5% above inflation....So let's be generous now and make it 2% above the CPI used for adjusting SS payments for COLA.....
I am afraid that the banks are just having a party with the faux interest rates...
Also if the government is basically on the hook for the mortgages (conforming amounts for property), then there is no reason for INTEREST PREMIUMS for RISK.
Okay people, this is not as difficult to solve as everyone is making it out to be. Take the people who can't afford their mortgages and force them into fixed rate loans. The key here is for how long. Can't afford the payments on a 30 year? Well maybe we need to make it a 40 or 50 year. Stretch the terms out to an amount that they can afford now. The banks get their money, the people keep their house and we're not stuck bailing out another person who doesn't understand what they signed up for.
I agree. In fact, I think congress should have passed a bill that, shall we say, stuffs the bankers for once. Legislate all mortages in trouble to be 15 or 20 years FIXED RATE, 2 points above prime.
That would solve the mortgage crises. There still would be some fallout, that fallout would be people who truly did not belong in the mortgages in the first place.
I couldn't agree more. I am tired of seeing responsible banks and home owners suffer for poor fiscal management by greedy fools. 2 points above prime sounds fair to me and I agree that the fall out would truly only affect those individuals who did not belong in mortgages to begin with.
Not just them that suffers... Everyone of those bailouts is going to be paid for by the taxpayer. YOU are being stolen from!! You are suffering!!!
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