The Treasury Department is planning to subsidize thirty-year, fixed rate mortgages at 4.5% interest. But the plan apparently only extends to new home purchases, not to refinances.
Am I missing something? I thought our problem was that we had a housing price bubble and that people were at risk of losing the homes they are in. Why would we take actions that are likely to raise the price of homes while not helping the debtors who could use it, and not helping the banks that are carrying risky loans on their books? It seems to me the Treasury has this exactly backwards.
And it’s bad politics, too. As Camden R. Fine of the Independent Community Bankers of America has said:
You have thousands of banks that made loans and have them sitting on their books, and whose borrowers have worked their rear ends off to make the payments,” he said. “Those people are going to go to their banks and tell them their neighbor just got a 4.5 percent loan, and the banks aren’t going to be able to help them. They’re going to have extremely angry and disgruntled customers.
Is anyone up for defending the Treasury’s proposed program?
I didn’t even think this was an especially good idea when it was for mortgage rates generally.
p>The Onion called this one. Talk about life imitating art!
as someone who thinks this would be a bad idea. Cheap loans contributed to the massive explosion of home prices. Now, of course that’s good for some people – the people who already owned property before the bubbles hit. Though, that’s becoming decreasingly so, as reality comes back to the market with a vengeance. I think the last thing we need to do is create policies that will make home prices artificially rocket again.
p>Affordable government 30-year loans could be a good idea, with the right measures, but I’d have to think they should come along with a good down payment, at least 20%, as well as a vast improvement to affordable housing policies. Everyone should be given the chance to own property, but we need a mechanism to make sure that home values aren’t driven up due to the over reliance of these sorts of cheap loans. Back in the 60s or 70s, you could buy a decent home for $20-40 grand. Certainly, people didn’t have the same buying power as they do today, but the price of homes are still far more expensive, proportionately, compared to what family wages are today.
As someone who moved into a new house yesterday, I’d be pretty disappointed at missing a 1.25% drop in interest rates!
p>Selfishness aside, I still don’t understand the infinite wisdom behind this one- is this what someone wrote on the slip of paper that got pulled out of a hat? What’s next? Free ponies?
… to the solvency question is to intervene not on the matter of debt, but on the matter of housing prices. Its as if we never learned the lesson that we can’t base our investments on an ever increasing price housing.
So I’m not sure I support this idea but there is a benefit to existing homeowners.
p>Making the cost of borrowing low encourages people to buy – sure the house may drop another 15% in value over the next 18 months, but if you plan on being there for a number of years, 4.5% is a great rate and it may be the thing that gets folks to buy. It takes some of the fear out of home buyers, gets some of the existing stock off the market and hopefully stabilizes home prices.
p>Existing homeowners won’t be able to refinance at all if housing prices continue to drop. If the assessed value of a home is less than the outstanding balance of the mortgage, you can’t refinance your loan, so getting people (not speculators) to purchase homes enables you to refinance. And yes, banks will feel pressure to come close to this rate.
p>All that being said, it could be that given declining incomes, existing housing prices may be far too high and this will only lengthen the decline or prop up another bubble.
At the current trajectories, the 30 years are going to be fetching 4.5% pretty soon. Already, there’s 30 year mortgages available, no points, at 5 1/8%.
Part of the problem is that the markets are frozen because no one knows how far the housing prices will fall. This applies of course not just to the primary housing market, which is very slow, but also to the secondary market in the toxic securities we’ve heard so much about. I believe that this is an attempt to create more housing sales (higher demand), which will create more stable and predictible prices, which will lead more people to enter the market (a lot of supply is staying out of the market right now… owners, lenders, etc.), which will bolster confidence in the market and loosen up credit overall. New purchases will do this. Giving away 1.5 points to everyone who wants to refinance will not. If that’s what you want to do, just give everyone a check. In essence, the government is looking to pay you for the ancillary benefit of your participation in the housing market.
p>Of course, if you are an existing homeowner, you can get in on the deal as well… you just have to buy a new house. That might mean you have to realize the loss (or smaller gain) you’ve experienced because of the past two years. But in doing that, you’re helping the market find its floor. I guess that’s why I don’t find this totally objectionable: I see this not as an attempt to inflate (or keep inflated) an asset bubble but rather an stablize the market, perhaps even finding the floor.
p>I’m not sure this will work, mind you. Just that it’s not as crazy as some people here think.