If the Fed really wants real economic recovery, make banks offer 30yr. fixed rates of 5% or lower soon!

When we, as American consumers, see 30 year fixed mortages rates down to 5% or lower (for QUALIFIED buyers), is when we will see the U.S. and then the world start coming out of this economic recession. Only then will we see not only the expected refinancing from qualified home owners take place, which will lead to more money in those families spending budgets, but we will experience home buying and new construction starts that we haven't seen in a while. Construction, remodeling, money flowing, retail expanding will all take place leading to more jobs and people going back to work who've lost their jobs. Home prices will go up when the demand is present and that will not happen until mortages rates are around 5.0% or lower (without points, for qualified buyers). Energy costs are down and that will help, but if Congress really wants a true stimulus package that won't cost tax payers, work toward getting the rates down. Yes, the rates are somewhat historically low, but not as low as they got the last time the Fed rate was at 1% in 2003. There is room to lower the 30 year fixed rate! Get the rates down and this nation will get back to work. This would have a true and quick effect on the U.S. citizen and would in turn benefit Wall Street. Presently, Congress is working backwards in their thoughts on how to turn the economy around.
Edit by Moderator: Thank you for your participation. Please note that there is also discussion about this topic Here.

If you're going to start dictating prices, can we get beers down to a nickel? That's the kind of bailout I could use.

It wouldn't be considered below market rates. There are things they can do to encourage dropping the now artificially inflated rates. Rates right now should be lower, but banks have them inflated.

KingCheap said: It wouldn't be considered below market rates. There are things they can do to encourage dropping the now artificially inflated rates. Rates right now should be lower, but banks have them inflated.Please explain why you think rates are "artificially inflated" now.

Should mandate a upper limit, also there should be an ultra secure tier where you could aceive this rate if you had so much in cash reserves + credit histroy to back it up. I wish penfed would do this. I would be on a 5% refi in an heartbeat and would pump that $$ back in to the economy for sure.

I'm thinking the bottom might be when home prices drop another 40% nationwide and interest rates are 12%+. Thats just speculation. Maybe the preverbial $%!# will hit the fan even worse.

Some people, including misters Bernanke and Paulson, can't wrap their heads around the idea that asset prices are not going to increase at 10% per year anymore. I mean.. a thriving economy based upon earned income. How the hell does that work?!

DamnoIT said: Should mandate a upper limit, also there should be an ultra secure tier where you could aceive this rate if you had so much in cash reserves + credit histroy to back it up. I wish penfed would do this. I would be on a 5% refi in an heartbeat and would pump that $$ back in to the economy for sure.By the way, many of us still have the ultra low rates of not that long ago. A friend of mine has a 4.25% 30 year fixed that she took out at par (meaning no discount points). I have a 3.75% 5/1 ARM, which has now adjusted to 4.75% (which is still a phenomenal rate). A few months ago I also closed on a 5/5 ARM with Penfed at 5.125%. There are quite a few people who jumped on the 4.625% 5/5 ARM and 15 year fixed loans that Penfed had back in January of this year. As JayK correctly pointed out above, by historical measures mortgage rates are still extremely low.

KingCheap, it appears that this thread and the questions you pose are predicated on your fundamental misunderstanding of the way that mortgages rates are set. Here is a very basic article that explains how mortgage rates are determined.

I agree with the other guys that mandating a 5% interest rate would only prolong what is becoming a larger problem by the day. 5% is lower than what competetive banks are willing to charge right now, which means the government is going to pick up the slack, which means another 100Billion at least in interest rate subsidies. Who's going to pay for that?

What this country needs is some pain. Too big to fail, you say? Bull. Let them crumble. Let housing prices come in. Let the credit market shrink.

All this bullcrap bailout business is only creating entitlement issues like OP is suffering from. The government opened up the vault and now everyone wants a piece. Well, if we all take it there won't be anything left in a few years.

I have advocated ultra low rate federal sponsored mortgages to high quality borrowers. I even have the name for it--"mom 'n pop" loans. It can be offered through banks and GSEs with 1% origination fees. Major terms are:

30 Year fixed rate first lien mortgage
Interest rate: 10 year treasury yield (which is 4%) + 1%
Full docs of income and reserve
30% equity or downpayment
NOT Bankruptcy Dischargeable if a defficiency exists after foreclosure
No conforming limit

This should help stablize the market. The terms are such that the government will MAKE money by doing it. Anyone is welcome to comment.

ETA: to clarify the lender is US government. So this will increase the federal debt amount. But if the mom 'n pop loans were signed into law a few months ago, the TARP and the upcoming stimulus amount would have been much less.

In response to the Moderator's note that this topic is already being discussed. The link provided only goes to the topic on the foreclosure bailout that was announced today. I'm sorry if I did not explain better that I'm not talking at all about the bailout of those heading toward foreclosure. This topic was supposed to be focused on 30 year fixed mortgage rates for highly qualified buyers and those who are able to refinance. I, personnally, got a 30 year fixed construction to permanent mortgage for 5.0% at the end of 2003 and my home has appreciated in value greatly in the last 4 years. I have over 40% equity in the home, so I'm in okay shape. But, seeing the home building industry starting to fall apart 2 years ago while the Fed raised rates too fast caused me to move my finances into recession proof areas as I knew what we were headed for. I have made money while watching others lose their jobs. It has been sickening to watch those who wouldn't listen to me lose so much money in the last year. I'm not a know-it-all by any means, but enjoy reading all comments and learning different views. In the articles I've been reading I'm seeing a growing belief that mortgage rates are higher than what they actually should be. This stage of the economy would better be served by having lower rates than what is seen today, and this is based on other's views not just my own. I frankly am surprised I hit such a nerve with some and really don't understand their lack of support in seeing rates fall. I take it that they are invested differently and may lose. In the end, if more people can buy homes (they can actually afford) the country will fare better. Wise lending to qualified buyers is the key. Home ownership is NOT for everyone. It is something that is earned through hard work and trustworthiness.

dreamlogic said: If the banks are ripping people off with inflated interest rates, they're sure doing a really bad job of it considering how much money they're losing in mortgages.who else can't make the simple connection: the banks were losing money before but they are ripping people off today, because they need to build up the depleted capital.

nycll said: who else can't make the simple connection: the banks were losing money before but they are ripping people off today, because they need to build up the depleted capital.

Exactly! But, they will have to lower rates eventually.

KingCheap said: I think Mike Garibaldi-Frick of The Huffington Post put it best in his recent article which I will quote from:


First of all, Mike Garibaldi-Frick has no background in finance.
Mike is the guiding force behind the inspirational community art movement, EvolveArts -- his life's work and ongoing creative vehicle. In 1990 Mike formed EvolveArts to bring provocative public art installations out of galleries and museums and into open, public spaces for everyone to enjoy and interpret. The installations are designed to catalyze action, rekindle human connection and stimulate thoughtful and positive attention on important social issues by weaving together art, culture, community and media in constructive forums.


Low Mortgage Rates:

While home buyers cheer the bargain borrowing costs, some economists admit to being puzzled and concerned. If mortgage rates keep sliding, they will pump up any bubble. But if rates snap up suddenly, a bubble could pop, with both prices and investment dropping sharply, hurting many borrowers and investors.

Global financial markets, not any government body, determine long-term interest rates through their bond trading each day. High demand for bonds pushes up their price and drives down their yield, yield being their effective interest rate after factoring in their purchase price. A combination of factors keep driving demand and pushing rates down, forces that have "much more to do with speculation, hedging and politics than . . . with actual investment merit," wrote Peter Schiff, president of Euro Pacific Capital Inc., a Newport Beach, Calif., investment firm, in a recent analysis. "Once these forces reverse, expect bond prices to plunge and interest rates to soar."


This is why interest rates haven't come down after the bailout:
http://www.iht.com/articles/2008/10/27/opinion/edkrugman.php

There's also bizarre stuff going on with regard to the mortgage market. I thought that the whole point of the federal takeover of Fannie Mae and Freddie Mac, the lending agencies, was to remove fears about their solvency and thereby lower mortgage rates. But top officials have made a point of denying that Fannie and Freddie debt is backed by the "full faith and credit" of the U.S. government - and as a result, markets are still treating the agencies' debt as a risky asset, driving mortgage rates up at a time when they should be going down.

What's happening, I suspect, is that the Bush administration's anti-government ideology still stands in the way of effective action.

Events have forced Paulson into a partial nationalization of the financial system - but he refuses to use the power that comes with ownership.

The solution isn't to lower interest rate. The solution is price stability. If nobody knows where the bottom is going to be, nobody is going to be willing to invest into the system. Because there are so many uncertainties, people are pulling out of investments left and right which caused the credit crisis a couple months back which we're still feeling now. It's not the fact that banks don't want to lower interest rates, it's just that they are incapable of doing so.

If you want a better understanding of finance and how the market works get off Huffington Post and read:
The Economist
Economist View Blog

I'm not alone in my view about rates coming down, the government's ability to help cause this and banks marking up rates:

From Jeff Lazerson, president, Mortgage Grader:
"Some banks still refuse to lend or they mark up rates excessively because they don't believe home prices are anywhere close to bottom. Treasury and the Fed will likely push rates down through Fannie Mae and Freddie Mac mortgages. Lower rates will help to stabilize property values."

Dan Dowling, senior mortgage adviser/president, United Mortgage Capital Corp:
"Overall the election results will favor bond and mortgage backed securities prices. These financial instruments, i.e., mortgage-backs, will be increasingly utilized as mechanisms for social and political policy."

Holden Lewis, Bankrate.com:
There has been speculation that the Treasury has been responsible for at least one sharp rate drop by buying lots of mortgage-backed securities. That would have the effect of driving up bond prices, which would cause yields to drop -- and mortgage rates would follow.
Brian Koss, managing partner with Mortgage Network Inc., a mortgage bank based in Westford, Mass., traces the rate drop to something more prosaic than the Treasury putting its thumb on the scales. He hears that mortgage servicers are buying loans, thus driving up prices and ... you get the picture.
He says servicers are buying mortgages because they are steadily running out of loans to manage, in a process called runoff. Mortgages are being paid off when houses are sold, either willingly or in foreclosure. Because servicers are in the business of servicing mortgages, they don't really have the option of allowing all their loans to run off. If they did that, they would be out of business. So Koss' theory is that servicers are buying loans, and indirectly pushing rates down.

KingCheap said: I'm not alone in my view about rates coming down, the government's ability to help cause this and banks marking up rates:<<<<zippppped>>>>>.I ... can... not... resist.. anymore.

Stop quoting stuff you don't understand or out of context. For the sake of internet gods!

KingCheap said: I'm not alone in my view about rates coming down, the government's ability to help cause this and banks marking up rates:

From Jeff Lazerson, president, Mortgage Grader:
"Some banks still refuse to lend or they mark up rates excessively because they don't believe home prices are anywhere close to bottom. Treasury and the Fed will likely push rates down through Fannie Mae and Freddie Mac mortgages. Lower rates will help to stabilize property values."

Fanny and Freddie do not originate mortgages. They affect mortgage interest by purchasing the mortgages and securitizing it. As I said previously, as long as there are people willing to buy mortgage backed securities, mortgages rates will drop. If banks can pass off the risk of holding onto the mortgage to the investors, they will absolutely lower rates. This is what got us in this mess in the first place. Investors were willing to buy MBS that was backed by junk. As long as there was a buyer, banks will lend to anyone.
In what Jeff Lazerson is saying is that the US government (ie the taxpayers) should buy the mortgages so that mortgage interest rates should drop. This is counter to your initial statement of: "if Congress really wants a true stimulus package that won't cost tax payers, work toward getting the rates down."


Dan Dowling, senior mortgage adviser/president, United Mortgage Capital Corp:
"Overall the election results will favor bond and mortgage backed securities prices. These financial instruments, i.e., mortgage-backs, will be increasingly utilized as mechanisms for social and political policy."

Again same thing here. Taxpayers buying up mortgage back securities.


Holden Lewis, Bankrate.com:
There has been speculation that the Treasury has been responsible for at least one sharp rate drop by buying lots of mortgage-backed securities. That would have the effect of driving up bond prices, which would cause yields to drop -- and mortgage rates would follow.
Brian Koss, managing partner with Mortgage Network Inc., a mortgage bank based in Westford, Mass., traces the rate drop to something more prosaic than the Treasury putting its thumb on the scales. He hears that mortgage servicers are buying loans, thus driving up prices and ... you get the picture.
He says servicers are buying mortgages because they are steadily running out of loans to manage, in a process called runoff. Mortgages are being paid off when houses are sold, either willingly or in foreclosure. Because servicers are in the business of servicing mortgages, they don't really have the option of allowing all their loans to run off. If they did that, they would be out of business. So Koss' theory is that servicers are buying loans, and indirectly pushing rates down.
Again same here. Someone has to be the purchaser of the mortgages for banks to drop the rates.

The problem from the market standpoint is that investors want higher interest rates to account for the risk and borrowers want a lower rate. That is how the mortgage rate is determined. What the government can do is be a purchaser of mortgages which will drop the rate. But again, this goes back to costing the taxpayer which you opposed.

Only entity has the ability to purchase the mortgages is the us government. That should be obvious for a while.

^^^ I meant US is the only capable entity to offer ultra low mortgage without subsidy. Consider what the IRS and FBI can do to lower the skip rates in the mom n pop loans.

bring back debt prisons. make deadbeats repair bridges, build railroads, wind farms or other infrastructure the country needs

KingCheap said: Yes, I work in the media. That, I do believe.

KingCheap said: I think Mike Garibaldi-Frick of The Huffington Post put it best in his recent article...

nuff said..listening /off

darc87