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.
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Below-market rates would have to be subsidized by the other customers of lending institutions and US taxpayers. No thanks.
Artificially lowering rates would also create another credit bubble. I don't see what's so bad about current mortgage rates, they are still very low historically.
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.
This sort of crazy, baseless, and socialist crap is what got us into this mess to begin with. If house prices were allowed to settle on prices that the free market dictated and the bad assets got flushed out of the system at the expense of the idiots rather than the taxpayers we could recover much sooner. How is putting yet another artificial boost in house prices going to fix the underlying problem of overinflated assets in the hands of people who can't afford said assets?
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.
I think Mike Garibaldi-Frick of The Huffington Post put it best in his recent article which I will quote from:
"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."
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 $$ back in to the economy for sure.
KingCheap said:It wouldn't be considered below market rates. There are things they can do to encourage dropping the now artificially inflated rates. Rates right now should be lower, but banks have them inflated.
If the banks are ripping people off with inflated interest rates, they're sure doing a really bad job of it considering how much money they're losing in mortgages.
I'm thinking the bottom might be when home prices drop another 40% nationwide and interest rates are 12%+. Thats just speculation. Maybe the preverbial $%!# will hit the fan even worse.
Some people, including misters Bernanke and Paulson, can't wrap their heads around the idea that asset prices are not going to increase at 10% per year anymore. I mean.. a thriving economy based upon earned income. How the hell does that work?!
tyrone3971 said:This sort of crazy, baseless, and socialist crap is what got us into this mess to begin with. If house prices were allowed to settle on prices that the free market dictated and the bad assets got flushed out of the system at the expense of the idiots rather than the taxpayers we could recover much sooner. How is putting yet another artificial boost in house prices going to fix the underlying problem of overinflated assets in the hands of people who can't afford said assets?
DamnoIT said:Should mandate a upper limit, also there should be an ultra secure tier where you could aceive this rate if you had so much in cash reserves + credit histroy to back it up. I wish penfed would do this. I would be on a 5% refi in an heartbeat and would pump that $$ 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 said: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.
Umm.. You're talking about two different rates. Short term rates vs long term rates. The short term rate is less than 1% .. the 10 year treasury is 4%.
I don't think you have any serious understanding of how mortgages, bond, and interest rates work. Government can't arbitrarily force banks to lower rate. There are impacts on the other side. Such as:
Plus, banks lower their CD and savings rates which hurt responsible people with savings and retirees. So basically you are saying that banks should lower their intake and increase the money that they give out?
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.
First of all, it seems as though some of you that have responded read into my comment and the article from The Huffington Post, something that isn't actually there - the word 'bailout'. What some market analysts and commentators are suggesting isn't a new bailout to bring rates down, but simply using the existing one already passed, which I didn't like in the first place, to help influence the rates down. I personally believe that no bailout money is needed in order to bring the rates down as this will inevitably happen. Secondly, are any of you that this has struck a nerve with actually wanting higher rates? If so, is it because of a vested interest in seeing rates go up? Or, are you merely reflecting what many mortgage brokers are saying to their potential clients 'don't wait for a lower rate, lock now' simply because they need the business in this dead real estate market? I, along with other business reporters and analysts believe this economy will not turn around until we see rates around 5% or lower for qualified buyers. This does not necessarily mean we believe the Fed should pump additional money into banks to acquire this goal, even though that has been done in the first half of the 20th century to effectively buy points on behalf of home buyers. Lastly, does anyone agree that a 30 year fixed mortgage rate of .875% less than what we are seeing now (Pen Fed is at 5.875 as of 11/11/08), would benefit the nation? I believe it would. Do I think it will happen? Yes. The question is when. I have stated, sooner is better than later in order to offset some of the deeping impact of this crisis. Surely, most regular consumers, home owners, home builders, construction workers, real estate professionals, building supply industries and many others would agree a lower rate would benefit the economy.
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.
LH2004 said: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.When a nickel is economically viable price for beer but the beer makers are charging more because they need to repair their depleted capital base.
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.
Sorry, you just don't understand the fundamentals of finance, mortgages, or how the entire process works.
KingCheap said:First of all, it seems as though some of you that have responded read into my comment and the article from The Huffington Post, something that isn't actually there - the word 'bailout'. What some market analysts and commentators are suggesting isn't a new bailout to bring rates down, but simply using the existing one already passed, which I didn't like in the first place, to help influence the rates down. I personally believe that no bailout money is needed in order to bring the rates down as this will inevitably happen.
How does the government influence rate? The government doesn't really influence rates, it is the federal reserve that influences rates. They do this by raising and lowering the amount of money in the money supply. They can also do this by changing the the short term rate for the discount window. This is the rate that banks borrow from the Federal Reserve on an overnight basis.
Secondly, are any of you that this has struck a nerve with actually wanting higher rates? If so, is it because of a vested interest in seeing rates go up? Or, are you merely reflecting what many mortgage brokers are saying to their potential clients 'don't wait for a lower rate, lock now' simply because they need the business in this dead real estate market?
None of the above. What you are suggesting is fundamentally improbable. You are asking the government to ask the bank to lower interest rates. Please explain to me by what mechanism you would want the government to do this. Banks serve the function of taking in deposits (your checking, savings, and CDs) and lending them out (mortgages, auto loans, and credit cards). If you lower the rate of one, you have to lower the rate of the other. [This was a point that you didn't get from your previous post...that both of them are interconnected].
Secondly, the 10 year treasury bond is at 4% interest. So banks have a choice of 1) lending money to treasury at 4% at absolutely (as far as we know) no risk or 2) lend it out to a home owner at significant risk. To account for the risk of the second option, they have to lend at a higher rate than the treasury the treasury is paying. In an environment where the prices of homes are dropping significantly, they have to account for this risk. Let's just say this: Given the choice, would you put your money into an ING account at 3.75% or lend me the money at 4%. If you were going to lend to me, you would clearly only do that if I was paying significantly more than the risk of me as a creditor
I, along with other business reporters and analysts believe this economy will not turn around until we see rates around 5% or lower for qualified buyers. This does not necessarily mean we believe the Fed should pump additional money into banks to acquire this goal, even though that has been done in the first half of the 20th century to effectively buy points on behalf of home buyers.
That is fine and dandy. But as I said previously, how do you get rates to be 5%? George Bush can't just walk onto the trading floor at Goldman Sachs and say "hey buddy, can you guys lower interest rates?"
Lastly, does anyone agree that a 30 year fixed mortgage rate of .875% less than what we are seeing now (Pen Fed is at 5.875 as of 11/11/08), would benefit the nation? I believe it would. Do I think it will happen? Yes. The question is when. I have stated, sooner is better than later in order to offset some of the deeping impact of this crisis. Surely, most regular consumers, home owners, home builders, construction workers, real estate professionals, building supply industries and many others would agree a lower rate would benefit the economy. Again, lowering rates does not solve the problem that we have now. Lowering rates will not help the guy that has a loan to value (LTV) of > 100%. Why would any banks refinance $500K mortgage to a house that is now worth $300K?
Here's the fundamental problem: You are talking about a goal, but not discussing the path to get there
Please explain to me how you want banks or the government to lower interest rate What market mechanism should the government use to do such a thing? What are some of the impacts to the creditors?
This is really nothing more than: 1) Steal underpants 2) ??? 3) Profit!
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