Would the U.S. Treasury pushing mortgage rates to 4.5% be a good idea?

[GRDadof3]

There's a lot of talk heating up pressuring the U.S. Treasury to manipulate the markets and get mortgage rates down to around 4.5%. There's some talk that it would only apply to home purchasers and not refinancers, but that's just talk at this point. I can't imagine they would exclude refinances, which would skyrocket if this happened.

Is this a good idea? Bad idea? Would it create another housing bubble again? It might help clear out a lot of the existing home inventory, but I can't see it helping those who are facing foreclosure (unless they can jump from an ARM into a Fixed Rate).

http://www.marketwatch.com/news/story/trea...amp;dist=msr_27

http://money.cnn.com/2008/12/03/news/econo...sion=2008120407

[monsoon]

I wonder about the insanity of fixing an economy destroyed by too much easy credit by making credit easier to get.

[GRDadof3]

I wonder about the insanity of fixing an economy destroyed by too much easy credit by making credit easier to get.

[fotoman311]

Good point. Personally, I think it's low enough that we might refinance our current 30 year fixed. I'd have to see what the cost would be vs. the new payments. Plus, assuming that our home would appraise for a high enough price! That would give us more disposable income to possibly spend/invest/save.

I don't see it happening here locally, but if it resulted in builders going gung-ho and creating a bunch more speculative housing inventory, it would be disastrous.

[atlrvr]

How about instead of throwing billions of dollars to help ease the pain that many people willingly signed up for, we instead use a small fraction of that to host free (and mandatory) seminars explaining basic finances and mortgages to every first time home buyer.

When is this madness going to end? There is no soft landing and easing debt burdens shouldn't be used to encourage people to "spend their way out" of this recession. How about instead of encouraging people to buy cheap Chinese crap, we slap some serious import trade tariffs, regain some manufacturing jobs, increase the value of the dollar.

Instead, we don't seem to care we are becoming a nation of paper, with minimal assets.

[Mark Miller]

There is no doubt that something needs to be done to "correct" some of these financial issues, but this may not be enough.

House "values" have plummeted. They will continue to drop. Add to that the evaporation of "wealth" from almost everyone's stock portfolios, the fragility of most people's jobs (particularly if any of the auto companies tank), and the stagnation or reversal of wages, and we have a most dire mix.

If the two biggest "wealth and investment" vehicles for almost everyone (house and stock holdings) are no longer as valuable and the "wealth" does not recover long term (which is very possible), then individual families will be severely upside down.

This doesn't even include the next wave of the financial storm, which will be the individual debt (in the form of credit cards) going the same way all these questionable mortgages went. And looking for a government handout!! There is just too much bad individual debt out there that is not going to work out and companies like Citibank are reeling.

Add to that the coming deflation and eventual inflation caused by this mess and we may well end up in an economic depression.

And don't forget petro costs are going back up, higher than last summer. This current condition is a blip.

We as a nation better figure out a better way to rectify people's mortgage situations than adjusting the rates that we can refinance our houses, or buy new houses, at. This is just simply not enough and will briefly return us to the days of a new industry developing that justs pimps refinances. Which is a short term fix at best and does not address the core issue, which is essentially an evaporation of perceived wealth. I think eventually we will be talking about a wholesale evaporaton of most people's mortgages - a rewriting of them to new values, subsidized by a near bankrupt federal government.

[tamias6]

I don't think the interest rates are the problem. Its the fact that credit is locked up and banks refuse to lend to anybody. We got to figure out how to get credit moving again.

[CK1]

I don't think the interest rates are the problem. Its the fact that credit is locked up and banks refuse to lend to anybody. We got to figure out how to get credit moving again.

[AlexPKeaton]

Government intervention in the market may help some people, but beware the unintended consequences. Markets work when individuals make decisions, not the government.

[fotoman311]

Government intervention in the market may help some people, but beware the unintended consequences. Markets work when individuals make decisions, not the government.

[CK1]

Like when individuals said "I can get this $500,000 house and not pay any principal and then sell it in two years for $700,000 and make a ton of money? WOW!! AWESOME!! I would be stupid NOT to do this!!"? You can't always rely on individuals to make rational decisions.

[fotoman311]

Exactly, and I don't think that conservative, rational taxpayers should have to foot the bill for this type of greedy, irrational abuse. Let bad decisions correct themselves. They made their bed, let them sleep in it.

I'd rather see the government take the "bailout" money and use it to increase spending on infrastructure and civic projects. The best way to help the economy is to give people decent paying jobs, and we would ALL benefit from better roads, bridges, parks, etc.

[GRDadof3]

Exactly, and I don't think that conservative, rational taxpayers should have to foot the bill for this type of greedy, irrational abuse. Let bad decisions correct themselves. They made their bed, let them sleep in it.

I'd rather see the government take the "bailout" money and use it to increase spending on infrastructure and civic projects. The best way to help the economy is to give people decent paying jobs, and we would ALL benefit from better roads, bridges, parks, etc.

[crinzema]

In these times, rates naturally spike. In 1979, interest rates at 21% were need to rescue the economy. Today, To keep this boat afloat, the Fed has had to artificially push rates lower and lower. That can't continue forever. The longer we wait to face the consequences of these irresponsible decisions, the worse this depression is going to be. You think it's bad now? We have not seen much of what has already transpired yet alone what is to come.

It's a recession when you hear that many people are being laid off.

It's a depression when you get laid off.

The only way we can avoid a depression is by returning to a sound monetary policy.

[twoshort]

I don't think the interest rates are the problem. Its the fact that credit is locked up and banks refuse to lend to anybody. We got to figure out how to get credit moving again.

[jas49503]

I get requests every day from new home buyers. Someone is lending.

[GRJunkie4Life]

I wonder about the insanity of fixing an economy destroyed by too much easy credit by making credit easier to get.

[monsoon]

^Do you think a loan is easier to qualify for if the rates are higher?

[GRJunkie4Life]

^Do you think a loan is easier to qualify for if the rates are higher?

[monsoon]

Rates are based on demand vs money supply. It's as simple as that and is the same as any other commodity. Since the federal government is the sole supplier of money they adjust the base rates by firing up the printing presses (essentially) by creating more of it, or raise rates by pulling back dollars. Banks, finance companies, etc, make money by the difference in these base rates and what they charge you.

The banks have some leeway to charge risky borrowers more money, but this is irrelevant to the rates that get created by the federal government adjusting the money supply through the Treasury. Lowering the rate makes it easier for everyone to get more credit and this is exactly opposite what this country needs at this point. The Banks are supposed to be guardians on who gets this money but as we have seen greed wins out.

The fact of the matter is the USA has shipped millions of jobs, and supporting technology and processes overseas over the last 10 years in the name of "globalization" and with it, went $100s of billions if not trillions of real income. We have been living the illusion this is fine and OK because these losses have been hidden by cheap and easy credit backed up by ever appreciating real estate. Now it has come crashing down, property is returning to it's real worth, and hundreds of thousands are being laid off every month because we have reduced our real production far below what our economy can support. We have become a nation of consumers over the last 25 years instead of a nation of producers.

There are many who will still deny this, still believe it's a good idea to move jobs to India, China, etc, still believe unrestrained globalized capitalism is the best of the people of this country, so I won't waste my breath trying to argue the point. The results speak for themselves.

In the mean time, read this post I made on the subject of personal credit in response to a person who is looking at losing his job. Anyone who takes this to heart won't worry much about credit rates.

[jas49503]

Rates are based on demand vs money supply. It's as simple as that and is the same as any other commodity. Since the federal government is the sole supplier of money they adjust the base rates by firing up the printing presses (essentially) by creating more of it, or raise rates by pulling back dollars. Banks, finance companies, etc, make money by the difference in these base rates and what they charge you.

The banks have some leeway to charge risky borrowers more money, but this is irrelevant to the rates that get created by the federal government adjusting the money supply through the Treasury. Lowering the rate makes it easier for everyone to get more credit and this is exactly opposite what this country needs at this point. The Banks are supposed to be guardians on who gets this money but as we have seen greed wins out.

The fact of the matter is the USA has shipped millions of jobs, and supporting technology and processes overseas over the last 10 years in the name of "globalization" and with it, went $100s of billions if not trillions of real income. We have been living the illusion this is fine and OK because these losses have been hidden by cheap and easy credit backed up by ever appreciating real estate. Now it has come crashing down, property is returning to it's real worth, and hundreds of thousands are being laid off every month because we have reduced our real production far below what our economy can support. We have become a nation of consumers over the last 25 years instead of a nation of producers.

There are many who will still deny this, still believe it's a good idea to move jobs to India, China, etc, still believe unrestrained globalized capitalism is the best of the people of this country, so I won't waste my breath trying to argue the point. The results speak for themselves.

In the mean time, read this post I made on the subject of personal credit in response to a person who is looking at losing his job. Anyone who takes this to heart won't worry much about credit rates.

[monsoon]

you seem like a follower of the dave ramsey philosphy. His message needs to be taken in moderation.

[jas49503]

I have no idea who he is though I guess I could take the time to look him up. I am a follower of common sense.

On a macro level, a society simply can't exist that buys everything it needs and pays for it by borrowing against its assets (or worse selling them). One can play games like lower the rates for that borrowing or even passing out un-earned money for people to spend, but as we have seen, the bubble bursts. This is what is happening now.

[AlexPKeaton]

the other problem was that these risky mortgages were packaged with other ones and then the whole thing was sold making it very difficult to extricate them from each other. that way there could be no simple rate adjustments or other loan saving measures resulting in foreclosure.