You may be buying yourself a 4.5% fixed rate mortgage very soon…
Thursday, 4 December 2008 by Dave
It looks like the lobbyists are trying to get Joe six pack a break on his next mortgage. The associated press is reporting that there is a movement to use tax dollars from the $700 billion bailout to subsidize mortgage rates to the tune of 4.5% on a 30 year fixed rate loan.
Financial industry lobbyists are urging the Treasury Department to take steps to lower mortgage rates in an effort to stabilize the housing market.
Under the proposal, Treasury would seek to lower the rate on a 30-year mortgage to 4.5 percent, Scott Talbott, a vice president at the Financial Services Roundtable, said Wednesday. That’s about one percentage point below the current rate of 5.6 percent.
I see this as a short term solution at best but I suppose there is plenty of pressure to throw Main Street a bone after the continued blunders of the Wall Street bailout.
This idea may in fact be the worst thing for the recovery of housing beyond 2009. I guess the real issue I have with the subsidization of rates is that this isn’t providing a long term solution to the oversupply that many markets across the country are wallowing in… it’s only going to be a temporary incentive to get buyers off the fence. What happens when everyone is counting on a fixed rate at 4.5% and the program is phased out for various reasons? Compound the phasing out of the low rates with the resetting of the countless mortgage modifications being executed that will reset in 2 years and we’re right back into the hole.
“The goal is to drive mortgage rates so low that home prices not only stop falling but begin to rebound,” said Greg McBride, senior financial analyst at Bankrate.com
We still need something else to pick up steam in our economy as a whole to help wean us off of the cheap money that caused this housing bubble in the first place. If not, we may face the very real possibility of a double dip downturn in home prices in many areas of the country.
The full writeup can be found here. At least they point out the not so obvious point that even if rates are artificially low the lending guidelines won’t be loosening up so anyone who’s wrecked their credit isn’t gong to be getting any help from this.
