Page 2 of 2 FirstFirst 12
Results 21 to 32 of 32

Thread: Treasury mulls plan to lower mortgage rates to 4.5%

  1. #21
    [QUOTE=BrooklynBound;2894149]This should not be the government's jurisdiction. Prices need to fall and they should not be interfered with. And then there's the whole "We obviously can't afford it" part[/QUOTE]

    Normally I agree with you the banking sector and the auto sector has to shrink but both of those industries bought the political system through large payments to government and stratigically have placed their people in the Treasurey department of the current President and President elect. If those industries get a bail out from the taxpayer to aviod becoming more streamlined, why shouldn't the people get something in return?

  2. #22
    Lowering the rate to 4.5% would not help people who obtained mortgages in the past 3 years only to arrive at a point where their home is worth less than the amount owed on the mortgage. Like me. I started to build a new home in August 2006. My LTV on the finished home was a little less than 80%. Shortly after we moved in to the home in April of 2007, I took out a home equity loan for the remaining 20% of the equity to fininsh the basement (with a full 2d kitchen, full bathroom and family room, and study), put in a concrete driveway, and hauled in tons of topsoil for my lawn. I figured the improvements would increase the value of my home and I could refi the whole debt in a couple of years.

    Good thinking on my part.:eek: Now my home, with improvements, is valued less than the amount I owe on the morgtgage and equity loan. Lucky for me I can afford the payments, but I just did the math and I would save $750/month if I could refi the whole thing into a 4.5% mortgage. Then it occured to me that a 4.5% mortgage rate will not help people whose homes are worth less or even equal to what they owe. Aren't those the people this stuff is supposed to help. It's just going to help people who probably do not need the help. Am I missing something?

  3. #23
    [QUOTE=BrooklynBound;2895430]Capping interest rates is extremely regressive. If this occurs, prices will increase. This is unfair to renters and first time home buyers. They generally have less income than home buyers and will be subsidizing their mortgage. We already subsidize home buyers in several ways.[/QUOTE]

    The Fed wants prices to increase. They are pumping billions of "new" dollars into the economy. That means there is "more" money available. This is a sure fire way to create inflation.

  4. #24
    [QUOTE=Winstonbiggs;2896091]Normally I agree with you the banking sector and the auto sector has to shrink but both of those industries bought the political system through large payments to government and stratigically have placed their people in the Treasurey department of the current President and President elect. If those industries get a bail out from the taxpayer to aviod becoming more streamlined, why shouldn't the people get something in return?[/QUOTE]

    You don't get something for nothing. All tax payers will be bailing out home owners and the mortgage industry/banks. That's as unfair as the rest of the bail out. But less people will have a problem with it because it seems like it's helping the "common man."

    Many commoners don't own houses and their tax money will be going towards home owners. Well it already does in several ways, but this would be one more gift. And if they ever want to buy a house, it will cost more.

  5. #25
    [QUOTE=CTM;2895945]Problem with all of this is it's a self perpetuating cycle..

    Loans fail -> lending suffers -> consumer spending drops -> other areas of economy contracts -> more layoffs -> more failing loans i9n other sectors like CC, Student Loan, Auto loan, etc..

    wash.. rinse.. repeat..

    people who want to compare this to the great depression aren't thinking of the debt man. The government is aware and are doing something, just in my mind the wrong thing. Cushion housing, and the fall will be softer..[/QUOTE]

    There's going to be a lot of pain going forward - no doubt about it. But if people can't afford their mortgages, it's worse in the long-term to pretend that they can. It's better to rip the band-aid off quickly and have those who made poor choices realize their mistakes and move on. It also would reduce a severe moral hazard. If the government always covers up your errors, you're not going to learn from it.

  6. #26
    Hall Of Fame
    Join Date
    Jan 2006
    Location
    Not bababooey and I resent the implication
    Posts
    21,029
    [QUOTE=BrooklynBound;2896214]There's going to be a lot of pain going forward - no doubt about it. But if people can't afford their mortgages, it's worse in the long-term to pretend that they can. It's better to rip the band-aid off quickly and have those who made poor choices realize their mistakes and move on. It also would reduce a severe moral hazard. If the government always covers up your errors, you're not going to learn from it.[/QUOTE]

    YEs, but while they're figuring out they can't pay their mortgage, homes prices will regain some of what it's lost making it easier to get out..

    I hate all of this as much as you do, but I think it's much more effective to fix it on the front end and more likely that we actually get it back..

    Oh, and I think Greenspan and crew should be drawn and quartered on live TV as a PPV event...
    Last edited by CTM; 12-06-2008 at 08:27 PM.

  7. #27
    Hall Of Fame
    Join Date
    Jan 2006
    Location
    Not bababooey and I resent the implication
    Posts
    21,029
    [QUOTE=SONNY WERBLIN;2896107]Lowering the rate to 4.5% would not help people who obtained mortgages in the past 3 years only to arrive at a point where their home is worth less than the amount owed on the mortgage. Like me. I started to build a new home in August 2006. My LTV on the finished home was a little less than 80%. Shortly after we moved in to the home in April of 2007, I took out a home equity loan for the remaining 20% of the equity to fininsh the basement (with a full 2d kitchen, full bathroom and family room, and study), put in a concrete driveway, and hauled in tons of topsoil for my lawn. I figured the improvements would increase the value of my home and I could refi the whole debt in a couple of years.

    Good thinking on my part.:eek: Now my home, with improvements, is valued less than the amount I owe on the morgtgage and equity loan. Lucky for me I can afford the payments, but I just did the math and I would save $750/month if I could refi the whole thing into a 4.5% mortgage. Then it occured to me that a 4.5% mortgage rate will not help people whose homes are worth less or even equal to what they owe. Aren't those the people this stuff is supposed to help. It's just going to help people who probably do not need the help. Am I missing something?[/QUOTE]

    They could refi the portion that is covered by home value at the lower rate..

  8. #28
    [QUOTE=CTM;2896224]YEs, but while there figuring out they can't pay there mortgage, homes prices will regain some of what it's lost making it easier to get out..

    I hate all of this as much as you do, but I think it's much more effective to fix it on the front end and more likely that we actually get it back..

    Oh, and I think Greenspan and crew should be drawn and quartered on live TV as a PPV event...[/QUOTE]

    I think fear is influencing our policy direction. And how will the government know when to turn off the money spigot as to not create another bubble? They have shown zero ability to forecast this in the past. This article explains what I was trying to say more eloquently.


    ---
    [url]http://abcnews.go.com/2020/story?id=6385348&page=1[/url]

    [i]Federal Inflationary Policies Mask Real Problem
    Government Interference Runs the Risk of Making a Bad Situation Worse
    Opinion by JOHN STOSSEL

    Dec. 3, 2008—

    If an athlete injures himself and suffers great pain, we'd recognize the shortsightedness of giving him painkillers to keep him going. The pain might be masked, but at the risk of greater injury later.

    That's a good analogy for the inflationary policies now pursued by Washington. These policies may temporarily "stimulate the economy," but they also disguise and aggravate the underlying problems. We will all pay a serious price.

    Policy makers have thrown caution to the wind. Twelve-digit dollar figures are tossed about casually. The other day, after Treasury Secretary Henry Paulson changed course -- yet again -- and announced that the Federal Reserve would commit $800 billion more in "new loans and debt purchases," The New York Times reported, "Fed and Treasury officials made it clear that the sky was the limit."

    The total federal commitment to date is over $7 trillion.

    The Fed had given up trying to make it easier for banks to lend to each. Now, the Times reports, it "is directly subsidizing lower mortgage rates ... doing so by printing unprecedented amounts of money, which would eventually create inflationary pressures if it were to continue unabated."

    No kidding.

    When we hear that the U.S. Treasury is doing this or the Federal Reserve is doing that, we should remember that these agencies are run by mere mortals, and as such, they cannot know how to "fix" something as complex as an economy. But they certainly are capable of wrecking one.

    That's what their inflationary policies will do.

    In a free market, prices do more than tell us what we have to pay for things. They are messages emitted by an intricate communications system that inform us of the relative scarcity of resources, labor and consumer goods, and the relative intensity of consumer demand. Thanks to prices, we can tell producers how we rank our preferences, and they in turn can arrange production according to our priorities. Without prices, economic coordination is impossible, which is why attempts at state planning produce, in Ludwig von Mises's words, "planned chaos."

    We associate inflation with a rising price level, but equally important, relative prices change when new money is created. That garbles the messages. As Mises writes, "The additional quantity of money does not find its way at first into the pockets of all individuals; ... [P]rice changes which are the result of inflation start with some commodities and services only. ... [T]here is a shift of wealth and income between different social groups."

    The Fed gives money to AIG or Citicorp, but not to Lehman Brothers, or you and me. The new bank reserves also push interest rates below what the market would have set, further distorting production by encouraging investment plans to be made on the basis of artificially low rates.

    How can the economy straighten itself out if it is being systematically skewed by government inference with prices? We are in the mess we're in precisely because of earlier government interference. Easy mortgage terms and guarantees contrived a housing boom and irresponsible lending that could not be sustained. The consequences have shaken the foundation of the financial industry. But instead of freeing the market and allowing the errors to be corrected, the government is seducing the economy into a whole new set of errors. That will lead to the next bust.

    "But doesn't the government have to act?" people ask. "We can't just let financial companies fail!"

    I say, Why not?

    Jim Rogers, the successful investor and author, puts it well: "Why are we bailing out Citibank? Why are 300 million Americans having to pay for Citibank's mistakes? The way the system is supposed to work [is this]: People fail. And then the competent people take over the assets from the failed people, and then you start again with a new stronger base. What we're doing this time is ... taking the assets from the competent people, giving them to the incompete]nt people, and saying, "OK, now you can compete with the competent people." So everybody's weakened: The whole nation is weakened, the whole economy is weakened. That's not the way it's supposed to work."[/i]
    Last edited by BrooklynBound; 12-06-2008 at 07:04 PM.

  9. #29
    Hall Of Fame
    Join Date
    Jan 2006
    Location
    Not bababooey and I resent the implication
    Posts
    21,029
    [QUOTE=BrooklynBound;2896231]I think fear is influencing our policy direction. And how will the government know when to turn off the money spigot as to not create another bubble? They have shown zero ability to forecast this in the past. This article explains what I was trying to say more eloquently.
    [/QUOTE]
    Again, your beating a dead horse here. I couldn't agree more. These idiots are entirely responsible for this mess, but I have to imagine that if an dumb ass such as myself could've seen this coming the first time, surely those far smarter and more educated then I could prevent it the second time..

    The gov (and fed's) only goal here should be a controlled descent. Not an artificial prop up.

    Were you and I differ is that I believe they ****ed it up so bad this time that they simply had to do something to prevent anarchy and martial law..

    I believe the right move along was to fix the origin of the problem, the falling house prices. By no means should they have kept it propped up, but they should've controlled it's descent with programs like the above.

    I know economic conservatives like to bash Obama, but the pragmatic in me is excited that a) He's got the political capital to take the hit here and let people know that thing aren't going back to the good old days anytime soon and b) his calm demeanor will help calm the citizens ~ panic is the enemy right now..

    Imagine if Bush and Greenspan weren't so worried about a comparatively mild recession back in 03 and 04, where would we be now..
    Last edited by CTM; 12-06-2008 at 08:40 PM.

  10. #30
    [QUOTE=BrooklynBound;2896213]You don't get something for nothing. All tax payers will be bailing out home owners and the mortgage industry/banks. That's as unfair as the rest of the bail out. But less people will have a problem with it because it seems like it's helping the "common man."

    Many commoners don't own houses and their tax money will be going towards home owners. Well it already does in several ways, but this would be one more gift. And if they ever want to buy a house, it will cost more.[/QUOTE]

    The bail out money was specifically lent to keep our credit markets from freezing up. If the banks are not going to lend that money we should have allowed them to go out of business. To help banks stay in business when we have a lot less need of banking and for them not to lend is a joke.

    With 30 year treasuries at about 3% 30 year mortages should be under 4.5% right now for credit worthy customers. If good credit customers with equity could refinance their homes at 4% which is a reasonable rate that would add a huge amount of personal money to the economy. That coupled with failing comodity prices in it self could help stimulate consumer spending but the fact that the banks are hording the bailout money is delaying this process.

    The fact that banks bought fradulent products of their own creation is not clasic supply and demand problem. The fact that they are draining public funds and not lending is also not a supply and demand issue. What we really have is a level of fraud that is going unpunished and instead of healthy banks lending at reasonable rates, healthy banks are competing with unhealthy banks for public funds. This is an extremely dangerous situation.

    As far as a fear of inflation, we are in deflation which is incredible dangerous we aren't even close to having an inflation problem. To have high mortage rates when prices are deflating by the hour is an even bigger issue.

  11. #31
    [QUOTE=CTM;2896289]Again, your beating a dead horse here. I couldn't agree more. These idiots are entirely responsible for this mess, but I have to imagine that if an dumb ass such as myself could've seen this coming the first time, surely those far smarter and more educated then I could prevent it the second time..

    The gov (and fed's) only goal here should be a controlled descent. Not an artificial prop up.

    Were you and I differ is that I believe they ****ed it up so bad this time that they simply had to do something to prevent anarchy and martial law..

    I believe the right move along was to fix the origin of the problem, the falling house prices. By no means should they have kept it propped up, but they should've controlled it's descent with programs like the above.

    I know economic conservatives like to bash Obama, but the pragmatic in me is excited that a) He's got the political capital to take the hit here and let people know that thing aren't going back to the good old days anytime soon and b) his calm demeanor will help calm the citizens ~ panic is the enemy right now..

    Imagine if Bush and Greenspan weren't so worried about a comparatively mild recession back in 03 and 04, where would we be now..[/QUOTE]
    What do you think about this article?


    ----
    [url]http://www.takimag.com/blogs/article/the_big_problem_with_low_interest_rates/[/url]

    [i]The Big Problem With Low Interest Rates
    Posted by Peter Schiff on December 05, 2008

    Government and mainstream economists have erroneously concluded that the key to reversing the financial free fall can be found in stopping the plunge in home prices. (I would offer the corollary that the key to reducing injuries in auto accidents is to suspend the laws of inertia). But to accomplish the improbable task of re-inflating the housing bubble, the government appears ready to announce a coordinated plan to push down mortgage rates to just 4.5%. Of course, this is precisely the wrong solution to the housing crisis, but when it comes to bad ideas our government has been remarkably consistent.

    The plan would require the newly created Federal agencies of Fannie Mae and Freddie Mac to lower rates to 4.5%, and then require the Fed to directly buy the loans after they were made. The idea is that by lowering mortgage rates, current homeowners will be able to afford to make their payments, and new buyers will be more likely to qualify for larger loans, provided of course they do not have to come up with a burdensome down payment. If 4.5% is not enough to convince reluctant borrowers then look for the mandated rate to drop further. Perhaps there may come a time where the interest flows to the borrower instead of the lender. Anything to get Americans borrowing again.

    But artificially suppressing mortgage rates will encourage risk taking and debt assumption at a time when consumers and lenders should be acting prudently. By setting rates below market levels, and buying mortgages that no private funder would want to touch, the government is creating a mortgage entitlement. Given the size of the home mortgage market, the program could eventually become one of the largest entitlement program on the federal books.

    The most obvious problem is that the Government has no money. All it has is a printing press. So the more money it provides for cheap mortgages, the higher the inflation tax will be for all Americans. Higher inflation will cause the difference between where rates should be and where the government sets them to grow wider, and the entitlement to become more costly to provide.

    Assuming $5 billion in mortgages are refinanced at 4.5% in an environment where the unsubsidized rate would have been 10%. The annual cost to the government in such a scenario would be $275 billion. But the subsidy will have to be provided in perpetuity, as the minute it is removed, mortgage rates would surge and housing prices would plummet. Of course, the mere existence of the subsidy will continue to create demand for mortgage credit, which the government will be forced to provide by printing even more money. This would set into place a self perpetuating spiral of rising inflation and mortgage demand, with practically 100% of mortgage money being provided by the government. Ultimately the whole scheme would collapse, as run-away inflation would completely destroy what would be left of our shattered economy.

    Some argue that since the government can now borrow for 30 years at 3%, issuing mortgages at 4.5% is a winning trade. There are three problems with this analysis. First, just because money is cheap does not mean we should borrow it-you think we would have at least learned that by now! Second, this analysis does not factor in default related losses. Finally, there is no way the government would be able to borrow that much money at the long end of the rate curve without driving interest rates much higher. The only reason long-term rates are so low now is that the government is concentrating its borrowing on the short end of the curve. So to pull of the trade, the government will have to finance it with treasury bills. If we turn the government into a massively leveraged hedge fund that cycles a multi-trillion dollar carry trade of short-term debt used to finance long term mortgages, then I think we already know how that movie ends.

    In the final analysis the market must be allowed to function. If real estate prices are too high they must be allowed to fall, regardless of the consequences. Lower prices are the marketís solution to housing affordability. Government attempts to artificially prop up prices will have much more dire economic consequences then letting them fall. Until we figure this out, there will be no escape from the economic death spiral the government is setting in motion.

    Peter Schiff is the president of Euro Pacific Capital and the author of Crash Proof: How to Profit From the Coming Economic Collapse and The Little Book of Bull Moves in Bear Markets. [/i]

  12. #32
    [QUOTE=CTM;2896225]They could refi the portion that is covered by home value at the lower rate..[/QUOTE]

    That would not happen unless the entity that was holding the 20% of debt on the LTV, agreed to subornate their mortgage as "secondary" to the new mortgage, and they have zero incentive to do this.

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •  

Follow Us