WSJ: Treasury Considers Plan to Lower Mortage Rates to 4.5%
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CalculatedRisk on Wed, 12/03/2008 - 1:32pm (300 comments)
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buy now or be priced out forever!
Can they lower my car payment rates too? Student loan rates? Credit card rates? Better yet, can they pay me to take out loans?
Really? Hmmm, I might try for a 4.5%er. Interesting.
Just new home loans or Refi's too?
I was thinking of speculating ...
Thus propping up nominal house prices.
Sure, that will fix everything.
Oh my
That's what my Grandma used to say when she really wanted to say something much less polite.
Housing Bubble II: The Sequel.
It's about to begin...
From prior thread, on-topic here:
Now (after the story on Treasury plan for low interest rates for homebuyers) I understand why the homebuilders spiked as of late.
You don't suppose some insiders familiar with the matter have been buying before the news broke, do ya?
It's ridiculous that homebuilders stock prices are at double or triple their levels of 2000, or even September 2001...
4.5 for 30 years... Good rate...
Too bad Orange County is still to fucking expensive.
UN-
BEE-
LEEVABLE
These aren't the jokes, people !
While we're at it, how about health insurance. My wife's plan (individual HIPPA plan with Kaiser) is going up 15% next year!
Isn't this almost lock step with the horrible decisions that lead us to the Great Depression?
I need to buy a house anyway. My last approval was for 5.75. So this is great news for me.
Sure, that will fix everything.
Nemo | Homepage | 12.03.08 - 5:06 pm | #
Sounds like a plan if you got a house you want to sell AND you can find a 'greater fool'...
They are still making those 'greater fool' thingies aren't they?
Do you need a job to qualify for one of those loans?
Comrade V,
My contribution to my company health insurance is going up 15% as well. Hey, maybe I work with your wife!
How long can treasury keep this up, if the 4.5 rate includes re-fi's ?
In the 30s they tried this:
"A penny buys you a house"
OK, seriously now, why the h*ll are 30-year Treasuries only yielding 3.14%?
(Yeah, pi again. Weird.)
Smart move now everyone thinking of buying a home is going to wait to see if this pans out.
and if the rate drops to 4.5 for new purchases, one can assume refi's won't be far behind
glad to know that we will keep our bubblenomics for the forseeable future
oh, and my sadness at Tanta's passing is now worse - could you just imagine the snark she would have had for this 'pla
Wow... maybe this means I should get into flipping for fun and profit!
ugh
Welcome to the waterfall level of declines:
http://www.azleg.gov/jlbc/mfh-nov-08.pdf
9.8% Fall Y.O.Y. for October!!!
So long and thanks for all the fish!!!
Welcome to 1932.
Someday this war's gonna end...
Speed(Unrated) writes:
Do you need a job to qualify for one of those loans?
Speed | 12.03.08 - 5:09 pm | #
Or even a pulse? Just askin'... not that I would want one.
"Chicken with Head Cut Off Economics"
Heck, why not just make it 1%? And no-doc 400-FICO interest-only?
That would REALLY put a floor on house prices.
Sales tax that is, corporate income taxes were off 62.3%!!!!
EEEEEEEEEEK!!!!
What I can't understand is why the Treasury wants to STEM the home-price decline!
Don't they want the home prices to drop so more people can afford to buy them??
This will all end very well.
Glooooom!
We have to be sure not to offer these same low rates to entreprenuers who would provide jobs. Jobs don't help housing markets. Government subsidized low interest rates help housing markets.
Subsidize everything/anything with a price.
Homes
Cars
Senators
iTunes purchases
Hoopajoops
tip jars
Or even a pulse? Just askin'... not that I would want one.
dryfly | 12.03.08 - 5:11 pm | #
A loan that is - still like to have a pulse. Probably can't get a loan w/out one.
Yeah, that's the problem. Money wasn't cheap enough. How about this for a solution, devalue the currency so that the real value of mortgage debt will be reduced. Oh yeah, they're working on that, it's just not happening fast enough for them to keep their jobs and their friends in business.
The Middleclass family is getting fidgety, we are getting fairly close to the point where house payment meets rent, but I'd still think prices need to fall another 15-20% in our neck of St. Paul. I still see 170K houses that reasonably should go sub-150K or lower.
stimulus keynesian: build more roads to the houses
liquidation austrians: hands off, (fire)-sell the houses
insanified treasurians: support the (rotten) houses
realistic americans: bulldoze them houses
I smell a disaster.
This won't help anything. Given that many ARM-based buyers can't even afford the principle on their amortizing payment, even a 0% rate wouldn't help...
"Don't they want the home prices to drop so more people can afford to buy them??
Alfred"
Dasvidania Comrade, this here's a capitalist system, not one of yer pinko schemes.
Pushin' on the string.
One of the great things I love about CR, is that Treasury can float a new plan, and less than 30 mins after it hits CR, it has more holes in it than swiss cheese (and the CR commentaries have spotted most of them).
Does this plan/scam make any sense at all?
Already I miss Tanta - let me add my voice to the many others.
It's fun to watch the stock market jump around on market interventions. The fleecing of the sheeples continues... The government central planners enable the big insiders to profit from it today, and simultaneously confiscate more of our future earnings to pay for new USA debt.
Housing Bubble II: The Sequel.
It's about to begin...
H. Potter
An economy based on Ponzi finance can only survive with more bubbles. The borrowing in excess of income can never stop or collapse occurs. Collapse is not a politically viable choice.
Of course the alternative may be a police state, so maybe the bubbles aren't so bad.
I want my 700 Big Ones back.
Low rates don't help when you don't have any money.
We might need to find cheaper rent.
Alfred --
Don't they want the home prices to drop so more people can afford to buy them??
You seem to have this quaint notion that price has something to do with affordability.
Come on, get into the 21st century! Affordability is always and only about monthly payments.
Alfred writes:
What I can't understand is why the Treasury wants to STEM the home-price decline!
To stem a collapse in local tax revenues?
kadomount writes:
Yeah, that's the problem. Money wasn't cheap enough.
Who wants to fund these 4.5% 30 year mortgages? I know the taxpayer will, to the extent that they can still pay taxes. Then who?
"Really? Hmmm, I might try for a 4.5%er. Interesting."
Me too. Jesus that would be sweet!
Mortgage Rates were 4.5% in the 50s. The market would price them at that level today were it not for the lack of credit due to deleveraging. This is an excellent plan, IMO.
"Oh My."
Brent Musberger's line?
Goal is to stablize or increase home prices. A noble goal, if it could be accomplished.
However, conforming mortgage rates are not the cause of homes going into foreclosure. Its underwater home values and/or overextended homeowners, who won't get a fannie/freddie mortgage at any price.
Nor is this going to increase the supply of buyers, particularly at the higher end. It does nothing to improve a buyers chances of getting a loan.
Buyers might be willing to pay a marginally higher price if loan rates are better, but unless we get more buyers or fewer sellers, the impact is negligable.
But the cost of subsidized loans to everyone who now refis? priceless.
ot so fast - those who say it 'won't work'
yes, it won't save those with neg-am i/o arms, or the negative equity disasters
but - it would put a price floor on houses for sale in large urban areas
and then that floor would become the ceiling...(hey, I never siad it was a good plan)
all good economic theorists know that the only real way out of credit bubble is to - yes, create a new bubble (or keep the old one inflated!)
Dick Enberg.
As long as we are converting to a command economy, why not just tell Fannie and Freddie to drop rates to 1%?
How about 0%?
Really, if the .gov is going to subsidize the interest rates, why not go for broke, literally?
BSNEATH writes:
Mortgage Rates were 4.5% in the 50s. The market would price them at that level today were it not for the lack of credit due to deleveraging.
But where will the money come from?
My current interest rate is 5.5% ... lowering to 4.5% cuts my payment by $150 per month.
Give me 1% and I will get excited.
So in 12/2008 the US Treasury decides to buy...mortgage backed securities.
Remember that memory pill ad:
"They're giving them away free?!! They must be good..."
As others have pointed out, it's the affordability, not the mortgage rate. Being able to refi down would be nice, but frankly, I don't really need the help. And if reducing it to 4.5 is the only thing that will keep you in the house, well....
yer f****d.
I have a better idea - why not just say that mortgage related debt is hereby set to 50 cents on the dollar? It makes just as much sense.
Wait a sec. Is this idea coming from the Department of the Treasury, or the Department of the Treasury-Elect?
"it would put a price floor on houses for sale in large urban areas"
Nope. Only if they can convince the market they will keep rates that low for ever and ever and ever.
BSNEATH, what psychodelic sh!t are you smoking?
Do you see any private lenders willing to lend anywhere near that rate?
Once you are off the cliff, there is still hope. If you keep running you wont fall. If you start anticipating the fall, then simply run faster. Repeating the action over and over and faster and faster will keep you in place. This message brought to you by Acme.
pfft the 700 bil will be long gone by the time Obama gets into office. That was the plan all along.
Everytime the govt changes policy, businesses in affected industries have to digest it and adjust their planning accordingly. What does the Treasury think business leaders will do when they change the plan every other day? Do they think people will be interested in taking risks?
Prez Bush: "Gimmie sumptin man I read sumptin good soz I can go out a hero"
......
>:O
.......
Apropos: I asked on the previous thread whether as long term renter, I should buy a house to hedge against a USD collapse (loss of my savings), failure to get credit (loss of my job in near future) AND yet benefit from the political class to keep homeowners in their homes.
Are we really at a "buy in now or live with your parents for the next decade moment" for renters?
With the Fannie loan cap, stricter underwriting, and down payment requirements a somewhat attractive APR does very little for home prices.
To revitalize the US housing market the Treasury would need to bulldoze 3.5M homes.
How about negative 10%? Pay me 10% to take some overvalued POS exurban McMansion off the market. I promise to only use it to store my Beanie Babies and not rent it out so it will no longer contribute to the housing oversupply.
all good economic theorists know that the only real way out of credit bubble is to - yes, create a new bubble (or keep the old one inflated!)
The only option that won't lead to a collapse of the financial system in the long-term is to clear out the bad debt.
And yet that is the one option nobody will consider.
I say go for it! Gives me more time to stock up on rice, dried beans, and ammo. Do these people want to make Kunstler's predictions come true?
OT: God Shamgod, are you a PC fan? (also, I believe he spelled it Shammgod (60% sure- I'll google next)).
"Smart move now everyone thinking of buying a home is going to wait to see if this pans out.
memmel | 12.03.08 - 5:10 pm | #"
Ouch, that would not be good for January sales. Is there not usually a spike in sales between school fall/spring sessions?
4.5% would be very tempting to get me to get out of the apartment lifestyle, but I sure would hate to take the hit on the equity when rates bounce back. Does the Gov. even have the kind of money needed to make this kind of thing happen?
IF they have sound underwriting this isn't that bad of a plan to prevent overshoot during the time of a bad economy.
What am I missing?
they won't actually do it, not without so many qualifications as to make it meaningless. they're just astro-turfing trying to boost consumer "confidence" and therefore (all the holy texts intone) spending over the holidays. Plus providing enough goofballs to keep the dow-dashboard making the illusion of a happyface formation.
"IF they have sound underwriting this isn't that bad of a plan to prevent overshoot during the time of a bad economy.
What am I missing?
®"
The forest.
Would I still need to give a downpayment with one of these low interest loans?
Mr. Beach writes:
Apropos: I asked on the previous thread whether as long term renter, I should buy a house to hedge against a USD collapse (loss of my savings), failure to get credit (loss of my job in near future) AND yet benefit from the political class to keep homeowners in their homes.
That's the 8 trillion dollar question.
FDR devalued the dollar. What will our brilliant leaders do when they run out of things to subsidize and the bill comes due?
I'm leaning toward...........inflation and currency devaluation.
Treasury Considers Plan to Lower Mortage Rates to 4.5%
That will create another fun banking crisis about 10 years from now.
If they reduced the rate to 1%, it wouldn't help very much, for underwater proposed refinancers.
And why should anybody buy if prices are still dropping?
Here's a thought, why not have negative interest rates, tied, say to the Case Shiller index? Your rate starts at 4.5%, but house prices drop, say 4.5%, so the next year, you pay, say .1% (so it can be amortized),
and the followning year it drops another 4.5%, so your principal balance DROPS 4.5%. Etc.
How's that for a plan, Hanky Poo?
To revitalize the US housing market the Treasury would need to bulldoze 3.5M homes.
And provide US citizens with the skills, motivation, talent, and ethics to command high real incomes and not depend on recycled debt to create the illusion of high real incomes.
Otherwise that "revitalization" is yet another in a long line of temporary illusions that are creating a deep rooted culture of poverty.
Care to expand Elvis?
lama : "Everytime the govt changes policy, businesses in affected industries have to digest it and adjust their planning accordingly. What does the Treasury think business leaders will do when they change the plan every other day?"
I know what I think : they are making it up as they go along, and I have zero confidence in the process. And the outcome of these choice is becoming less in doubt every day.
And people scoff at the notion we are entering a depression..
Forget the housing market.
Question: How can you "revitalize" a collapsed
U.S.A?
Cordially,
Kilgore
Leaking this plan makes no sense ... now the smart thing to do is wait, so anyone planning on taking advantage of the decline in rate to 5 1/2% or so should just wait another week or two.
Amazing ... heck, at 4.5% I might have to take a look.
Best to all.
ok so you get 4.5% today. What happens in 5 years when you have to sell and rates are 7%? So this is merely a prop game to keep mbs cash flowing and stop losses at banks. Otherwise no fool wopuld buy an overvalued house on income to price ratios based on the hope the governement and the world will continue to fund the US forever at 0%.
Thisplan should be called a lower your payment today for a capital loss later.
This plan is a joke.
618 visitors mid to late day, midweek.
Citizen AllenM writes:
9.8% Fall Y.O.Y. for October!!!
Citizen AllenM | 12.03.08 - 5:11 pm
Can I haz moor state urningz plz?
On a more serious note, I'm starting to keep my eyes out for state budget shortfalls--especially states that rely on sales taxes for their primary income. Hopefully, it will be one number that will be relatively hard to manipulate and easy to verify.
AZ's YTD is 100 million short which is small compared to other reports I've seen. Also, as state and local governments start getting squeezed to the point of squealing, I wonder how "local" the politics will be.
Year-to-Date $2,883.4 $(442.1) $(99.4)
Which Bush employee just stated: the administrations plans lack any coherent vision and they just jumped from one crisis to another without thinking?
I'm concerned about what will happen in the final days of W's reign.
And people scoff at the notion we are entering a depression..
It would seem that the treasury thinks we are.
yeah CR - dead on - signalling might be 'smart' in other elements of fiance/economic theory
but really not so smart here
at 4.5%, lots of stuff starts looking good
So you buy a $600K house with 10% down, this comes to $300 a month. Easy payments when you're unemployed.
Can't wait until current homeowners figure out how to do quitclaims to their families so they can qualify for a purchase loan at 4.5%.
"What am I missing?"
It will not help prices in the long term since the low rates need to be held in perpetuity for all loans, or until debt loads are low enough to handle higher rates. Even then prices still need to fall in real terms when rates rise. The market knows the 4.5% rate is unsustainable and prices will correct to where the rate will eventually end up. It's like hooking yourself up to an IV drip and ripping out your stomach.
"Wait a sec. Is this idea coming from the Department of the Treasury, or the Department of the Treasury-Elect?
Nemo | Homepage | 12.03.08 - 5:19 pm | #"
For all our sakes, I hope it is the former. This is definitely a Wile E. Coyote moment. To think that the future administration might continue the wishful thinking economic polices for another 4-8 years chills me to the core.
Fred:
So this is merely a prop game to keep mbs cash flowing and stop losses at banks.
you nailed it
this is like boggle: TARP is one word
now it has morphed to TRAP
kickin the can folks.
"Sir, the data indicates we are entering a depression."
"Hmmppff, I scoff at that notion."
OT
Mistakenly allowed pop-ups from CR thinking it was something useful. How do I block them on firefox now?
That's the 8 trillion dollar question.
FDR devalued the dollar. What will our brilliant leaders do when they run out of things to subsidize and the bill comes due?
you can't devalue a fiat currency when it isnt tied to anything. FDR fdevalued when $ was tied to gold.
Inflation doesnt do shit unless it flows through to wages. When the govt talks about inflation they mean helping themsleves on their own debt. Not yours! And since we as a nation have no savings you don;t ven get the benis of higher nominal rates
I paid points for my 4.99% re-fi. Where's my pony?
the problem with all these solutions is
that they pre-suppose that we have to work thru the investment banks, and wallstreet firms etc
they are mostly BK
trying to save the economy via these institutions is like trying to save a drowning person who has a leg tied to an anchor
we must go around the failed banks and investment institutions
we need to create a
bank of the United States
and loan directly , as prudent, to businesses, municipalities, students, entrepreneurs, home owners etc
put the banks out of businewss? no no
they can join in too
but right now those banksters are only thinking about their own survival and not the survival of the country
just look at what lewis said in the previous thread
so we as a country have got to give thee banks, that can still be banks, a clear message
either you loan to those who are credit worthy, or we, the Bank of the US will (BUS)
the country is being strangled and failure to act will be financial armageddon
Good, good! (said with the voice of the Emperor from Star Wars)
We need to keep housing unaffordable, because that keeps Amerika strong!
"Alfred writes:
What I can't understand is why the Treasury wants to STEM the home-price decline!
Don't they want the home prices to drop so more people can afford to buy them??
"
No!!!
They are not interested in having more people buy houses so that more people can be homeowners.
They are interested in having more people buy houses so the investors can make all their money back.
Fat cats gotta stay fat.
4.5% only looks good as a nominal interest rate....What is the REAL interest rate?
With deflation, 4.5% might feel like robbery.
Don't extrapolate inflation trends of the past 20 years... Or else, if you want to do so, try extrapolating using the Japanese experience...
Quick question. Why are people so appalled by this idea but not by the idea of the Federal Reserve making unsterilized purchases of Fannie/Freddie MBS?
Do they not amount to the same thing?
Mr. Beach | 12.03.08 - 5:21 pm
For me, if I could pay cash, yes. Otherwise I wouldn't want a big debt in these uncertain times. Disclaimers: TINFA, IANAL, YMMV.
This seems like an effort to jump start the housing market. I wonder how many people they think are waiting on the sidelines.
I think Mr beach's question is a good one. If you were a renter today and had the cash for a downpayment or outright purchase of a house, does this rate entice you to make the purchase?
I think we are in for a severe recession followed by a currency devaluation which leads to stagflation before our de-valued dollars make manufacturing more attractive and the economy recovers. If that is the case, how would you protect your wealth?
Mr. Randy Middleclass(Unrated) writes:
The Middleclass family is getting fidgety, we are getting fairly close to the point where house payment meets rent, but I'd still think prices need to fall another 15-20% in our neck of St. Paul. I still see 170K houses that reasonably should go sub-150K or lower.
Mr. Randy Middleclass | 12.03.08 - 5:14 pm | #
Mr Middleclass - what part of St. Paul?
I think there are neighborhoods already there now aren't there? Say up by Maplewood & East Side? Or south of downtown (W St Paul)? My understanding is prices are way down in some of those neighborhoods - throw in 4.5% 30 yr fixed and you should be below rent I'd think.
® writes:
IF they have sound underwriting this isn't that bad of a plan to prevent overshoot during the time of a bad economy.
What am I missing?
®
The forest of repos sitting on bank books that are not yet on the market. California house sales are 45% repos now. Each one that sells takes another move-on buyer out of the market and pushes prices down for everyone else. Buy now at 4.5% and you will watch your home value go down and stay down for the next 20-30 years. Just like house values did after the Crash of 29. The only thing that brought house prices back up was the GI Bill. The only reason the GI Bill was profered was to keep a million man army of unemployed, martially trained, young men off the streets.
It's the current administration, there's a nice creepy picture of ol' Hank in the article.
CR, I know that 4.5% rate would pique much interest, but wouldn't it only really help out those people who don't need the help? Or will there be more relaxation of the conforming loan standards?
666 visitors now.
Creepy how often that happens.
"AZ's YTD is 100 million short which is small compared to other reports I've seen. Also, as state and local governments start getting squeezed to the point of squealing, I wonder how "local" the politics will be.
Year-to-Date $2,883.4 $(442.1) $(99.4)
yagij | 12.03.08 - 5:27 pm | # "
You aren't reading it right- that was for 1 month the $100 million short.
The annual shortfall (since July 1) is already $442 million.
Arizona only has 6 million people.
But that trend is a total water fall in downward spiral.
We will shortly be raising taxes.
Goddammit, lower rates just raise the prices.
Thisplan should be called a lower your payment today for a capital loss later.
I agree. But these loans aren't designed for people who can do math.
Down goes America
Down goes America
Yep, in a depression, it's a good idea to anchor yourself to a depreciating "asset" with high carrying costs like repairs and taxes.
Do whatever you can to prevent yourself from having flexibility to find employment.
Employment is so last century: You will get wealthy by buying illiquid depreciating assets!
(but I share your disgust at the undeserved benefits showered on homedebtors)
"lower rates just raise the prices.
Troy"
Or set a ST price floor.
tomorrow the MN budget eval is due, and it ain't pretty up here. Estimated 4-5 Billion.
Minn. Deficit Expected To Be 'Very, Very Bad' - wcco.com
on the plus side, the Coleman/Franken recount is still going on.
CR I might buy this is a good pan if housing was a consumable but it isn;t it is fungible and pricing is not just a funcction of rates which is what got us here. Can;t balme treasury for doing what they know, but here is hoping the sheeple aren;t that stupid.
Why are people so appalled by this idea but not by the idea of the Federal Reserve making unsterilized purchases of Fannie/Freddie MBS?
Lowering the cost of borrowing 200bps or 30% simply means prices will adjust up, towards 30%.
The best real estate buys come when rates are high, not low.
yagji- that $100 million included $300 million positive in rolled over and swiped funds to offset this shortfall- that was all they could find when they were sweeping the cupboards bare.
In other words- $442 million short and the hole is growing fast.
As is usual, one has to know the inside baseball to see the true extent of the problem.
I am going to hide under my desk for a while.
Someday this war's gonna end...
Thus propping up nominal house prices.
Yeah, until this program goes away and everyone who bought under this program is screwed when interest rates return to 8% or whatever. You can't "refinance" your balance on a home when the interest rate increase causes the value to fall.
Are we now ZIRP Nation altogether permanently? T-bills, home loans, hey, why not car loans, credit cards, what have you? I'm sure there won't be any negative effects to distorting the market this way.
HELLOOOOOOOOOOOOOOO!!!!
This plan is a disaster for home buyers!!!!!
Because we all know you either rent the house or the money. If rent on money is cheap...then you overpay for the house!!!
Cash buyers will wait till rates rise, since high rates mean lower house prices.
This plan is to save current home owners (yes the banks!) by propping up prices.
Future buyers, who think the govt is doing them a favor, are getting screwed since if rates move up and they have to sell, then the buying power of future buyers goes down!!
You want to buy when rates are at the peak....cuz the price of the house will drop to affordability...then as rates move down, the value rises as future buyers can afford to pay more.
This is the LAST thing you want to do for the health of the housing market.
Only in a world where house prices are rising to people build equity, wont default when they have to sell, and can pull money out later via MEW.
A flat...or slowly falling housing market is a disaster.
I like the freudian slip in the headline:
"WSJ: Treasury Considers Plan to Lower Mortage Rates to 4.5%"
Mort is a synonym for death, especially in words with french roots. E.g., Le Morte d'Arthur, or a modern version, Le Morte d'Greenspan.
I smell a script for a broadway play.
I got fed up a few years ago. Now I'm even more fed up. I just can't take this phony capitalism. The future will hold even more free time for me.
The government can inflate/give my savings away, but I won't let them exchange my future work & time for stupidity. I'm choosing more free time & no debt. I'll hardly be paying any taxes too.
Exercise. Golf. Fishing. Hunting. Reading. Drinks and food with friends. And of course, heckling stupidity - lots of that.
If that little bit of lunacy is fixed and available for refis, We just might take them up on that nutzoid deal. What's that old law school saying that stupidity is no defense for invalidating a contract?
Already stocked up on the food, I suspect I need to wait a bit more before buying gold, and my inner Liberal makes me queasy about buying weaponry...
But I'm getting tempted.
(MP: What does Conjure's Depression clock say now?)
Sales tax that is, corporate income taxes were off 62.3%!!!!
Try this one out for size:
-94%
Raising the corporate tax rate in this environment is pure populist rabble-rousing; on the other hand, removing BS deductions might help...
Wasn't this part of Bernanke's infamous 2002 Making Sure 'IT' Doesn't Happen Here speech?
That the Treasury can buy assets, such as GSE bonds, and the Fed can monetize the Treasuries.
crispy&cole writes:
Down goes America
IMHO, Jas expressed that much more eloquently (and entertaining).
All I know is James Moffett of Scout Investment Advisors is telling people this is a good time to be buying stocks.
So that's what I'm doing.
Quick question. Why are people so appalled by this idea but not by the idea of the Federal Reserve making unsterilized purchases of Fannie/Freddie MBS?
Do they not amount to the same thing?
It's the quantity. Purchases of MBS are lost money; but to lower interest rates to 4.5% would require refi'ing almost every mortgage in the country. We're talking 4-5 trillion in purchases - WAY more than the couple hundred million threatened so far.
It's an empty threat coming from Paulson anyway. The TARP isn't nearly big enough.
If this was done by unsterilized purchases (i.e. printing money) we would definitely get a horrifying hyperinflation. The Paulson plan is sterilized - the money comes from Treasury issues.
Is there a word such as hyper-deflationary?
"Wasn't this part of Bernanke's infamous 2002 Making Sure 'IT' Doesn't Happen Here speech?"
Anony, yes it was. Don't tell the market or they might actually read the thing. What, then, would Ben do?
Does this mean they can remove some of the seats and increase the size of the remaining seats so I can be comfortable while dealing with sitting on the tarmac for 9 hours and putting up with TSA a**holes????
Page Cannot Be Found
Jas,
It sure looks like those dingbats at the fed & treasury have resorted to out right printing. I never thought it would happen above and beyond the usual 6% or so.
Any thoughts?
Rental prices have yet to come down in any meaningful way. I doubt in this economy that many people are willing to take on more debt. Look at cars sales and consumer spending.
We entered this recession with the highest consumer debt load in history.
Wages are stagnant and few people feel comfortable that their job will not go away in the coming months.
Yes, there will be buyers, people who think that everything will be alright in 6 to 9 months. A good friend of mine just bought a new car and home entrainment center since they were just giving this shit away
Falling home prices are good for the overall health of the economy. Home prices are too high by almost any measure of income wealth.
I agree that this action is for the banks and originators, not for the greater good.
Oh my is right!
As I grey, I have developed an appreciation that people are not as dumb as they sometimes appear but unfortunately I also realize that they are not as smart as they appear. One thing that seriously concerns me these days is that the complexity of our world has gone far beyond our individual and even collective intelligence to effectively manage it. In simpler times a broad thinker could do a pretty good job of leading because they could grasp most of the moving parts and their interrelationships. I really think now the risk of unintended consequences is huge as things are seemingly just too complex.
I honestly dont think helicopter Ben or Hanky Panky are dopes--they didnt get to their positions as idiots. But they also are not the geniuses that many held them out as before this crisis unveiled all their shortcomings. I fear that the situation we find ourselves in will only be resolved through trial and error and quite possibly a lot of errors that will get messy. I have this image of the plate twirler act where the guy runs around twirling plates on top of sticks. With three or four plates it looks impressive and the twirler can look very impressive. But triple the number of plates twirling and even the most skilled twirler starts to have lots of broken dishes.
Average Joe writes:
HELLOOOOOOOOOOOOOOO!!!!
This plan is a disaster for home buyers!!!!!
Because we all know you either rent the house or the money. If rent on money is cheap...then you overpay for the house!!!
Do "we all" know this? Will the few and far between homebuyers who may want to buy now realize the implications of this, or will they listen to the news and think "wow, rates are at historic lows, I need to buy now before rates go up!".
They are going to be in a really bad mood in five years when they realize that they avoided the first housing bubble only to get screwed on the back end with this disaster.
We need a taxpayer revolt!
"Basel Too writes:
Sales tax that is, corporate income taxes were off 62.3%!!!!
Try this one out for size:
-94%"
Good to know the Parole and Probation Fees line item is up 420%. Until now, I didn't know people got charged to be on parole or probation. I wonder what portion of those fees come from illegal activity.
What a joke this is!
Here in Maryland, we have basically nothing worth buying if you make anywhere near median household income. Crumbling rowhouses in Baltimore, cruddy condos in bad parts of town, and falling apart Post-War Shoeboxes in questionable 'hoods are all that comes close to "affordable." It is sickening and even criminal that these clowns in charge want to continue to gut our economy and destroy our currency to maintain this dismal situation.
As somebody put it, it is not about letting people buy homes, but rather to lock people into debt-serfdom forever.
crispy&cole writes:
We need a taxpayer revolt!
No, we need a non-taxpayer revolt.
Treasury is now trying to put the Kai-Bosh on the story (per CNBC). They say it's just an idea that's getting floated.
Even more, their "current idea" of this is that it is only new purchases an no re-fi.
Who is running this circus?
"Of course the alternative may be a police state, so maybe the bubbles aren't so bad."
Police state: "Shut up," he explained.
There are some people who'd jump at 4.5%. Myself included, I think
Many of us have lived in our homes for years, have quite a bit of equity built up, don't owe that much on it.
I am retired,house not quite paid for (still owe around $70k), on a fixed income, etc. Times are hard, tough for some.
At 4.5% the payments would be less than 5% of my total income. I bet I could pass whatever credit check they could devise as this mortgage is all I owe.
"One thing that seriously concerns me these days is that the complexity of our world has gone far beyond our individual and even collective intelligence to effectively manage it."
That's almost exactly what YLT said a few posts ago. Still true.
We definitely need to find an evil genius though. It would make all of this just a scootch palatable.
To stem a collapse in local tax revenues?
ac |
Now there is another ticking bomb. In my town, the fire and police unions negotiated retirement at 50 with pensions set equal to the last three years salary. It seems large numbers of them are retiring as captains by being promoted few years before retirement. These pensions are supported by local tax revenues. The pension plan, this year, for the first time, is underfunded so the cities contributions will have to increase at least by 5% of the total city budget.
Municipal budgets are sooo boring, but I think this is one area that will get exciting soon.
Who is running this circus?
Ski Bum | 12.03.08 - 5:45 pm | #
Cheney and his pet chimp
Citizen AllenM writes:
The annual shortfall (since July 1) is already $442 million.
...We will shortly be raising taxes.
Citizen AllenM | 12.03.08 - 5:32 pm
Oh f!#%. I did misread, and thank you for the correction. It is impressive to have 74 USD/person in a state and to only be a few months into the fiscal year to boot!
Academic Question: What will AZ do? What will AZ residents do? Can we expect a taxpayer holiday as they send a message to the capitol?
This might be useful for the nonbubble areas. For those of us in places like SoCal or the Bay Area or any of the bubble zones it will not. 4.5% will not make a $700K house that should be $350K affordable.
There are TOO MANY houses already. Oversupply. A huge mass of the transactions that occurred in the past few years were not true home sales, but mere home flips. It's the same as the car industry. Oversupply and, as Rob Dawg observed with respect to autos, years of sales pushed forward with phony finance schemes.
I agree with whoever said "pushing on a string."
I cannot imagine a stupider, more ill-advised plan. This is an attempt to re-inflate the bubble that has already nearly destroyed the US investment banking system.
I don't understand...the TV told me that "The Economy needs illegal aliens," and Arizona has millions of illegal aliens, so shouldn't they be doing really good right now?
Rob Dawg writes:
Is there a word such as hyper-deflationary?
I've always liked the phrase hyper-deflationary stagcession. I honestly don't care for N. Roubini's word stag-deflation because, well, is there non-stagnant deflation?
p.a.,
No, just thought since we have God here on halo scan(who presumably is a sham god) that I would throw this name out there too.
As an incentive for new buyers this might work to stir up some interest. The real question is whether folks who want to buy will qualify for the loan AND if they will have a downpayment.
As someone with the cash to purchase a home outright but am currently renting, it would be mighty tempting to buy a house I could pay cash for but instead take the loan at 4.5% and use the rest of my money to protect against currency devaluation and job loss.
Not everything is negative in our current economy. I have a friend who is getting a sweet deal on a 2009 Escalade AWD...only $57,500.
There are deals to be had out there this Christmas.
Clearly, nodody is running the circus, not even the clowns.
"Who is running this circus?"
No one. The people who are supposed to be running it are, at this moment, packing their Louis Vuitton bags.
Here it comes, 28th Amendment to the Constitution: Real Estate only goes up.
Fair Economist --
The Paulson plan is sterilized - the money comes from Treasury issues.
That depends on who buys the Treasuries...
Thanks for the reply.
57 grand for transportation?
This is a joke, right?
I also think along with massive currency devaluation they are going to try another massive amnesty program. That way they get the cheap labor and tax revenues they need to compete export wise.
Yet another argument for nationalization: being able to write-down all the bad loans would remove the need to prop up home prices with stupid plans.
The best thing for Arizona economy would be to get some illegal aliens to work at low wages in construction, building "homes" and sending major portions of wages to Mexico and Guatemala.
Have they thought of that? Sounds like a "maverick" idea that John McCain would like.
.....future home buyers: if they could of, they would of.
the inventory of buyers are full of people with no savings and lousy credit.
NOoooooooooooooooooo
I am a Real Estate Broker-this is NOT the answer, you will just pull "sales forward".Let the market adjust.Tomorrow, no one will buy a house-because NOW they must wait to see if this will really happen.Quit f***ing with reality. Homes must move from those who cannot afford them to those who can. One idea...bring back FHA investor loans-25% down,market rate, no limit on properties,appraisers assigned by FHA round robin as VA does(cuts out collusion). There are many properties that "cash flow" now, but the FTHB cannot afford the repairs ...
Hey, how about this: Double (or triple!) the mortgage-interest tax deduction and give EVERYONE an effective interest-rate cut without all that pesky paperwork.
"One thing that seriously concerns me these days is that the complexity of our world has gone far beyond our individual and even collective intelligence to effectively manage it. In simpler times a broad thinker could do a pretty good job of leading because they could grasp most of the moving parts and their interrelationships. I really think now the risk of unintended consequences is huge as things are seemingly just too complex."
Yes, of course. Obviously. Very advanced AI desperately needed, but will it come in time? And then: What will it need us for?
"Stay away from that plug!"
We passed an enormous colonial wasp paper nest in the woods today, visible because the leaves have fallen. Now there is an advanced society which has not outrun itself.
METROPOLIS
How many years to build this oblong town?
Gray as some Manhattan, football hanging from a beech,
Spit and paper Gotham, sealed in sleep -
It is December and the leaves have fallen down
Bobbing from a branch, a heavy weight,
A civil dormitory, comatose with sleeping citizens,
Solemn order in a wilderness of winds -
Underneath the city of the wasps a city gate
When the dark seal at the bottom is unstopped
They will wake up to scent the risen sap,
Nectar will arouse these striped Valkyries from their nap -
They will emerge to ride the breezes to their April crop
They who pollinate can rightly claim what they collect -
Do not disturb these righteous resting citizen insects
\t\t\t\t\t\t\tPavel
\t\t\t\t\t\t\tDecember 3, 2008
My current interest rate is 5.5% ... lowering to 4.5% cuts my payment by $150 per month.
it's Not for refis ... so I hear
Just as with last week when rates touched 5 3/8 for all of 3 minutes, very few will qualify. You need full doc, jobs, low debt, high fico, no missed on nuthin payments, no late library books, and you must love your mother.
These rates will only help those who don't need help.
re-capitalizing the investment banks is theft of the taxpayers money and will not save us
Have the powers to be not learned from this current financial crisis? Would like to know what weed is being smoked in Washington and NY...must be some real good wheelchair weed...
"Average Joe writes:
HELLOOOOOOOOOOOOOOO!!!!
This plan is a disaster for home buyers!!!!!
Because we all know you either rent the house or the money. If rent on money is cheap...then you overpay for the house!!!"
I moved into a home three years ago, with the help of an option ARM loan. I was renting the money for two years with 1% interest, then all of the sudden the rent went to 12%.
I am now renting a room for $800/month.
I noticed 30yr spot swap went negative last week. Discussed w/folks in the industry and it has nothing to do with fundamentals (implies AA rated banks are SAFER than the US govt!). Instead it seems to have something to do with exotic derivatives unwinds especially by hedge funds. I got a closing quote today at 2.84% Clearly a condition that cant sustain.
Very flat fwd curve at an incredibly low base, and an inverted swap spread. If you are a corporate borrower with a need/appetite for fixing debt for a LONG time, I cant see much downside to sub 3% 30yr funds before company credit spread. I cant see how you go wrong with fixing floating rate debt or terming out maturing debt in the next year off of this picture.
Heres the rub. I cant figure a way to take advantage of personally. Im not really interested in borrowing--looking more for investment strategies. Any ideas? BondGirl? BondGuy? Others?
re capitalizing using tarp and the alphabet soup of fed windows that is that is
I am so car-dumb that I don't know if the Escalade thing is snark or not. How much does an Escalade go for?
That balloon won't hold aire-
To many holes...
Average Joe...."all of a sudden..." c'mon dont be an idiot...it was always going to go up!
How about a "mortgage amnesty program" - we'll rewrite the mortgage at your current payment and -this once- set the traditional underwriting aside.
Only metric is making existing payments over past 12 months.
George Kalogridis writes:
57 grand for transportation?
This is a joke, right?
That price also includes a complimentary boost to your ego.
New thread, Fred.
Why now?
If this was just the thing to save the housing market why wasn't it done a year ago?
I'm getting sick and tired of a Ben and Hank magic show where they keep trying to saw the woman in half but instead of the woman emerging whole they exit leaving a bloody, dismembered corpse on the stage.
"Ski Bum writes:
Treasury is now trying to put the Kai-Bosh on the story (per CNBC). They say it's just an idea that's getting floated.
Even more, their "current idea" of this is that it is only new purchases and no re-fi."
Darn, so responsible folk who actually purchased their houses to live in (we plan to stay right where we are till they ship us to the nursing home)don't get anything. If we're going to become a Socialist Paradise, whatever, but God forbid that they hand out ponies to anyone who actually did the right thing and managed their financial affairs like an adult.
"Who is running this circus?"
The Ouija board in Hank's Office.
Opening line of my recent post should read:
I noticed 30yr spot swap SPREAD went negative last week.
OMG, these are amateurs playing command economy. Once the pros get up to speed you will see aggregation and nationalization of the assessment databases. These will be used to set real estate values and benchmark 1/1/2006 levels. This becomes the permanent value of the property and transfer of the property below benchmark valuations will require government approval and subject to a non-refundable processing fee and indexed administration charge.
Property taxes will hold the benchmark value constant and all adjustments will be made will mill rate variations. A cap and trade mill rate buy down market will be allowed and the government will be able to grant mill rate holidays for specific lengths of time up to and including the length of the mortgage on the benchmarked property.
New construction will be benchmarked by the use of 2006 comparables from diverse markets. Diversity appraisals will allow the government the ability to prevent the unavoidable problem of under assessment in non-declining markets if only local comparables are utilized. This will fix everything. You have the assurance of your leadership.
i get it - so they can make it for new home loans only, but for refis it will be 5.5%?
ah yes, and artificial governement sponsored separation of the market - yup, that always works, and works out well
how do you spell fraud?
oh, and last I checked, the problem is keeping people in their homes- or do I have that wrong?
we'll rewrite the mortgage at your current payment and -this once- set the traditional underwriting aside.
I think that was the crux of McCain's mortgage rescue plan.
Oh my indeed.
If there are solvent banks out there now, this should help to finish them off.
flaminia writes:
This might be useful for the nonbubble areas. For those of us in places like SoCal or the Bay Area or any of the bubble zones it will not. 4.5% will not make a $700K house that should be $350K affordable.
I saw a realtor on Fillmore & Union with a 4 bedroom fixer in Cole Valley, asking price was a mere 1.4 million...
Hank is pushing all the buttons until he finds the right one - or he crashes into the ground. The Eject button won't work until Jan 20.
Joe Consumer | 12.03.08 - 5:49 pm
Wasn't that Tony Soprano's ride?
Ding Dong sign he is dead as a door nail, and so is the Escalade...
Exercise. Golf. Fishing. Hunting. Reading. Drinks and food with friends. And of course, heckling stupidity - lots of that.
Angry Saver | 12.03.08 - 5:38 pm | #
I'll be looking for you - you trout fish?
"mortgage amnesty program"
im for debt amnesty... rather than dump all this money into a fire, pay off folks debt (house, car, etc...). if we want some goofy ideas, that has the benefit of freeing up folks to go run out and get more debt/things...
GO TEAM VENTURE
he people who are supposed to be running it are, at this moment, packing their Louis Vuitton bags
...and moving to Dubai and Ecuador? Have we identified all the "sanctuaries" yet? If the runners are smart they will land in a place that can support them in the fashion to which they've become accustomed.
Wow we have come a long way in ten years
"The IMF created a series of bailouts ("rescue packages") for the most affected economies to enable affected nations to avoid default, tying the packages to reforms that were intended to make the restored Asian currency, banking, and financial systems as much like those of the United States and Europe as possible. In other words, the IMF's support was conditional on a series of drastic economic reforms influenced by neoliberal economic principles called a "structural adjustment package" (SAP). The SAPs called on crisis-struck nations to cut back on government spending to reduce deficits, allow insolvent banks and financial institutions to fail, and aggressively raise interest rates. The reasoning was that these steps would restore confidence in the nations' fiscal solvency, penalize insolvent companies, and protect currency values. Above all, it was stipulated that IMF-funded capital had to be administered rationally in the future, with no favored parties receiving funds by preference. There were to be adequate government controls set up to supervise all financial activities, ones that were to be independent, in theory, of private interest. Insolvent institutions had to be closed, and insolvency itself had to be clearly defined. In short, exactly the same kinds of financial institutions found in the United States and Europe had to be created in Asia, as a condition for IMF support. In addition, financial systems had to become "transparent", that is, provide the kind of reliable financial information used in the West to make sound financial decisions.[13]"
1997 Asian Financial Crisis - Wikipedia, the free encyclopedia
sent one hour ago
talked to his legislative assistant 30 minutes ago
Dear honorable congressman Adam
Smith (9th congressional district, Washington State)
You dont need me to tell you that we are being financially strangled by the banks refusal to ease up on the the flow of credit.
these 'banksters" are sitting on the 350 billion that congress has doled out so far.
(plus trillions of swaps at the PDCF TAF TSLF and thru to ABCXYZF)
they, the wall street and investment bank people dont give a whit about the country...they are sitting on all this liquidity from the fed and treasury in the hopes of saving their empires at the expense of the country.
enough... enough
here is the solution.
you must now write a bill with president elect Obama's support, for the creation of...
The Bank of the United States
this new bank owned by the government...ie,the taxpayers
would lend directly to businesses, students, municipalities entrepreneurs etc at competitive rates...
this bank of the US would also lend ,as prudent, to the commercial and investment banks.
but either way the message we would send as a nation is clear
either the banks begin to lend..or we, the people will
for the love of God, do something
the country is slipping into a greater depression while Ben Bernanke and Hank Paulson are more busy trying to save their friends in the banks and on wall street first!!!
respecctfully
(Mxxxxxx Sxxxxx)
The last government action that struck a nerve like this (on this blog) was the $700B bailout. There was quite an uproar against that, even in the general public, but congress eventually found a way to ignore their constituents.
It's unlikely the public will protest this, partly out of learned hopelessness, and partly out of perceived self-interest.
However, this non-taxpayer revolt idea may start go gain more traction if this keeps up.
"Sounds like a plan if you got a house you want to sell AND you can find a 'greater fool'..."
I finally have the perfect pla
They can make loans 0%, houses would still be overpriced.
"Even more, their "current idea" of this is that it is only new purchases an no re-fi.
Who is running this circus?
Ski Bum | 12.03.08 - 5:45 pm | #"
How does that work. An existing homeowner with of means with the ability to make payments would just buy a "new" home across the street and default on the existing house if it only applied to "new" purchases.
I think it is pretty clear that the clowns are running the circus.
Hey don't know 'en: clowns can be pretty crafty - how many did they used to fit in those tiny cars???
The government can inflate/give my savings away, but I won't let them exchange my future work & time for stupidity.
Amen. It is time for a tax-strike. I might buy some land in a sunny climate and spend my time improving it and raising dogs.
oh, and my sadness at Tanta's passing is now worse - could you just imagine the snark she would have had for this 'plan'
Well, the mortgage pig doesn't have any hair either.
Good, good! (said with the voice of the Emperor from Star Wars)
We need that clip of the Emperor cackling, "Everything is unfolding as I have foreseen..."
They should do this with cars too! Buy up and give away all the inventory of the Big 3.
It would be cheaper.
I'll be looking for you - you trout fish?
dryfly
Good Alpers at Saddlebag.
Anybody see this?
Reuters
Mortgage applications post largest gain ever
Wednesday December 3, 11:42 am ET
By Julie Haviv
NEW YORK (Reuters) - Mortgage applications surged by the largest amount on record last week as a new Federal Reserve program pushed interest rates down to their lowest level in more than 3 years, data from an industry group showed on Wednesday...
Expired
This was before today's announcement.
Argue if you will that just because people are applying doesn't mean they'll be approved (which is a perfectly valid point), but clearly there is demand out there. If this kind of market response is what happens when the offered rate is around 5.5%, imagine what it would be at 4.5%?
Sebastia
What good does it do for a man to gain
a McMansion if by doing so he risks losing everything else including his freedom?
This is an idea that is being pushed by the National Realtors Association and the Home Builders Association.
This is dumber than the last 3,4,5, ideas that have come out of the fed.
The only thing this does is ensure a double bottom and push real recovery out to 2011.
When will everyone realize that the problem is that we have had to much cheap credit. Providing more does not solve the problem but only makes it worse.
Everyday, i find myself getting so angry at the general stupidity of the government solutions to these problems. Because at the end of the day the only thing that i am sure of is that we are getting deeper and deeper in debt and this whole experiment is going to end in default and tears.
Fair Economist,
I fear the Fed's so-called sterilization is just sleight of hand. Same fear with all Central banks.
I don't see any way to sterilize this much this fast. It's happening all over the world simultaneously too. A coordinated money drop. I seriously doubt real savings alone are being used to fund the worldwide bailouts.
The biggest swindle in the world is getting bigger. Way bigger.
It's so obvious, why didn't I see it before? The crisis is all about not underpricing risk enough!
When will everyone realize that the problem is that we have had to much cheap credit. Providing more does not solve the problem but only makes it worse.
And directing more scarce capital into unproductive housing stock further starves the parts of our economy that innovate, produce, and create wealth. The path to stagnation is paved with granite countertops.
I'll be looking for you - you trout fish?
Not for years, but I'm looking forward to next spring in the Poconos. I remember a spot or two.
Just terrible. It props up home prices and won't make them any more affordable. In fact, it will have the effect of shifting the bursting bubble onto new buyers.
I suspect if Jas would look at this thread he would think "the dopes are running amock".
To revitalize the US housing market the Treasury would need to bulldoze 3.5M homes.
We could get al qaeda to do it for free.
"Everything is unfolding as I have foreseen..."
citizen energyecon | Homepage | 12.03.08 - 6:07 pm
He was wearing one of these too.
Evil Genius T-shirts and Gifts : Evil Genius Tees
@ sebastain
About 85% of those mortgage applications were refi's.
Meaning that they are people who already own a home and are paying a mortgage rate higher than 5.5%.
Last year one of IndyMac's subs published data similiar to this story one day after a 50bps rate cut. As it turned out almost all the "action" was refi's and we all know how IndyMac turned out.
Hard to believe that there is huge pent up demand when people are losing their jobs right left and center.
Also very hard to believe that with a negative savings rate over the last 5 years that people have 20% down saved on a $200,000 house.
Another "Hope Now" program from the Hankster.
How did that and the Super SIV work out?
"One thing that seriously concerns me these days is that the complexity of our world has gone far beyond our individual and even collective intelligence to effectively manage it."
Amazon.com: The Collapse of Complex Societies (New Studies in Archaeology) (9780521386739): Joseph Tainter: Books
The Collapse of Complex Societies (New Studies in Archaeology)
by Joseph Tainter
Can't wait for that new income tax rate of 110%
We're all insolvent now.
Some sort of universal lowering of rates (residential AND commercial) will likely be done. If they add a component like a $20k tax credit spread out over 5 years for property owners that do not have a mortgage, then it would be...ahem..."fair and balanced".
Universal rate or principal reduction is coming is my guess.
SGIP
tg is a born & bred lap dop | 12.03.08 - 6:17 pm | #
From the Heavy Handbook: Time to make an unnecessary example out of someone!
Polonius | 12.03.08 - 6:18 pm | #
Copy just arrrived yesterday, going to dig into as time permits...
I want one but I think I'll wait till they drop to 2%.
Currently Accounting expressed my fears. Housing is a derived form of wealth. It follows high income not creates it.
Would 4.5% mortgage loans rejuvenate Zimbabwe? If every Englishman had a Blenheim Palace to live in but no job
would England be wealthy?
We need to save our real economy not worry about the price of a house. I understand the financial distress caused by falling real estate prices but that will be as nothing compared to soaring unemployment rates.
Where is the proposal to prevent non-recourse loans being written? Does no one see that this is pretty central to the whole debacle?
Econoclast,
I've heard that non-recourse was enacted to prevent bubbles. Theory was that banks would lend more conservatively that way.
Apparently that thinking predated securitization.
As one of the few people that doesn't own a house and is casually looking, I notice there are lots of empty houses owned by both investors who own multiple houses and people who have moved and own two houses.
who the heck is going to buy all these houses to "prop up" the house prices?
The few people who don't own a house, or are investors going to buy even more houses (that will also sit empty)?
0% didn't even help Toyota sales, so 4.5% won't make houses a good buy unless the price drops and you can rent for a profit, or have a mortgage for less than rent.
Wallie writes:
...One thing that seriously concerns me these days is that the complexity of our world has gone far beyond...
complexity ? no, stupidity !
It's is the stupidity of those who think they can spend more than they earn, and it's the stupidity of those who, when the credit bubble bursts think additional credit (read bailouts) is the remedy.
A seven year old can understand it, no complexity here!
Jas was right all the time!
You all are missing the point.
4.5% mortgages to new buyers would open the pool of potential foreclosures to a wider base of the population.
Why limit the fun to only the homeowners?
Be fair and let everyone suffer. Stop thinking only of yourselves.
I've been wanting to buy in Los Angeles for years now. I have cash. Earn 2-3 times the LA median income. This 4.5 does nothing for me. LA was paying 11X income at the peak in 2007. Prices still have to come down here.
I've watched prices fall 100Gs since summer. Show me another 100 and I may consider leaving my prime area rental for a shack in the boonies. I'm sure it will have granite countertops.
Could be that all this is like Mao's "Let a thousand flowers bloom." We are finding out who the deadbeats and freeloaders are.
"complexity ? no, stupidity !
It's is the stupidity of those who think they can spend more than they earn, and it's the stupidity of those who, when the credit bubble bursts think additional credit (read bailouts) is the remedy.
A seven year old can understand it, no complexity here!"
These people are not stupid. They may, though, be trapped. As clever as you are, try getting out of check mate.
Seriously, if the bubble inflates again; I'm selling to the first sucker I see, and buying a Winabago!
What's better: for a year or so, a 4.5 rate that allows the average guy to own or refinance a home or a future where a few large investors own close to a third of the housing stock in the United States? Because those who think the former is a bad idea must then acknowledge the possibility of the latter if our country falls into a decade-or-more long depression, with housing continuing to lead the slide down. Don't know about you, but I, for one, do not want to rent from some real-estate monolith that can raise my rent at will for the rest of my live-long days. Some here appear to lack the critical thinking skills needed to help us claw our way out of this morass.
I smell a script for a broadway play.
some investor guy | 12.03.08 - 5:37 pm | #
Starring Tanta!
Bring on the Winabago-Bubble of 2011!! Wonder when the great garbage avalanche is going to get us?
They WANT people to buy houses. It gives them a larger tax base and supports a large number of peripheral industries. Unfortunately they are trying to cure this with the same thing that caused the problem.
They must think that lowering the rate now will boost housing sales faster than waiting for the natural price correction. It reaks of desperation in my opinion...
Polonius
Thanks for the book reference. Looks interesting.
Pavel:
Agree about the trap. I believe our leaders are trying to desparately fix the problem with lies and deception not so much out of self interest but fear. They know if panic ensues, it's game over.
Did some quick math for you "Jane". I am also a renter in LA area who sold at the peak in 2006. I am wiating to buy a primary residence. You said if they give you another $100,000 off the price you would buy. This interest rate drop is doing better than that if you stay inthe house for the full term of a 30 year loan.
Lets say you bought an over priced shack for $400,000 with nothing down.
Lowering the interest rate by 1.5% (from 6% to 4.5%) nets you the following payment reduction:
$600 per month
$7,200 per year
$216,000 over 30 years
So if they lower rates theya re actually offering you $216,000 to buy now versus waiting a year for that magical $100k price reduction. Of course you have to pay the additional $1,100 a year in property taxes dueto the inflated price so it eats up at LEAST 30k or so...still, it is an incentive...
"Fair Economist writes:
It's the quantity. Purchases of MBS are lost money; but to lower interest rates to 4.5% would require refi'ing almost every mortgage in the country. We're talking 4-5 trillion in purchases - WAY more than the couple hundred million threatened so far."
I don't see how it could be accomplished, but it seems as though they might want that to happen. After each refinancing, that particular property gets pulled out of any MBS it might have been in. Though I can't imagine how folks will deal with negative equity, inadequate income, etc., refinancing is perhaps the only way to unravel all of the MBS' and such that are destroying confidence in the financial system. However, it seems as though no one would have the confidence and cash to try and attempt to unravel this mess, and put mortages back in local banks or the FHA (Freddie and Fannie are dead to me
where they belong, rather than the equity markets. Comments welcome......
Seems like a good way to de-value the dollar while helping to stabilize the housing market. A win-win for the Bankers, the Fed and our manufacturing sector...
It looks like this will significantly narrow the spread between treasuries and mortgage backed securities. The Treasury will have to issue a lot of treasuries in order to finance the purchase of everyone who wants a 4.5% mortgage.
Is the best trade here to buy MBS and short long term treasuries?
I'm late to the party, but so long as the fed can borrow at near 0% and loan at 4.5%, it's a GO.
But note that depends on "so long as".
picosec, how long will they be able to roll over their short-term debt at 0%, is the real question. Isn't that what got the banks into trouble?
Forgive me if someone already posted this, as I didn't go through all 250 posts, but isn't the Treasury Dept. already doing exactly this (buying MBS to lower mortgage rates)? And didn't the Fed just say it would do this a few days ago?
The WSJ copy below implies this plan is exactly the same as what's already being done, just this time there's a goal of what rate the government wants to see (4.5%). What am I missing:
"Under the plan, Treasury would buy securities underpinning loans guaranteed by the two mortgage giants, which are temporarily under the control of the government, as well as those guaranteed by the Federal Housing Administration. Fannie and Freddie guarantee a large proportion of all new home loans made in the U.S."
I think they are going to be able to this as long as the stock market is gyrating wildly. The "flight to safety" ensures low borrowing costs in the short term.
4.5% is a desperate attempt to get the last few people who can truly afford a home off the fence. The problem is that there are already 7 million mortgages in the negative, and it's probable that most of them are already between 5-6% if they were purchased between 2002 and 2005. Many of them are refi's, 5/1 ARMs, I/O option loans.
You guys are all chasing your tail here.
This is just part of "operation jawbone" to find more bagholders for MBS.
Last week the $600 billion dollar MBS buying spree was announced, with no details. Today the Fed admits that it's mostly a lie:
$500 billion dollars missing
I doubt today's announcement/trial ballon/stream of consciousness/whatever will prove useful for anything beyond generating lots of sound and fury in the blogosphere.
can I get a HELOC with that 4.5% rate??
Seriously, the problem is that we ran out of qualified homebuyers and were lending $700,000 to people making $50,000 /yr
Even at 4.5% , that person cant really afford $700,000, or 500,000, or 200,000. The whole thing was sold to the idiots on the basis of skyrocketing price appreciation, then ability to refinance and cash out, or sell and get a quick huge amount of money.
picosec: Short Courage nails the issue. Treasury funding all its incremental new borrowings with cheap short term issuances as well as rolling current longer term maturities into the same cheap money. This has resulted in almost 20% of total debt financed on short term borrowings maturing within the next year. They are effectively converting the national debt into an ARM--drinking their own kool aid. They could be in for a real squeeze if long term rates jump say because China quits buying and starts selling.
How is this any different than my 'crazy idea' of just giving everyone a one time $50,000 credit on a new or existing Mortgage?
Of course, I wasn't really being serious... but I don't think the powers that be are either.
On a $500k loan the difference in payment is roughly $480 on a $500,000 loan at 4.5% versus 6%. In percent of payment terms that is about a 16% discount in monthly payment price. That is a fully amortizing loan.
On a $200k loan the difference is roughly $200 a month and again basically a 16% savings.
Now are those monthly savings meaningful, I would say slightly. The real problem is I am assuming these loans are going to require downpayments and asset/income verification???
We got into this mess not because rates were too high, in fact in 2004-2006 weren't they near 45+ yr lows? the problem was people bought with no money down and lied about their incomes. Then they got more aggressive and went for pay option arm loans - if this is a pay option arm loan we are in for another bubble but I don't think they can get away with that.
The people that are currently screwed now are mostly option-arm people that had loans recast and payments went from $1k a month to $3k a month. A 150 bps reduction in rates isn't going to help them.
Obviously this action should send gold and long-term treasury rates skyrocketing. But the US gov is buying treasuries so who knows. We are headed down a Japan type of path I am sorry to say.
SR
I like the freudian slip in the headline:
"WSJ: Treasury Considers Plan to Lower Mortage Rates to 4.5%"
Mort is a synonym for death, especially in words with french roots. E.g., Le Morte d'Arthur, or a modern version, Le Morte d'Greenspan.
I smell a script for a broadway play.
some investor guy
Death on the Installment Plan (1936)
Amazon.com: Death on the Installment Plan (9780811200172): Louis Celine, Ralph Manheim: Books
I don't think it was ever adapted as a play though.
Nice, punish the sound banks, by forcing them to lower rates to 4.5% residential, and bail out the foolish ones. This hurts (dividends).
Give me rising prices, or give me death!
God Bless America!
Speaking as someone who has been sitting on the sidelines with cash in the bank for the past few years, this is a really nice gesture by the guvment, but the hubby and I have decided to wait it another year or so.
Thanks for trying!
Part of the problem with this is that even if they won't do REFIs neighbors can can do an across the street flip to get an effective REFI. And if they tried to limit it to first time purchasers...well there are very few potential first time purchasers who haven't been suckered into homeowership over the last few years, partly by virtual elimination of the downpayment requirement. The number of potential first time purchasers who can actually come up with a downpayment is miniscule. So the choice is almost everybody or almost nobody. There is no middle ground.
Change the qualifications and you might get somewhere with this.
Rates could be at 0% and it wouldn't change a thing.
Key point that.
Ciao
MS
Wallie -- Paulson's whole "let's turn the US Treasury into a giant hedge fund" plan isn't exactly instilling confidence in the credit quality of U.S. Treasuries. It used to cost just a few basis points to insure U.S. debt against default in the CDS market. Now it's something like 70 bps. Still miniscule versus private credits, but a big rise in a short period of time -- indicating that becoming "bailout nation" has a cost associated with it.
Like it or not...can any of you afford not to take advantage of 4.5% ???
It spells disaster but it also spell you stuck with your 6% rate...alot of people wont like that...why pay more when you can less...housing market will explode...we all know those who missed the boat...missed it BIG time...problem is whoever buys with 4.5% will sell after first 20% gain...cash it in and let others (suckers) buy into it too.
Dude, I'm buying a house! Who wants a Dell this Christmas when real estate is on sale for 30 years
"Agree about the trap."
I don't know. I just write poems. I can only attempt to imagine what it must be like to think you are responsible for vast national economies, hundreds of millions of people.
"They know if panic ensues, it's game over."
Their own and others. Panic, that is.
It occurred to me a moment ago that the wasp's nest I saw in the woods today might be a sign that human societies are also made of paper and held together with spit. If only we knew.
They want thier fraud back damn it and they want it back now.
So a $300,000 house loan at 5.5% or so had a payment around $1700/mo. Same payment now will get you $336,000 loan. In my neck of the woods in Texas this means it will eventually end up inflating home values 10% or so.
There aren't enough mortage brokers, loan officers and bureaucrats in the entire world to execute this proposed 4.5% policy fast enough.
However, it has accomplished one thing. Rather than calling for the resignation of Paulson and Bernanke, I will now ask the authorities to bring the butterfly nets and straitjackets and haul these two bald fiends away immediately.
So I can't refinance but I can sell my house to someone else so they can have a 4.5% purchase mortgage. Then, I can go buy their former residence and qualify for 4.5% as well, just as long as I don't try to stay in my current home. Makes sense to me!
Wouldn't it just be easier to take the same money and buy all the raw land inventory cloggin up homebuilders' balance sheets so they can pay off the banks, and then get them to agree to never build another house.
The Federal government could then give the same land to farmers and then pay them not to grow anything on it either, while we're printing money anyway.
I guess that not being happy with just selling toxic crap to the banks while at GS Paulson is about to sell the same crap in massive quantities to the US taxpayer. Is the US to big to fail?
I smell blue smoke and I see mirrors. This stuff from Treasury is just BS, just talk to cover up and deflect rage at the revelation that the TARP funds have been unsupervised and unnaccounted for.
Loose talk about a plan to lower mortgage rates is supposed to show that the Treasury really is thinking about doing something to help sinking homeowners, not just forking out money to banks. And it is true. They are THINKING about doing do something to help sinking homeowners while FORKING out money to banks, and it will stay that way, thinking and forking.
BS smokescreen. Nothing more. No way to implement it. Never intend to implement it. Wouldn't work if they could implement it. It is all just talk.
To add to what MP said, no one is running the show. But they are trying to cover their asses.
Wait a sec. Is this idea coming from the Department of the Treasury, or the Department of the Treasury-Elect?
As LaLa noted, this is being pushed by the Realtors and Home Builders. They, not the Treasury, leaked it.
CR said it makes no sense for the Treasury to leak this, and he's correct. It appears that the Realtors and Home Builders believe they can generate public support for this plan by leaking it, thereby forcing Treasury's hand.
It'll have the opposite effect. No one said the Realtors and builders were political geniuses.
A comment I found on Ritholtz--note, I didn't see the broadcast myself:
crowncitycap Says:
December 3rd, 2008 at 8:13 pm
Maybe I completely misunderstood the report on CNBC, but I could swear the conversation between Diana Olick and Steve Liesman went like this:
This is NOT a Treasury plan, but a plan developed by NAR, endorsed by the home builders, and sent to Treasury for consideration. Futher, it was apparently leaked to press as a Treasury proposal
Thats what I heard anyway
And, I might add, if you read the articles you can see that there is no confirmation that Treasury supports this.
You could decide that it would really benefit the economy if the Treasury gave you a billion dollars to spend. And if you were already rich enough to employ lobbyists, you could get a hearing at Treasury, where some factotum would listen to your lobbyists' hokum, and nod and smile. Then you could leak the conversation to the WST and WashPost. Doesn't mean that anything would come of your plan.
Remember that Paulson is in China. If these talks were serious, he would be in the room in Washington.
This is a lead-covered trial balloon by the Realtors and builders.
This would be insane so NAR and the home builders must be behind it. It ranks up there with bail out the big three auto guys. The inmates are taking over the asylum!
If this was a trial balloon or attempt to usurp the authority of the Treasury by the NAR/NAHB, they should be prosecuted to the fullest extent of the law by the SEC for market manipulation ( even though the leak broke after hours, as I'm sure everyone around here knows, there is trading after 4PM.)
I'm sure anybody short homebuilders who got stopped out will be reimbursed by the TARP ... yeah right!
This is a CDO rescue plan because to stop home price decline will put a bottom on those, or that would be the theory. No more toxic paper of the no bottom in sight variety. Now, the new securities derived from this new plan, are they going to be more safe at all? Probably not since the safer they are the fewer houses are sold, the less support for home prices, the toxic remains toxic. So this an attempt to revive the bubble, call it Housing Bubble 2.0 but it will most likely fail because it does nothing to stop the rising unemployment problem. Or so it goes?
Can someone tell me what this means?
NYFed Auction FAQ's
Q. Will these operations be reserve neutral?
A. No, these operations will be financed through the creation of additional bank reserves.
Can Hank please just resign already? Let the Obama team take over now, guys...
Sixty-three years old, moved to Taos, New Mexico in '99 after selling MD house we'd owned for 10 years. Appreciation was less than one percent per year. Missed the big housing boom, been living on the edge ever since. No health insurance, no equity, etc. etc.
If a couple of old ladies die, I might have money to buy a house somewhere. But why in God's name would I? Only if I absolutely love it and would never want to sell. I mean, not EVER.
All this talk of saving the housing market is just madness. Complete and utter madness. Our entire financial system is unwinding. This will go on for years. Five years from now, you won't recognize this country. We can't go on using most of the world's resources, either. Madness upon madness upon madness.
The edge is scary, but you can see really well from here.
Like it or not...can any of you afford not to take advantage of 4.5% ???
It spells disaster but it also spell you stuck with your 6% rate...alot of people wont like that...why pay more when you can less...housing market will explode...we all know those who missed the boat...missed it BIG time...problem is whoever buys with 4.5% will sell after first 20% gain...cash it in and let others (suckers) buy into it too.
Anonymous | 12.03.08 - 8:23 pm | #
I would re-fi and/or sell my house immediately. Am in more than 20% equity and would get the heck out ASAP. Time to take my ball and go home if that happesns. Just don't know where "home" will be yet.
The question I keep coming back to is:
What's next?
Seriously. And then if rates ever need to go above 4.5% for new buyers there is no market?
These guys are so over their head. And they can have this luxury since they cornered the currency market.
If that ends, it's ball game.
As a new home buyer, it's really hard to plan for the future while the governments keeps changing the fucking rules every week.
30 years fix rate at 4.0% with zero down??
Million dollar studio hotel condo in Miami Please!
Where do I sign?
either you loan to those who are credit worthy, or we, the Bank of the US will (BUS)
mock turtle | 12.03.08 - 5:30 pm | #
How about "either you loan to those who are creditworthy, or we'll Safety and Soundness Exam you into oblivion"?
All the talk about increasing lending is for show. If the concern was getting credit to the creditworthy the Fed wouldn't be paying interest on reserves to encourage the banks to hoard cash. Every move to date has either been a nothingburger or it's been an attempt to get windfall earnings to the banks to keep them from breaking.
Congress ... so how much is this new scheme going to cost?
Bernanke whispers something into Paulson's ear. Paulson ... oh, we think this time we are going to need at least a trillion or so.
Congress ... no, we don't really care about the total. howmuchamonth is this going to cost us?
Bernanke whispers something into Paulson's ear. Paulson ... oh, don't worry about that now. Bernanke will buy everything we float, so it's really costing us nothing.
The 4.5% rate appear to be for new homes, not refi's. The problem is that it won't help the people who are already in trouble except to possibly inflate the home prices around them. Inflation is the most unfair form of taxation (Ben Franklin said that I think).
if you're employed, you face the potential loss of your job in the near future. most responsible boardrooms are looking at all options.
an exception may be federal government positions.
so who in their right mind would even consider making a major purchase of anything?
Another day, another trillion dollar trial balloon. The traders that post here must be loving this--it seems to me you could make good money trading against every gasbag announcement citing "people familiar with the matter" who tout some nonsensical plan.
Hanging by a thread writes:
This would be insane so NAR and the home builders must be behind it.
Since the effect of this, to the extent anyone takes it seriously, is going to be to crush housing demand while potential buyers wait for Godot, I'm thinking maybe somebody else must be behind this one...like maybe somebody that's sitting on a load of inadequately hedged MBSs and needs to jawbone rates down a tad?
There's been some serious interest-rate whipsawing lately and I've wondered if everyone's dynamic hedges were up to the task.
This is what roubini asked for.
Great, now all the defaults will kick our financial system in the balls even harder, as the few performing loans barely make any profit to cover the massive losses.
Pavel Chichikov writes:
...These people are not stupid. They may, though, be trapped...
Pavel, aren't you just in "denial mode" here ?
If people got trapped because they spend more than they earned, isn't that just stuplidty ?
(I am not talking about the minority here who got in this circumstance because they lost a job, a divorce, medical expenses, etc. )
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maybe they forgot to mention the part where everyone gets 50% raises
I just read that they are considering NOT making the 4.5% available for refinaces. I think that we need to make it available for refi's so that people with higher (less afordable mortgages) can refinance and NOT let their house go into foreclosure. Surely we need a two pronged approach - spurring home buying AND keeping more homes from foreclosing. Otherwise, it's like giving someone a bucket to empty out the boat filling up with water, but never fixing the hole in the bottom!