WP: Treasury Weighs Action on Mortgage Rates

[I_Bleed_B&G]

From the washington post:

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/03/AR2008120302889.html?hpid%3Dtopnews⊂=AR

By David Cho, Zachary A. Goldfarb and Dina ElBoghdady

Washington Post Staff Writers

Thursday, December 4, 2008; Page A01

The Treasury Department is strongly considering a plan to intervene directly in the mortgage industry to dramatically force down rates and stimulate the moribund housing market, according to sources familiar with the proposal.

Under the initiative, the Treasury would offer to buy securities that finance newly issued loans for home purchases, according to the sources. But to participate in the government's program, mortgage lenders would have to set exceptionally low interest rates, for instance, no more than 4.5 percent for traditional, 30-year fixed-rate loans.

These securities would be purchased primarily from Fannie Mae and Freddie Mac, the financing giants that buy most mortgages from U.S. lenders, according to sources who spoke on condition of anonymity because the plan has not been finalized.

The cost of the plan and source of funding remain unclear. One possibility is for the Treasury to raise money by issuing bonds to the public at 3 percent interest. This could allow the government to turn a profit because it would be buying securities that pay 4.5 percent.

At a meeting attended by the Treasury's Interim Assistant Secretary for Financial Stability Neel Kashkari and the National Association of Realtors in mid-November, senior Treasury officials said they were optimistic that subsidizing lower mortgage rates with taxpayer dollars would help revive the housing market, sources said.

Treasury officials told the Realtors that the plan could be a more effective way to help homeowners than focusing efforts solely on borrowers who are struggling to meet their monthly payments, the sources said. Democratic lawmakers have been advocating a proposal to modify the mortgages of distressed homeowners.

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What does this mean for us?

[Thiebear]

no more than 4.5 percent for traditional, 30-year fixed-rate loans.

I have my eye on a 400k house in forclosure that is worth 900 with 150k in fixing..

Probably a million+ in 4 years...

But i digress: Only people unable to pay any ****ing loan back will be allowed to get said loans... Those of us paying our mortgage can continue to just "suck it".

[RyansRangers]

To quote someone I was talking too..

The Fed is squeezing but the banks are keeping the toothpaste in the tube..

[I_Bleed_B&G]

But i digress: Only people unable to pay any ****ing loan back will be allowed to get said loans... Those of us paying our mortgage can continue to just "suck it".

I'm I missing something because I saw this in the article. Doesn't seem like it would only be for folks who are unable to pay:

"Treasury officials described the situation as fluid and said the plan was still being finalized, according to people in contact with the department. The officials expressed concerns yesterday that premature disclosure of the plan could prompt Americans to put off buying homes and hold out for a better rate, sources added."

[Thiebear]

History is your friend:

It will start out as a Grand plan that will probably even make sense.

It will then be ****ized by committee / subcommittee people that WANT something for this.

Upon its completion it will not only no longer even resemble the same plan, it will be useless to 85% of the people and cost 6x as much as estimated and the bonds will then be worth 2.0 with nobody buying them.

Not the mention the 2 month freeze in people buying houses waiting for the 4.5%

[TMK9973]

Thats the big question. Will I be able to re-finance at 4.5%? Or will I have to miss a few payments, go into default, and then get the better rate?

[I_Bleed_B&G]

Thats the big question. Will I be able to re-finance at 4.5%? Or will I have to miss a few payments, go into default, and then get the better rate?

This is what I want to know. I'd love to have a 4.5% rate.

[Thiebear]

Im at 5.5% for my 1st and the second is 8% interest only.

I tried to refinance last month and the best i could do was 150$ more a month to combine them.

I told the one guy:

So for the privilege of paying you 15k in closing costs i would then pay an additional 150.00 a month more than now. And you thought you'd put that into a document you wanted me to sign? No thanks, i'll wait till it gets even worse and then ask another bank if they would like to refinance someone that will pay them the interest on the loan every single month. Have a nice day.

[Kilmer17]

The way this looks, its a great thing for all of us who have been playing by the rules.

Ergo, it will completely change by the time it becomes anything.

I concur with T. I will absolutely overbuy if this actually happens.

[chaddukes]

The problem over that last 5 years hasn't been the already historically low interest rates! This will solve nothing!

[I_Bleed_B&G]

The problem over that last 5 years hasn't been the already historically low interest rates! This will solve nothing!

It will solve something, by putting more money in my pocket if I can refi to 4.5%

[chaddukes]

Im at 5.5% for my 1st and the second is 8% interest only.

I tried to refinance last month and the best i could do was 150$ more a month to combine them.

I told the one guy:

So for the privilege of paying you 15k in closing costs i would then pay an additional 150.00 a month more than now. And you thought you'd put that into a document you wanted me to sign? No thanks, i'll wait till it gets even worse and then ask another bank if they would like to refinance someone that will pay them the interest on the loan every single month. Have a nice day.

Just keep in mind that you went to a bank/broker to see what they could do for you. They simply offered the best that they had (though $15K in closing costs is ridiculous). The reality is that you got your mortgages at crazy low rates, and now you are seeking to refinance in a time when the industry is in crisis. There is nothing that anyone is going to be able to do to lower your payments on 5.5% and 8% IO without resorting to some really outlandish and risky product like a Negative Amortization loan. The industry just isn't there. And its not likely to be there anytime soon.....or ever. You got the best that there is. Be glad.

[chaddukes]

It will solve something, by putting more money in my pocket if I can refi to 4.5%

Well, I can't deny that. But for the last 5-6 years we've been putting extra money in peoples pockets and where has it gotten us? My point is that at a larger systemic level lowering interest rates won't help.

The question that comes into play is where the money comes from? Right now there is no margin in the system on a loan at 4.5%. The banks won't lend to you at that rate unless they can sell it at a margin, and they certainly won't hold a 4.5% mortgage. So, the money has to come from somewhere to pay the bank. It would have to come from Fannie Mae buying the loans. This leads to a few problems. First, Fannie Mae is one of the chief causes of this mortgage crisis. Now, your asking them to be the savior when they've proven that thier lending practices don't enable homeownership as much as they enable foreclosure and bankruptcy. Second, since the market can't tolerate a 4.5% rate at this time the funds will have to come from someone. the banks certainly aren't going to give you moeny for free. So, it will have to come from the government. So, you mortgage will go down, but your taxes will go up? Then if the only way to get a 4.5% rate is to go through Fannie Mae then the ratio of mortgages going into fannie mae instead of being held by private banks will rise. Thus you rob the private market of liquidity. Then who are you giving these 4.5% rates to? If its only to highly qualified, low risk borrowers then you start to take the lowest risk borrowers out of the private markets. If its to those people who can't afford the mortgages, then you've rewarded delinquency and handed over another package of volatile loans to the government. You're just asking for Fannie Mae to keep sucking the blood of your tax dollars.

The major reason why we have the mortgage mess that we have is because the government created artificial markets for goods and customers that wasn't sustainable. The answer is not to create another artificial market which cannot be sustained.

[chaddukes]

Im at 5.5% for my 1st and the second is 8% interest only.

I tried to refinance last month and the best i could do was 150$ more a month to combine them.

It's been a long time since I've looked at the rates. A couple of months ago the average 30 Fixed was 6.5%. It's been taking a steady decline singe then. The average 30 Fixed is now about 5.75% (don't believe those internet ads that tell you its 5% or something lower). You can probably get a lower rate than 5.5% but it will be at the cost of some heavy upfront points. That might explain why your closing costs were so high. It's my (previous experience since I've been out of the industry for nearly a year) that buying down your rate doesn't really save you any money on a refinance. It does make since on a purchase if you can pay the closing costs and use the sellers money to pay for the buy down.

Anyway, thats a long winded way of saying that the mortgage situation for good borrowers is improving. If the Fed goes forward with his plan of buying (using our money of course) mortgage backed securities then the rates will stay down and may even get lower.

I'm not convinced that the Fed buying these securities is a good thing, but it will definetly help in the short term. I liken it to your mortage staying at 6% while your neighbor who can't pay his mortgage gets a 5.5% mortgage because he can't pay. For those banks who didn't over-indulge this seems like a slap in the face. This is when people say, "look the market doesn't work." But the answer is that they indeed do work. Look at the banks that have gone out of business; Countrywide, IndyMac, Fremont, Decision One, etc. If the Fed didn't intervene all of the bad apples would noe be in the soup line instead of collecting tax-backed bonuses!

I now retire my pedestal!

[I_Bleed_B&G]

Well, I can't deny that. But for the last 5-6 years we've been putting extra money in peoples pockets and where has it gotten us? My point is that at a larger systemic level lowering interest rates won't help.

The question that comes into play is where the money comes from? Right now there is no margin in the system on a loan at 4.5%. The banks won't lend to you at that rate unless they can sell it at a margin, and they certainly won't hold a 4.5% mortgage. So, the money has to come from somewhere to pay the bank. It would have to come from Fannie Mae buying the loans. This leads to a few problems. First, Fannie Mae is one of the chief causes of this mortgage crisis. Now, your asking them to be the savior when they've proven that thier lending practices don't enable homeownership as much as they enable foreclosure and bankruptcy. Second, since the market can't tolerate a 4.5% rate at this time the funds will have to come from someone. the banks certainly aren't going to give you moeny for free. So, it will have to come from the government. So, you mortgage will go down, but your taxes will go up? Then if the only way to get a 4.5% rate is to go through Fannie Mae then the ratio of mortgages going into fannie mae instead of being held by private banks will rise. Thus you rob the private market of liquidity. Then who are you giving these 4.5% rates to? If its only to highly qualified, low risk borrowers then you start to take the lowest risk borrowers out of the private markets. If its to those people who can't afford the mortgages, then you've rewarded delinquency and handed over another package of volatile loans to the government. You're just asking for Fannie Mae to keep sucking the blood of your tax dollars.

The major reason why we have the mortgage mess that we have is because the government created artificial markets for goods and customers that wasn't sustainable. The answer is not to create another artificial market which cannot be sustained.

Thanks for the explanation. It really makes sense for someone like me who doesn't understand this industry.

[DjTj]

Im at 5.5% for my 1st and the second is 8% interest only.

I tried to refinance last month and the best i could do was 150$ more a month to combine them.

There's got to be a way to cut that 8% somehow. I had a second loan where I was paying 8%, and after paying off about a third of the principal, I have moved all that money into a HELOC with a floating rate, which is now only charging 4.25%.

[chaddukes]

There's got to be a way to cut that 8% somehow. I had a second loan where I was paying 8%, and after paying off about a third of the principal, I have moved all that money into a HELOC with a floating rate, which is now only charging 4.25%.

Yeah, this is one time where an adjustable loan would have been a benefit. Heloc rates are NUTS right now! But, they are harder to get than in the past.