Stop us if you’ve heard this one before.
The Treasury is planning to do something or other to get long term fixed mortgage rates down to 4.5% in order to halt the slide in home prices. The idea is that low rates will allow borrowers to afford more expensive homes and bigger mortgages, which will drive up home values.
So, after all we’ve been through for the past two years, the plan is actually to convince people they should have bigger mortgages? What happened to all those warnings about predatory lenders getting people to buy homes they couldn’t afford? Apparently, the government believes the solution to this problem of bad debt is more credit.
Steve Sailer, a former marketing professional turned gadfly writer, explains that, basically, the government is going to have to adopt a policy of low mortgages forever and ever. Let’s say someone buys a $300,000 home purchase at 4.5% with 20% down. The monthly payment would only be about $1,220.
But what happens when mortgage interest rates go back up to 6.5% and the government stops subsidizing new buyers? Well, then a $1,220 monthly payment for a 30 year fixed mortgage at 6.5% with 20% down only works for a $241,000 house. So, you are now $1,000 from being underwater, minus whatever small amounts of equity you’ve built up by paying back principle during the first few years on the loan (with a fixed rate loan, you’re mostly paying interest at first).
If interest rates go to 9% like I paid for a while in the late 1980s, then you’re really underwater, but, on the other hand, you have a really nice interest rate compared to what you could get now. So, you can’t afford to sell your house to move to get one of Obama’s new jobs building magnetic levitation commuter trolleys powered by the inexhaustible force of self-congratulation or whatever it is Obama’s working up down in his basement Inventorium. (He does have a whole sheaf of amazing blueprints, right?)
Anyway, the obvious “solution” to the problems inherent in the plan is to make this incredibly expensive temporary mortgage-subsidization stimulus program permanent. It will be your lifelong right as an American citizen, or even as somebody who recently wandered in through the desert, to buy a house with a 30 year fixed mortgage with a 4.5% interest rate.
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