The latest Trash Asset Removal Plan, the $800 billion one the government announced yesterday, is actually making a difference, at least so far.
One of the goals of the plan is to reduce mortgage rates through government buying of mortgage-backed securities and Fannie and Freddie debt. And it worked immediately. Yesterday saw the biggest mortgage refinancing activity in a year.
If this trend continues, it will allow some homeowners to get out from under onerous adjustable rate mortgages and into cheaper fixed-rate ones–possibly even ones they can afford (at least until they get laid off). This, in turn, will free up some debt-service payments to be used on other things.
The bailout won’t solve the whole problem, obviously: consumers are still struggling under a massive debt load, and those who are already underwater on their houses won’t be able to refinance. But it’s a small step in the right direction.
WSJ: The Federal Reserve’s attempt to stabilise the housing market set off a chain reaction across the U.S. on Tuesday, dropping interest rates and quickly spurring a burst of refinancing activity by borrowers eager to lower their mortgage costs.
Some brokers said it was the most activity they’ve seen in at least one year, although there was no way to determine to volume of refinancing…
Rates on 30-year fixed-rate mortgages dropped by roughly half a percentage point to about 5.5%, for borrowers with good credit scores and substantial equity in their homes, say mortgage brokers and lenders.
While the initial flurry of calls came from people seeking to refinance, economists predicted lower rates also will spur some home buying among bargain-seekers. The surge in refinancing will help the overall economy by putting more cash in consumers’ pockets and reducing the pressure on some borrowers struggling to make payments…
The government’s latest plans won’t fix all the problems bedeviling the housing and credit markets. And it’s not clear whether the most recent initiative will keep mortgage interest rates down over the long run.
Mortgage rates had dipped briefly in past weeks following previous government actions, including the takeover of Fannie Mae and Freddie Mac. But then rates creeped upward.
Tuesday’s lower rates will for now only benefit borrowers who have the cash and credit rating to qualify for mortgages under current lending standards. The Fed’s actions won’t make mortgages any easier to get for homeowners or buyers who haven’t been able to qualify in recent weeks.
Lower rates also won’t help the roughly 11.8 million borrowers who are unable to refinance because they owe more than their home is worth, said Mark Zandi, chief economist of Moody’s Economy.com.
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