Treasury Considers reducing mortgage rates to 4.5%

VWear: about 12 months ago

It is a good thing so long as it is focused on qualified borrowers.

admin: about 12 months ago

BigApple: "And I'm always envisioning a landlord laughing every month upon receiving a rent check...thinking what an idiot this renter is for paying his/her mortgage for them."

you think that the landlord gets a better laugh that the guy that receives more than a hundred times that amount from you for a falling knife?

anyway, i totally understand the stigma of renting 1st hand, so i get it. i'm just pointing out that "throwing money away renting" is not a happy/smart phrase.

about that economic recovery that many expect, i'll hold my breath.

http://economix.blogs.nytimes.com/2008/12/05/workers-give-up/?hp
http://www.theatlantic.com/doc/200801/aging-boomers

growth(econ) = growth(labor force)*growth(productivity). 1st is going down already and will keep on doing so, the second could start to go down also (2nd article explains why). as the second article points out, doesn't mean life will be tough, but it does have negative consequences for real asset prices.

the 2nd article has a very good point that's new to me:
"But these services require a lot of labor. According to an analysis by McKinsey Global Institute, the number of hours required to produce an automobile in North America fell by 1.7 percent annually from 1987 to 2002, to an average of about 100 hours. Meanwhile, it still takes about the same amount of time as it always did to drive a senior to a doctor’s appointment, or to help an older patient bathe and dress. Productivity growth is faster in the things that kids consume than in the things that the elderly need.

As the Boomers age, they will consume fewer of the things that we produce efficiently, and more of the things that we provide relatively inefficiently. Productivity is notoriously difficult to project, but many forces will be pushing it downward as the Baby Boomers age. "

mrmet: about 12 months ago

As a country we just need to take our lumps like men (or women) and take the downswing as it is. Nothing lasts forever, especially good economic times.

We probably got into this mess by everyone so worried about a recession after 9/11. Thats where I recall when all this cheap credit became available.

stevejhx: about 12 months ago

"until housing prices outstripped the benefit of the low prices" = "until housing prices outstripped the benefit of the low interest rates"

stevejhx: about 12 months ago

"And I don't necessarily think it's artifically inflating real estate prices. This program is intended to bridge the present downturn until things get better. Once the economy recovers, the current prices will be sustained by true fundamentals (strong job market, population growth, etc.) Thus, I think it's a brilliant idea."

You would have to reflate every other price and income to do that, for them to equal housing. That's what happened in the 80's, even as housing fell nominally.

admin's quote is much what happened with all the exotic products that were out there in the early 2000's: the first people to benefit from those rates got a deal - low rates and low prices. Every marginal sale got marginally more expensive until housing prices outstripped the benefit of the low prices, and prices continued to rise despite the lack of affordability because of the expectation of future price increases (bubble psychology). Artificially lowering rates has the same effect as granting loans to people who shouldn't qualify: raising marginal home prices.

The effect won't last long, and it will forever damage the economy.

"I'm betting on the economy recovering by then which will support the current price levels without this government intervention."

No. Because you're artificially allocating resources to housing, which will constrain future growth.

McHale: about 12 months ago

It's just bridging the gap until the economy recovers. Most economist are predicting a recovery in 2Q-4Q of 2009.

This economy is in shambles, we've become a debtor nation to the tune of at least 12 trillion dollars. We coulsn't fifnance a lemonade stand never mind the big three. Most economists predict heavy job losses well into 2010. Do you think we can go on borrowing trillions to go on financing an economy based on spending? Americans two primary sources of spending money, home equity extractions and unlimited credit card availability, have been shut down now with massive job losses. With only dwindling paychecks to rely on, Americans are justifiably economizing. As a result, many more retailers will file for bankruptcy over the next few years, and those that remain solvent will only do so by drastically cutting their capacity. Just wait till the dollar collapses and inflation spikes.
With the Fed borrowing trillions more and the treasury printing it this will come to and end and hard decisions will need to be made and the politicians need to bee honest with us. This is now become an end game, no longer pushed into the future for our kids to deal with.

BigApple: about 12 months ago

Besides, I hate everything about renting in the city. The rental buildings are usually subpar, with cookie cutter apts, cheap finishes, worn out kitchens/bathrooms and tons of residents not caring because there is no pride of ownership.

And I'm always envisioning a landlord laughing every month upon receiving a rent check...thinking what an idiot this renter is for paying his/her mortgage for them.

BigApple: about 12 months ago

Admin - you are assuming real estate prices will fall once this low interest rate ends.

I'm betting on the economy recovering by then which will support the current price levels without this government intervention.

It's just bridging the gap until the economy recovers. Most economist are predicting a recovery in 2Q-4Q of 2009.

But I will be locked into a 30 year fixed program at 4.5% until the loan is paid off. I think it is a once in a lifetime opportunity and if prices don't fall after the end of the program, I'll be one lucky person.

I look at this as free money being given away by Uncle Sam. And I am hoping the program gets enacted.

admin: about 12 months ago

very interesting point regarding 4.5% mtg rates from calculated risk:

"Landlords, already struggling with high vacancy rates and falling rents, would probably lower their rents further and make the rent vs. buy decision more difficult again. So lower interest rates might not boost demand very much, it might just lead to lower rents."

"A rational buyer wouldn't pay more just because the interest rate is lower - although they might have to pay more because the demand is greater. But the current buyer wouldn't pay much more, because the rational buyer would realize interest rates will probably not be artificially low when they try to sell, and their future buyer would have a higher interest rate and a lower price."

http://calculatedrisk.blogspot.com/2008/12/house-prices-and-interest-rates.html

i would add, as a renter on the sidelines, why on earth would i jump to buy a house at an obviously artificially inflated value? let the market work out the needed further declines in prices and then you will see increase demand for houses from renters. the more the government manipulates prices, the longer the price adjustments will take.

BigApple: about 12 months ago

If rates go down to 4.5%, I'll definitely want to buy even more. On a $400k mortgage, that would equate to at least $4,000 a year in savings. Over 30 years that would save me $120,000. I know there is a present value analysis and all but if I use the $4k a year in savings and apply it toward my principal balance, I would have a much shorter repayment term (i.e. instead of 30 years, it'll be 20 years).

And I don't necessarily think it's artifically inflating real estate prices. This program is intended to bridge the present downturn until things get better. Once the economy recovers, the current prices will be sustained by true fundamentals (strong job market, population growth, etc.) Thus, I think it's a brilliant idea.

And besides if the recovery period takes longer than expected, real estate is cyclical anyway...but my rate will be locked in for 30 years. So if prices do fall further, it'll go back up again eventually. On the other hand, I can't see mortgage rates for 30 year fixed programs ever going back to 4.5% naturally. It is truly an opportunity of a lifetime.

Incidentally, I can afford - like many people - to buy at 5.5% but would be more enticed to buy at 4.5%. Isn't this the point?

stevejhx: about 12 months ago

Frank: More rules on mortgage securitizations
Says House should reject $350 billion to Treasury without loan modification

WASHINGTON (MarketWatch) - A key lawmaker on Thursday outlined a broad agenda to hike regulations on securitized mortgage products, hedge funds and beef up controls on executive compensation.
House Financial Services Committee chairman Barney Frank, D-Mass., told consumer advocates that he plans to introduce legislation that would require lenders to have a stake in the mortgage before packaging and selling the loans as securitized products. Mortgage backed assets are considered a key contributor to the financial crisis.

http://www.marketwatch.com/news/story/Frank-More-rules-mortgage-securitization/story.aspx?guid={F43C05FC-931C-4857-A33C-8FE30820C258}&dist=hplatest

stevejhx: about 12 months ago

"pushing for making mtg loans available to lower socio eco people"

Not unless they were creditworthy.

"I think you are naive about how flexible the auto industry will actually be at this point."

Right. This time they drove instead of taking their corporate jets!

"the Treasury plan (whatever plan it can possibly be at this point) is a greater risk than some of their other ideas."

What is the treasury plan?

waverly: about 12 months ago

We are all going to be paying for a whole lot they we didn't deserve to pay for.

Actually, Steve, I think you are naive about how flexible the auto industry will actually be at this point. They aren't stupid....wait a minute, they are stupid. Okay, they know that everyone in the world knows they are bluffing with a pair of 2's. so they can and will be pushed to make hard concessions all around (the unions, the pensions, healthcare, executives...everyone).

I just disagree with you that the Treasury plan (whatever plan it can possibly be at this point) is a greater risk than some of their other ideas.

dwell: about 12 months ago

"don't really think Barney Frank (& his ilk) had much to do with this " Weren't Maxine Waters & Frank pushing for making mtg loans available to lower socio eco people, which encouraged a lowering of credit standards?

aifamm: about 12 months ago

Not to mention US cars are cr*p and guzzle too much gas...

stevejhx: about 12 months ago

"They can be reorganized without bankruptcy"

Really? Not effectively, they can't. If you're going to make a concession, why should I? Sort of like the mortgage bondholders not wanting to take a cut on mortgage restructurings. They want the bank to.

The changes needed in Detroit are massive. They MUST be cut by 50% to be competitive. There are too many employees making too much money, too many retirees with too many benefits, too many dealerships with selling too few cars.

Apart from that, it's fine.

"If the controls are in place and lending guidelines are actually followed this should happen."

I think you're naive about how banks work.

"if homeowners can refinance they will have additional money to put into the economy."

Unless they use it to pay off their bills, which is what they did the last time.

"I am not suggesting the rates be 4.5% forever, but it is one idea that can potential fix several problem areas."

It won't work. It will make matters worse in the medium- to long-term, and is eminently unfair to people who didn't buy what they couldn't afford, and now have to pay off the debts of those who got into trouble.

waverly: about 12 months ago

You may think the autoworker jobs are counterproductive, but I bet they feel a whole lot differently, as do all of the other people who's employment is tied to the auto industry. They can be reorganized without bankruptcy and Nardelli does not need to be bailed out at all. I think the autoworkers are more open to making concessions than you think. This can be an opportunity to fix the auto industry once and for all and there may be 2 companies left standing.

Of course banks have to lend money to peopl and businesses who can pay it back. If the controls are in place and lending guidelines are actually followed this should happen. If companies are able to get loans to continue operating they won't lay people off. If people have jobs they can buy things. if homeowners can refinance they will have additional money to put into the economy. I am not suggesting the rates be 4.5% forever, but it is one idea that can potential fix several problem areas.

stevejhx: about 12 months ago

"You are quick to point out how Wall Street jobs lost add up to other NYC jobs lost and therefore hurt RE in NYC (and I agree)"

Absolutely not. The best thing that ever happened to NYC real estate, in fact: these artificially high prices cannot subsist.

There are fundamental reasons why banks are not allowed to go bankrupt, but rather they are taken over by the government and unwound. Banks operate on confidence, and there is counterparty risk. There is no such thing as a "debtor-in-possession" for banks, or bank workouts. Manufacturing companies are quite different.

stevejhx: about 12 months ago

"I don't think this Treasury plan is perfect, but I think it is a step in the right direction."

What plan? They don't have a plan.

"Jobs must be protected to contain the damage"

You can't "protect" a job that has no reason to be. If you are subsidizing a job that is counterproductive, and why we're where we are in the first place. Some jobs will be saved. Others will be lost. You can't maintain a 20 million car workforce when only 10 million cars are being sold.

Why is that so hard to understand?

Should we also subsidize hot vendors in Central Park?

"banks have to lend money to businesses and individuals"

Banks have to lend money to businesses and individuals who have a likelihood of paying it back. Otherwise, again, that's how we got ourselves here in the first place.

"and people have to be able to go out an buy things."

Well go ahead, buy something. But until the uncertainty is removed and people are sure they'll have jobs, then no one is going to buy anything.

"Our economy is not driven by how much an apartment sells for at 350 Bleecker."

That has a lot more to do with it than you know - it's the cause of today's crisis.

"It is driven by consumers and right now no one is buying anything, banks aren;t lending money and people are losing jobs or scared they will lose their job."

That's what I just said.

"This calls for some out-of-the-box solutions"

Socialism?

"and thankfully we have elected someone who is far more up to the task than what we have had."

I don't doubt that, but I do doubt he does what you think he will. Obama has chosen about the most conservative people in the world. If you think Paul Volcker is a bleeding heart liberal out to save unnecessary auto jobs, you're crazy.

The only way to force people to accept what they don't want to accept is to - force them. That's what bankruptcy does, that's why the auto industry doesn't want it. It's why banks don't want it for mortgages. Yet it exists precisely to return economic equilibrium, and its underlying philosophy is that it's better for everyone to suffer a little than to suffer a lot. Bankruptcy would force the autoworkers to give up more than they otherwise would. Dealers ditto. Management ditto.

I see no reason to bail out Bob Nardelli.

waverly: about 12 months ago

Bankruptcy is not the only way to solve the problem, which is why I find that suggestion not to be helpful. I think the negative ramifications of bankruptcy on the overall economy and jobs situation make that an unwise choice.

You are quick to point out how Wall Street jobs lost add up to other NYC jobs lost and therefore hurt RE in NYC (and I agree), but you refuse to see the impact that bankruptcy would have on the auto industry and related busineses and the overall economy and jobs situation.

There are more creative ways to solve problems and I think they should be explored. I don't think this Treasury plan is perfect, but I think it is a step in the right direction. Jobs must be protected to contain the damage, banks have to lend money to businesses and individuals and people have to be able to go out an buy things. Our economy is not driven by how much an apartment sells for at 350 Bleecker. It is driven by consumers and right now no one is buying anything, banks aren;t lending money and people are losing jobs or scared they will lose their job. This calls for some out-of-the-box solutions and thankfully we have elected someone who is far more up to the task than what we have had.

eah: about 12 months ago

no, they were traditional 80/20 mortgages - totally vanilla. HSBC offers an amazing program called Community Works, Typically it requires income restrictions but for certain zip codes they waive it. The original rates on the properties were from 5.75 to 6.2. My property manager called looking into refinancing and the rep at HSBC said they would recast the loans since I did not want to pull money out or change any of the loan terms. Check out their site.

Today the rate is 4.75. So, I didn't time it exact but what can you do.

JuiceMan: about 12 months ago

"All my properties in Washington Heights, which falls under a much lower rate because it is a gentrifying area, have had their mortgages recast to 4.875."

eah, can you explain? Are these conforming ARM's where you are riding out the adjustable period?

stevejhx: about 12 months ago

Pretty obnoxious, ha? But you asked.

stevejhx: about 12 months ago

Comment was deleted by moderator.

tech_guy: about 12 months ago

Total interest paid on a 4.5% 30 year fixed mortgage of 80k is actually $65,925.37. I'm real curious where you got your number from steve. Made something up to support your claim?

Even your own numbers don't make sense. You start with a 20k down payment (lost money). Over 30 years, the bank pays you 42k according to your made up numbers. Now you own the home free and clear, but its only worth 50k. You sell it and pocket it all. 50k+42k-20k is a positive number. More than the 20k you started with, in fact.

JuiceMan: about 12 months ago

Try the link again:

http://www.detnews.com/apps/pbcs.dll/article?AID=/20081007/POLITICS01/810070453/1409/METRO

JuiceMan: about 12 months ago

"There is no good reason why not to reorganize under Chapter 11."

steve, you are 100% correct. Bankruptcy is the best option but Obama will never let it happen because he and his party are union loving Hippocrates. No special interest money eh?

http://www.detnews.com/apps/pbcs.dll/article?AID=/20081007/POLITICS01/810070453/1409/METRO

stevejhx: about 12 months ago

And that's why it's so stupid.

stevejhx: about 12 months ago

"But I get to live in the apartment rent-free for 30 years."

No. The interest rate would have to be -45% for you to live for free. You would ALWAYS have to pay something below that point.

But that's not the point. The point is that if you did that, home prices would rise until they reached PRECISELY the point where people could marginally not afford any more. For instance, at that rate a $3 million mortgage would cost $3,923.65.

So what would happen? Prices would rise to get there. It happens that at 5.5% a $700,000 mortgage costs $3,974.52 - practically the same as a $3 million at -4.5%. So change the interest rate and property prices will rise from $700,000 to $3 million.

And since you can't keep the subsidy going forever, as soon as you get rid of it prices will collapse right back down to $700,000.

hvd_free: about 12 months ago

"Not circular at all. You have a home worth $100,000. They PAY you 4.5% on the money you borrow. You have an $80,000 mortgage. At the end of the 30 year mortgage, you will have received $42,332.94 in interest. But if your property falls in value by 50%, you're STILL underwater."

But I get to live in the apartment rent-free for 30 years. How much is that worth? Am I still underwater?

stevejhx: about 12 months ago

"Barney Frank (& his ilk)"

I don't really think Barney Frank (& his ilk) had much to do with this - they were out of power for many years when this was happening. The Community Reinvestment Act (if that's what you're referring to) has been around since the 70's. This had nothing to do with it.

stevejhx: about 12 months ago

"and the conclusion can be drawn that the Constitution, by not outlawing something, also make it legal"

It said it couldn't be made illegal for 20 years, it could not be made legal in states where it was currently illegal, or in new states. That's it. Slavery is, BTW, perfectly allowable under the Old Testament, as well, as long as the slaves aren't Jews.

"I think that is a naive answer to the problem that would cause far greater damage."

Then you've never been through a bankruptcy procedure, and you don't know how delicately they are balanced. The threat of "cramdown" really does focus the mind.

Why should we give money to a) private equity firms, and b) the Ford family, and c) GM, with obsolete brands and thousands of unnecessary dealerships?

Why?

"then giving even more ridiculous solutions you have proposed nothing of substance that would actually help."

Yes I did. Bankruptcy would help.

"so you are saying negative rates won't support property price because property price will fall by 50% anyway. Nice circular logic there."

Not circular at all. You have a home worth $100,000. They PAY you 4.5% on the money you borrow. You have an $80,000 mortgage. At the end of the 30 year mortgage, you will have received $42,332.94 in interest. But if your property falls in value by 50%, you're STILL underwater.

That said, property prices would probably rise. Then you stop the subsidy, and BANG! It all collapses.

That's the point of my argument.

LICComment: about 12 months ago

UD - good post. There are pros and cons to this, I agree it isn't a silver bullet or a black and white issue.
1) Government meddling - Government policy always has an effect on interest rates and mortgage rates. Government intervention during the worst housing crisis in decades is not necessarily bad. Lower mortgage rates would strike directly at the source of the current economic problems - the housing market. If this helps stabilize the economy, jobs and the financial sector, a subsequent rise in rates to the 6% level should be absorbed fine if the economy is in better shape.
2) Low rates 4-8 years ago were a factor in the bubble, but the bigger problem was lax lending standards. Greenspan fed low rates fuel to an already heated economy, this would be lowering rates in a downturn, big difference. And I agree that in order for this to work, the low rates must be combined with strict lending standards, so those with too much debt or poor credit do not become all-of-a-sudden buyers.
3) Who is to say what the right equilibrium is for the "adjustment process"? It is a moving target based on overall economic conditions. Housing nationwide is already down substantially. Lower rates to decrease costs for good buyers could help avoid overshooting to the downside and the ripple effects that would have.
4) I agree that the government would need strong risk management controls on these purchases. This can be done, there are money management firms that saw this coming because of strong risk management data and models.
We disagree on the cost-benefit analysis of this plan, but I am glad to finally see a plan that is designed to address the source of the problem, housing, and I think its positive effects outweigh the risks. Agree to disagree.

dwell: about 12 months ago

" the 'bid' for prime NYC real estate is no where near the 'offer' and until most buyers understand this, and until credit unfreezes, it's going to be at least another quarter of very little activity"
Agreed

"Prices play a function. That's what the Soviet Union didn't understand, it's what Venezuela doesn't understand.........Artificially lowering credit rates may temporarily prop up house prices, but it can't last. The only way out of this bubble is either to deflate it, or inflate the price of everything else."
Agreed

"Ford is still owned by the Ford family. Why are we bailing them out?"
Exactly, WTF?

"now that the bubble has burst - gimme, gimme, gimme!"
Right

I will never understand why the powers that be off shored & out sourced our manufacturing, so dumb & short sighted for so many reasons. The big 3 have been on life support for many years, enough is enough; they should go bankrupt & restructure.

This 4.5% is also dumb. Let the bubble burst & zero out, then start with a relatively clean sheet. Right, UD, stop messing with markets. Barney Frank (& his ilk) & Greenspan created this housing bubble & now the sheeple who bought into it face foreclosure & plunging values. Wall St securitized these crappy loans, which caused a global banking crisis. The whole thing was a Potemkin village, house of cards.

It seems that the decision makers in both government & industry are stupid. We were a producer, lender nation, now we're a debtor who created wealth based on paper & consumer spending. How & why did government & industry decision makers condone this? They did not anticipate the unintended consequences which we face today. It boggles my mind.

hvd_free: about 12 months ago

"No it's not. If your property falls 50% in value, what good would it do you to have a mortgage with an interest rate of -4.5%?"

Steve, so you are saying negative rates won't support property price because property price will fall by 50% anyway. Nice circular logic there.

If you think price will fall 50% when rates are at today's 5.5%+ level, why would it still fall 50% when banks are paying owners 4.5%/year? i.e., financing rates are better by 10 percentage points?

Why don't you do your favaorite carry cost versus rent analysis assuming -4.5% rate, and tell us what happens?

waverly: about 12 months ago

UD - Your #2 and #3 points can be lessned if strict lending standards are actually maintained. There is also less risk for people who would refi. That would temper some of the foreclosure risk and also put a lot more money back into the economy with the extra money that people would have. I am not suggesting allowing rampant specualtion, liar loans or huge helocs.

The 4th point would also be helped by less foreclosures. That is where some of the stabilization would occur. If people could only get those rates up to $625,500 it is not going to lead to a huge upswing in the NYC RE market.

It is a way to help stabilize some of the banks without just handing them the money. It has the added benefit of increasing consumer spending without it coming from credit cards or helocs. There is value to this. The banks would also loosen up lending and that will help small businesses and the employment situation.

waverly: about 12 months ago

Steve - My point of bringing up the Constitution and slavery was that by not having an ammendment making it illegal it was legal and the conclusion can be drawn that the Constitution, by not outlawing something, also make it legal....added to the fact that ti was an issue specifically addressed by the framers and was purposely left out so that it would remain legal.

Bankruptcy is a restructuring, but it is not the only way to restructure and may not be the best idea for the auto industry. Just becasue you don't think so proves nothing.

"fire the entire management, get rid of 50% of blue collar workers and 75% of white collar workers, cut capacity 50%. Then you'll have a viable industry."

That is your opinion of how to fix the audit industry and I think that is a naive answer to the problem that would cause far greater damage. There are other options that are better for the employees and better for the economy.

Socialist? Not even close. I believe there are more ways to fix the problems and other than calling ideas stupid and then giving even more ridiculous solutions you have proposed nothing of substance that would actually help.

stevejhx: about 12 months ago

UD is right. It's a stupid idea.

stevejhx: about 12 months ago

"Slavery was Constitutionally-allowed for 100 years"

First of all, despite the stupidity of that comment, slavery is not mentioned in the Constitution until the 13th Amendment. All it says was that Congress could not change the present law until 1808:

"The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year one thousand eight hundred and eight, but a tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person."

Now that that's done with, despite this pun - "You seem to like things to be all black or all white and quickly come to a conclusion that is infallible" - you're wrong. The PURPOSE of bankruptcy is to restructure. Most bankruptcies are restructurings. If you have a brain tumor you don't take an aspirin; you have surgery.

With the car companies, they have massive overcapacity that needs to be reduced. They have a proven inability to design cars people want. They have excessive retirement and labor costs that need to be reduced. Why should I, as a Lexus-owning taxpayer, subsidize them? I don't subsidize airlines in bankruptcy, or Bally's, or anything else for that matter. There is no good reason why not to reorganize under Chapter 11.

"You want to fire the autoworkers"

No I don't. I want them to exactly as many people they need at a price that they can afford.

"collapse the auto industry"

Absolutely not. Shrink it to the size it needs to be, get rid of excess production and distribution capacity. All a bailout will do is postpone the inevitable.

"and fire all the teachers."

Absolutely not. Pay them according to their performance, and bring their benefits in line with the private sector. What's so hard to understand about that?

waverly, you sound like a true socialist, but while socialization of certain things makes sense (the army, health care), it does not for cars or real estate. It will only delay the inevitable.

urbandigs: about 12 months ago

LIC - okay here are the unintended consequences, which is why its called unintended, that I see in order of priority:

1) govt meddling with rates/mortgage markets - temporary, not permanent. When this is called in, rates will naturally move to where they SHOULD be and that rise will likely come at a very bad time for our economy when unemployment is much higher, businesses are hurting bad, consumers are still tapped out and becoming savers to correct their own balance sheets.

2) buyers who buy not because they want to, but because they could now barely afford it and they are at the very edge of their affordability. They decide to go for it to take advantage of the 'once in a lifetime' opportunity. Usually these buyers already are ridden with debt, or at least its safe to assume they have some debt to service already. These buyers could not afford to buy now, with rates at 5.5%. They can only afford to buy, because of this plan at 4.5%. Im sure there will be plenty of these. So they buy, and the economy is difficult for years, their job situation may change, and they end up being distressed as the purchase was too much to handle. Sound familiar?

3) delaying the adjustment process. History as shown that meddling too much with markets not only doesnt work, but delays the playout of the cycle. Do we really want to drag this process on for a few more years because we interfered too much, and declared that 5.5% mortgage rates simply are NOT LOW ENOUGH! If 5.5% is not low enough, 4.5% wont be either!

4) they are buying up MBS. Excellent, so lets see here, what will the marks be, what will the quality be, what will it cost us to keep up this buying, what happens when it ends and market loses its big bid, how much will this add to treasury issuance, etc..how long can they artificially keep this going on for and what happens to the market when this period ends?If it goes right back to where it was before, how did we get anywhere?

to name a few specific reasons....I understand your side, I just dont think that reward outweighs the above noted risks. you think it does, or disagree with these risks above. This is what makes for good discussions..