4% Interest on the Horizon?

February 3, 2009 – I read where there is discussion in the new administration about reducing interest rates on home mortgages to 4%. The theory is that would help stimulate sales and put the brakes on sliding home prices, as well as give a shot in the arm to the economy. As a Realtor my first instinct is to say that is a great idea. It seems logical, and I would support a program that is beneficial to my livelihood and to the community.

However after thinking about it, I’m not so sure that would have the intended effect. After all rates have been in the high 4’s and low 5’s for some time now, and even if you reduced the rate to 3%, if its harder to qualify (which it is) with fewer financing options available, and people feel insecure about their jobs, and their stock and retirement portfolio’s shrinking, will lowering the rate help? The Bank of England recently lowered its prime rate to the lowest amount since 1694….really. The economy in the UK is in a free fall despite the government intervention of banks there, along the lines of what the US has done.

It’s also my belief that as long as the stock market continues to drop, so will the confidence in the economy. Unfortunately the business of stocks and the business of real estate share the same economic bed to some degree. The bottom line is despite having the so called best and brightest minds looking at the economic problems, the government is still throwing darts at the dart board as far as what to do about the economy.

One thing that I hear very little about – despite lowering of rates, I read that 60% of applicant’s who are looking to refinance their homes, can’t qualify due to not having enough equity in their homes. Lenders want to see at least 20% equity and that is not possible for many Americans. I would like to see these homeowners, assuming they have good credit and payment record, be able to successfully refinance despite their equity position. The government talks a great deal about wanting to reduce foreclosures and keep people in their homes, and that seems like an easy way to do it. Billions of taxpayer dollars have been given to banks that have been hoarding the cash instead of putting it back out there. I know people with good payment and credit history who would love to refinance to lower their payment but can’t because of restrictive rules. Let’s see that changed immediately.

I did not want to vent and write something without offering at least a partial solution that would help many existing homeowners keep their homes. Thank you for reading my blog entry.