For more than a year, the government pulled out the stops to revive home buying by driving down mortgage rates.
Now, whether the housing market is ready or not, the government is pulling out.
The wind-down of federal support for mortgage rates, set to end in two months, is a momentous test of whether the Obama administration and the Federal Reserve have succeeded in jump-starting the housing market and ensuring it can hold its own. The stakes for the economy are massive: If the market again falls into a tailspin, homeowners could face another wave of trouble, and it would deal a body blow to President Obama‘s efforts to get the economy on track.
Keeping the mortgage rates at historic lows, which required a commitment of more than $1 trillion, was viewed within the administration as a central plank of the economic strategy last year, senior officials said. Though the policy did not attract as much attention as rescue efforts to bail out banks, it helped revitalize home buying in some parts of the country and put money in the pockets of millions of homeowners who were able to refinance into lower monthly payments, the officials added.
Have they delayed the correction, and are we looking at whiplash in March?
How many more pots is The Fed going to dip their fingers into? Are you as worried as I am about all the mortgages that are going to reset in the next three years? Recovery? What Recovery? We are sliding farther into the abyss while Barry, Harry, and Nancy congratulate themselves on Obamacare. And what about Fannie and Freddie? How are they going to be affected in the next 3 years?
Despite extensive government intervention in the housing market, some policy makers at the Federal Reserve are worried that even more might need to be done.
The minutes of the Federal Open Market Committee’s mid-December meeting, released on Wednesday, reflected a lingering wariness about the strength of the recovery in light of high unemployment and substantial slack in the economy.
At the same time, unease is growing that a tentative comeback in the housing market could fall apart as a tax credit for home buyers expires and the Fed’s program to hold down mortgage rates comes to a close.
Concern over housing deepened Wednesday with the release of new data showing that long-term interest rates were rising rapidly from their historic lows, while mortgage applications to purchase houses were falling. Applications are now at their lowest level in 12 years.
Lowest level in 12 years…because no one is willing to take the risk and/or they cannot qualify because they have no money and/no job.
Meanwhile, this is what you should be paying attention to because it is the forecast of the future. From 3.30.2009.
Now that all those sub-prime loans have defaulted and folks who couldn’t afford their houses have been evicted, the foreclosure crisis is over, right?
Because subprime loans aren’t the only loans that began with a couple of years of fantastic teaser rates that made houses seem affordable. And over the next few years, all of those other loans will reset.
Now that interest rates are low, the folks who still have jobs and equity in their houses will refinance. Others, however, will be stuck paying higher rates–or they’ll walk away from their houses.
This reset profile is of great concern, because the majority of resets are still ahead. Moreover, the mortgages to which these resets will apply are primarily those originated late in the housing bubble, at the highest prices, and therefore having the largest probable loss. Though many of these mortgages are tied to LIBOR, and therefore benefit from low LIBOR rates, the interest rates on the mortgages are typically reset to a significant spread above LIBOR, and this spread remains constant as interest rates change. Undoubtedly, some Alt-A and option-ARM foreclosures have already occurred, but the likelihood is that major additional foreclosures and mortgage losses lie ahead. If we fail to address foreclosure abatement during the current window of opportunity (early to mid-2009), there may not be time for legislative efforts to contain the resulting fallout.