A mere rumor of a federal interest rate cut has been spurring Wall Street to buy, buy, buy. Like September’s rate cut, the nationwide housing crisis will be a causal factor if there is a decision to cut rates. Outside of ARMs and home equity lines of credit, these rates do not affect (fixed) mortgage lending rates, unless they influence the overall economy. How does that happen? People buy things on their lower-interest-rate credit card.
Are you seeing the problem here? If the housing crisis is caused by (for whatever reason) people being in over their heads on their mortgages, what’s the solution?
Get people in over their heads with Encourage people to increase their consumer spending. Other people, we would assume.
The other news is a more direct fix for those people who are facing a giant mortgage hike in the next year or so. The treasury department is actively calling for sub-prime lenders to help their borrowers avoid foreclosure. Banks met with the Treasury Department on Tuesday [NYT]:
In that meeting, according to industry and government officials, bank executives said they were close to defining a uniform standard for people who would qualify for a “loan modification” — a temporary freeze on their teaser rates — and a uniform standard for how long that freeze would last.
Some advocates are asking for as long as a 7-year freeze! How long would the freeze have to be to make a real impact? And what sort of ripple would that send through the economy as banks had to make up that income? I’m very happy about people staying in their homes, but what happens next?
Opinions on sub-prime borrowers who are in over their heads range widely, from empathy for the individual who was tricked into the loan to downright disgust at irresponsible money management. How do you feel about giving these folks a break?