The Stimulus Bill Has Passed. Are You Feeling Stimulated?
I want to preface this by saying this is not a political commentary. I don?t like debating politics, because there is never any resolution. I can talk until I?m blue in the face, and I?ll never change somebody?s political views whose don?t match mine. I honestly believe that most politicians are actually well-intentioned. Sure, they play the game, and have some of their own agenda, but I do believe that most elected officials, at all levels of government, are doing what they genuinely believe is best for the people, whether we agree with them personally or not. I want to talk real estate and finance.
At the very heart of our recession is the credit crunch. Banks and lenders at all levels are tightening up, making money less available. And at the heart of the credit crunch is the mortgage and housing mess. I think most of us can agree on that. For an insider?s view on that, read my article, Who is to Blame?
So far, what has happened with the stimulus bill (both the first and second versions) is this: the government has printed more money, and handed it to the top of the financial food chain: the big banks, and, as you know, the American auto industry. In theory, they give billions to the banks, who then have increased capital and liquidity, and then they loosen up just a bit to make money more available to Johnny Public.
No Loose Purse Strings Yet
However, being someone who deals with dozens of banks and lenders daily, I can emphatically state that the banks have not been loosening up the purse strings. They take the money, and extend credit to only the most-well qualified, who likely aren?t feeling the brunt of the recession anyhow. The federally-controlled mortgage giants, Fannie Mae and Freddie Mac, as well as the Department of Housing and Urban Development (HUD)?the entity that backs Federal Housing Authority (FHA) loans?have themselves tightened up underwriting guidelines significantly, making mortgage money harder to get and mortgage loans harder to qualify for, which seems to contradict the federal government?s goal of loosening up credit markets and making money more available.
Who among us that owns a home didn?t refinance and take cash out sometime in the last 5 or 7 years? I can tell you from a mortgage guy?s perspective, it seemed everybody wanted in. It went something like this ?OK, I can lower your interest rate, and save you $200 a month on your mortgage, or I can give you $10,000 cash, and still lower your mortgage payment $140 a month.? The answer was almost always, “Yes,” to the cash. Some took out $20,000, $30,000, or more. Skyrocketing property values and plummeting interest rates made it a no-brainer. In areas that really skyrocketed (and subsequently have fallen the worst), like Boston, Miami, Las Vegas, Phoenix, or southern California, it was even easier than it was here in Chicago. But now, even people with modest goals, like just trying to lower their interest rate and mortgage payment, or get into a fixed from an adjustable, are having a hard time getting the financing they need. See my article, Why you Might not be able to get a 5% Mortgage for more detail on why. At a time when we all need to save as much money as possible, it is becoming harder to do so.
Low Mortgage Rates Are Only Half the Story
Now, there is one really bright spot. Again, if you?ve read, What Causes Mortgage Rates to Move? you know that investors buying mortgage bonds causes the price or value of mortgage bonds increase, according to supply and demand. A couple of times in the past few months, the Fed has bought, or pledged to buy, billions of dollars worth of mortgage bonds. Wall Street investors respond in kind, buying up mortgage bonds to catch them on the upswing. And when mortgage bonds go up, mortgage rates go down. We had record-low?or near record-low?rates at the end of November 2008, and mid-January 2009. On March 18, we saw another sharp jump in mortgage bonds, which really produced some low mortgage rates on Thursday the 19th and/or Friday the 20th. But, low rates are just half the picture. Extremely well-qualified borrowers will be able to take advantage of these low rates, but I?d really like to see some letting-out of the purse strings to allow more borrowers to refinance or purchase homes.
Let?s all hope for the best from our current lawmakers and regulatory agencies, because we surely have a while to go before we are in the clear.Email This Post To a Friend.