This Ought to Work

[Bonestorm]

Let's re-inflate the bubble!

The Treasury Department is strongly considering a plan to intervene directly in the mortgage industry to dramatically force down rates and stimulate the moribund housing market, according to sources familiar with the proposal.

Under the initiative, the Treasury would offer to buy securities that finance newly issued loans for home purchases, according to the sources. But to participate in the government's program, mortgage lenders would have to set exceptionally low interest rates, for instance, no more than 4.5 percent for traditional, 30-year fixed-rate loans.

These securities would be purchased primarily from Fannie Mae and Freddie Mac, the financing giants that buy most mortgages from U.S. lenders, according to sources who spoke on condition of anonymity because the plan has not been finalized.

The cost of the plan and source of funding remain unclear. One possibility is for the Treasury to raise money by issuing bonds to the public at 3 percent interest. This could allow the government to turn a profit because it would be buying securities that pay 4.5 percent.

At a meeting attended by the Treasury's Interim Assistant Secretary for Financial Stability Neel Kashkari and the National Association of Realtors in mid-November, senior Treasury officials said they were optimistic that subsidizing lower mortgage rates with taxpayer dollars would help revive the housing market, sources said.

Jackasses. Not only is it a stupid idea on the merits, but even if they don't do it, and they shouldn't, when people hear this kind of stuff they believe it and if they're looking to buy they wait to see what happens, further eroding the market in the short-term.


http://www.washingtonpost.com/wp-dyn...302889_pf.html

[Chapdog]

4.5% for 30year fixed? that's insane. I wont bite tho. im over 50% thru mine so paying 55/45 equity right now.

[Bonestorm]

4.5% for 30year fixed? that's insane. I wont bite tho. im over 50% thru mine so paying 55/45 equity right now.

It wouldn't include refis so you wouldn't be able to participate. For now.

[Chapdog]

How about second homes?

[Cancel 2016.2]

4.5% for 30year fixed? that's insane. I wont bite tho. im over 50% thru mine so paying 55/45 equity right now.

Um... just to point out the obvious....

If you have a $400k home and have say 50% equity.... why would you NOT refi the remaining 50% if you can drop your interest rate? Just because you lower the required payment doesn't mean you couldn't continue making your current payment.... which would result in your paying down equity even faster.

Obviously this only works if you refi the non-equity portion.

[uscitizen]

More of the same to fix the problem the same caused. Yeah about right for our stupit government and business.

This has been my position on the bailouts and such, excessive credit caused this mess so we need to keep excessive credit flowing ?

[leaningright]

I have re-financed one time in my house owning years. I was in dire financial straits due to bad investments and refinancing was the only way to keep the payment down so that I could continue to make the payment and keep the house. Like SF said, obviously it cost me in the long run but at the time I did it I had to do it. I have lived much more comfortably (and carefully, I might add) since and the place will be paid for in about 4 years.

I say this to point out that it depends on one's situation as to whether to refinance. And yes, I know the original post has nothing to do with refinancing but Chap did bring it up.

[leaningright]

More of the same to fix the problem the same caused. Yeah about right for our stupit government and business.

This has been my position on the bailouts and such, excessive credit caused this mess so we need to keep excessive credit flowing ?

Makes great sense doesn't it uscitizen?

[Cancel 2016.2]

I have re-financed one time in my house owning years. I was in dire financial straits due to bad investments and refinancing was the only way to keep the payment down so that I could continue to make the payment and keep the house. Like SF said, obviously it cost me in the long run but at the time I did it I had to do it. I have lived much more comfortably (and carefully, I might add) since and the place will be paid for in about 4 years.

I say this to point out that it depends on one's situation as to whether to refinance. And yes, I know the original post has nothing to do with refinancing but Chap did bring it up.

As long as the expense (ie... points paid) are less than the interest saved, then everyone should re-fi their existing debt.

Obviously if you ADD to that debt by taking equity out of your home, that is an individual decision. I would personally not recommend it in this type of market, but it could as leaning points out, help out in bad times.

[uscitizen]

Makes great sense doesn't it uscitizen?

Ohh it makes great sense for a select few to enrich them further. But sucks for the country.

The empire is in decline and Nero is playing the fiddle while the masses watch the circuses.

[CanadianKid]

Basically most loans work like this....

I borrow 200k at 5% for 20 years....

I end up paying mortgage payments equalling 350k....

The bank's profit is 150k minus inflation (compounded by 20 years)

CK

[Chapdog]

Um... just to point out the obvious....

If you have a $400k home and have say 50% equity.... why would you NOT refi the remaining 50% if you can drop your interest rate? Just because you lower the required payment doesn't mean you couldn't continue making your current payment.... which would result in your paying down equity even faster.

Obviously this only works if you refi the non-equity portion.

im at 5.25% now. paying 55% equity on the amortization curve. How would it be beneficial for me to refinance to 4.5% so that im paying 1% of equity beginning of the amortization curve plus all of the couple hundred extra in principle difference between 4.5-5.25%? I have yet to crunch the numbers but it doesn't make sense from just thinking about it now.

[Cancel 2016.2]

im at 5.25% now. paying 55% equity on the amortization curve. How would it be beneficial for me to refinance to 4.5% so that im paying 1% of equity beginning of the amortization curve plus all of the couple hundred extra in principle difference between 4.5-5.25%? I have yet to crunch the numbers but it doesn't make sense from just thinking about it now.

Say your home cost $400k... you have $200k paid off.

If your original loan was at 5.25% for 15 years your pmt is approx $3215

Say you refi the remaining $200k at 4.5 for 15 years your pmt is $1530

If you refi, but continue paying the $3215 you will be paying your principal down FASTER. While on the new loan you will be at the early part of the curve, you will still end up paying the loan back faster than you would if you remained in your current loan.

Now, this obviously does not include refi points. So the points expense cannot outweigh the interest saved... otherwise it doesn't work in your favor. At 5.25% you are likely correct in your decision not to refi. Whereas someone who has a 30 yr fixed at 5.75% it would likely make sense. Typically, you need to drop by a point in order for it to make sense.

[Chapdog]

Say your home cost $400k... you have $200k paid off.

If your original loan was at 5.25% for 15 years your pmt is approx $3215

Say you refi the remaining $200k at 4.5 for 15 years your pmt is $1530

If you refi, but continue paying the $3215 you will be paying your principal down FASTER. While on the new loan you will be at the early part of the curve, you will still end up paying the loan back faster than you would if you remained in your current loan.

Now, this obviously does not include refi points. So the points expense cannot outweigh the interest saved... otherwise it doesn't work in your favor. At 5.25% you are likely correct in your decision not to refi. Whereas someone who has a 30 yr fixed at 5.75% it would likely make sense. Typically, you need to drop by a point in order for it to make sense.

gonna PM you

[uscitizen]

Thanks Chap for proving my points