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The Solvent: Housing's Best Hope
by Daniel Colarusso
Dec 4 2008
Dec 4 2008
Treasury's housing rescue may actually help those who've helped themselves. Imagine that?
If the U.S. Treasury manages to follow through on its plan to push mortgage rates down—as much as a full percentage point—on new home purchases, it would represent a bold move for Hank Paulson’s D.C. bailout boys: They’d actually be helping the solvent.
The Wall Street Journal reported Wednesday afternoon that “the plan, which is in the development stages, would use mortgage giants Fannie Mae and Freddie Mac to bring loan rates down as low as 4.5 percent, a full percentage point lower than the prevailing rates for 30-year fixed mortgages.” The Treasury would buy securities underpinning loans guaranteed by the two mortgage giants as well as those guaranteed by the Federal Housing Administration.
While America has grown accustomed to seeing deadbeats from Wall Street and the hybrid-driving hobos of Detroit standing in Capitol Hill’s breadline, it’s refreshing that the Treasury’s housing plan targets people who have been prudent and have enough cash for a real down payment with ostensibly enough left over to actually pay their mortgages. As long as the mortgage and banking industries don’t backslide into their free-lending ways, giving buying power to average Americans—as long as they’re not flipping Florida condos—can’t be too bad of a move.
There is some risk, obviously, that Americans so deeply fear losing their jobs, their credit cards, and their 401k balances that lower rates won’t spur any real estate bargain-hunting .
Still, as a fine editorial in Wednesday’s Journal pointed out, there’s just as much risk in the F.D.I.C.’s proposal to modify existing mortgages and give homeowners a second chance to default. That may cost the Feds $24 billion to start. Not a great proposition.
Stabilizing the housing market holds one of the keys to a real recovery in that it helps the flow of capital in the macro-economy while providing a psychological boost to Main Street. Much of the consumer spending boom of the late 1990s was rooted not only in cheap credit but in the confidence Americans had that their homes had value that wouldn’t quickly erode (even if the appreciation was astronomical for a few years).
The best way for Washington to rebuild that sentiment is by helping those who can actually help themselves.
The Wall Street Journal reported Wednesday afternoon that “the plan, which is in the development stages, would use mortgage giants Fannie Mae and Freddie Mac to bring loan rates down as low as 4.5 percent, a full percentage point lower than the prevailing rates for 30-year fixed mortgages.” The Treasury would buy securities underpinning loans guaranteed by the two mortgage giants as well as those guaranteed by the Federal Housing Administration.
While America has grown accustomed to seeing deadbeats from Wall Street and the hybrid-driving hobos of Detroit standing in Capitol Hill’s breadline, it’s refreshing that the Treasury’s housing plan targets people who have been prudent and have enough cash for a real down payment with ostensibly enough left over to actually pay their mortgages. As long as the mortgage and banking industries don’t backslide into their free-lending ways, giving buying power to average Americans—as long as they’re not flipping Florida condos—can’t be too bad of a move.
There is some risk, obviously, that Americans so deeply fear losing their jobs, their credit cards, and their 401k balances that lower rates won’t spur any real estate bargain-hunting .
Still, as a fine editorial in Wednesday’s Journal pointed out, there’s just as much risk in the F.D.I.C.’s proposal to modify existing mortgages and give homeowners a second chance to default. That may cost the Feds $24 billion to start. Not a great proposition.
Stabilizing the housing market holds one of the keys to a real recovery in that it helps the flow of capital in the macro-economy while providing a psychological boost to Main Street. Much of the consumer spending boom of the late 1990s was rooted not only in cheap credit but in the confidence Americans had that their homes had value that wouldn’t quickly erode (even if the appreciation was astronomical for a few years).
The best way for Washington to rebuild that sentiment is by helping those who can actually help themselves.
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