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I need my quick fix !!! Please pass me that 4.5% rate over here NOW !!!

Mortgage quick fix.

WARNING…WARNING…

information overload...

In the last few days, I have seen several blogs talking about the 4.5% rate. Fred Chamberlin wrote this post. Could Mortgage Interest Rates Drop to 4.5% with Treasury Intervention? He put some good information out there which ended up with some thought provoking comments. But are lower rates just a quick fix???

I have read all the comments and I am a little disturbed at the lack of knowledge and or the lack of common sense that some of us show. I feel that there is something lacking in these comments, lacking in today's society, and in our profession of lending & real estate. Yes, this is my opinion... but I want to share a little thought.

Just for the record, before I move forward. Some have said that I come across harsh, or like a know-it-all with a twist of ego. I will admit, I have come across harsh sometimes in comments, but for reason. It's time to wake up. I take my job seriously...Not saying that you don't. I have a lot of pride in what I do... and lots of passion. And I truly believe in taking that extra time, educating the consumer with more than opinion that just blows in the wind. We need to tell the consumer what they should hear, instead of what they want to hear. I want real thought with my comments and stats. The kind of talk that I am talking about is hard core real estate talk. Lenn Harely is very good at this and she tells it like it is. Chalk full of real information and not fluff, allowing the reader to make up their own conclusions and not false thinking because it was just a happy blog with good news. Today she wrote, The Housing industry is in a recession, what are you going to do about it. Don't get me wrong, I despise the doom and gloom type of blogs, but we do need specific details with a positive twist.. back to the issue at hand.

Watch out for the interest rate trap.

Watch out for the trap..... The credit trap aka the mortgage trap aka the RATE TRAP !!!

Here is my thinking on this. More than half the comments stated :

Hurray for lower rates. 4.5% would be awesome.
Wow, business will pick up. Those on the fence should get off.
This should jump start the economy.

Yes, I will admit, when hearing a low rate, that sells. But haven't rates been low for the last 3 to 5 years? Didn't people buy with 12% or 18% rates back in the 80's ??

Again.. payment should be key. Rate just makes payment. You live with the payment, not the rate.

Opinion or Facts……

Lower interest rates and a higger house.

Here is my issue with everything that I mentioned above. To many people focus on rate and loan officers in general don't help with this. This post is about 1 1/2 years old, but the basic concept is the same. Rate vs Payment

When I first speak to a potential client, my first question usually is, "what payment are you comfortable with?" Not, how much house do you want.... how is your credit.... what kind of money do you make. I really do stress payment over rate. Yes, a lower rate lowers your payment or increases your purchase amount. But as a loan officer, we not only need to educate, but set reasonable expectations. Here are my top 6 questions that I ask any borrower.

Let's take a quick look at today's rate vs lower rates and payments......

Mortgage Amount

$120,000

Interest Rate

6.00%

5.50%

4.50%

P & I Payment

$719.00

$681.00

$608.00

Difference in Payment

+ $38.00

+$111.00

+$ 73.00

As you can see, going from 6.0% to 4.5%, you would save $111.00. Now, it's a savings, but nothing spectacular when you say that you are going to lower the rate 1 1/2%. And keep in mind, if this was a refinance, now you have costs that you would add onto the loan amount, which would reduce your savings.

Mortgage Amount

$200,000

Interest Rate

6.00%

5.50%

4.50%

P & I Payment

$1,199.00

$1,135.00

$1,013

Difference in Payment

+ $64.00

+$186.00

+$122.00

As we know, real estate is local. In some parts of the country, many people don't see purchase amounts above $100,000, or $150,000. In some areas, you will see an average of $250,000 to $400,000.

As you can see, the higher the loan amount, the greater the savings when the rate is lower. If you go from 6% to 5.5%, you save $64.00 a month. But if you go from 6% to 4.5%, you would save $186.00 per month. But look at this... if you went from 5.5% to 4.5%, you would $122.00 per month.

Summary : Keep in mind, these are just rate comparisons, not to include closing costs, points, or lender fees. It also doesn't take in consideration of pricing hits if you are putting 5% or 10% down with credit scores under 680 on a conventional loan. As many of us know, FHA loans don't have pricing hits until you get under a 620 score. Overall, these are just examples without profit margins to make my points.

Keep this in mind..... just because they said that rates would be lowered to 4.5%, you don't know at what cost to the consumer. So again, hence why I consider many of these blogs that talked about lower rates to 4.5%, don't mention information such as what was discussed in this post. It's almost like misinformation. How can you truly gauge the difference of a lower rate to what rates are now, until you know what it will cost? What will this cost us long term? Just food for thought...

One last thing..... look at it this way... >> This is a 3 part - food for thought...

1. If $200 extra in your pocket was going to make or break the deal for you. Now by saying, I will have something left over... ouch. You should have more left over than that. You can't survive, especially in today's market with just $200 extra in your pocket. Maybe if you are single, but not if you have a family. Things happen last minute. Hence why I sell payment and not rate.

2. If you told me that you didn't want to go over a payment of $2,000. I tell you that you could qualify for $300,000 and you are shocked at such a high purchase price. Then I tell you that your rate is 20%... you say, no %$#$ way. Okay, but it fell into what you wanted and so did the house. Again people, rate is just a thought stuck in the head. We want things at a discount, it makes us feel happy. We feel like we got a great deal. That comes with shopping at the store. Buying a home is one of your biggest investments ever. You need to focus on payment, not rate.

3. Here is one another reason for my fear of lower rates. It could be a part of this.... inflation vs deflation, which could lead us into a great depression. And that is no joke.

4. Lastly, even though much of this post was about payment, the underlying message is that lowering rates now, could hurt our economy in the long haul. There are many reasons for this. But basically because we will be paying for this ourselves, even though the gov't will be in charge of this. Robert Ashby wrote about this in his 4.5% rate blog, which is a must read.

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Posted by Jeff Belonger-The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans on 12/07/2008 10:26 AM

Comments (46)

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Originally posted at: FHA Mortgage Expert - Tri-State Area - New Jersey/PA/Delaware: I need my quick fix !!! Please pass me that 4.5% rate over here NOW !!!

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46 Comments on I need my quick fix !!! Please pass me that 4.5% rate over here NOW !!!

DEC

2008

Great post. In my opinion the 4.5% is not even a quick fix, it will be a disaster. The mess we are in right now is not because of mortgages that people WILL get, it is because of mortgages that people have right now. someone that has a 7.5% now can NOT refinance to4.5%, it is only for NEW mortgages. Don't get me started, need to sign off now and smell the roses.

Based off of headlines, I think some buyers will believe this will be implemented and put on the brakes to see if they can get this financing. Unlike you, they don't do the math and just go with the media attention headlines. So it is a wait and see with little to benefit.

Jeff - I agree and disagree with you. I have been selling real estate for over 15 years. I didn't see the 18% rates. And probably not even as high as 10%. The lower rate often pushes people who are on the fence. It's no different than the department stores slashing their prices and giving "extra 15% off" coupons. It's the same sale week after week. But people still buy into it. If current rates were 8%, then the 6.5% would look great. We just happen to already be at incredibly low rates.

Jeff, it has and always be about benefit forst. Opinion is one thing, cold hard facts is another. Are you harsh?....nope, you are real. I have some tell me the same. Bo, you are too doom and gloom, your too pessimistic. I say just the opposite. I am a realist. I do not believe in saying things that are just fluff. It gets oones expectations out of whack and when the truth smacks you square in the face, it hurts. A little pain of truth up front is a whole lot better than the ouch later on.

I am running with you on you take here. Rate is great, but benefit is better! ....and that takes a seasoned educated voice to get that across.

Way to go!

Jeff: Excellent blog! Thank you! If people think that lower rates are going to jump-start anything, they are probably sadly mistaken. With low consumer confidence and tighter-than-ever credit, I don't expect a 4.5% rate to mean much. Let's hope that 2009 will be better than 2008. I believe it will be in our industry. After all, we need a shot in the arm. Things have been tough for a while now. Take care.

Jeff, It's amazing at the lack of real information on this potential reduction in rates to 4.5%. Right now the only thing the medial is doing is causing consumers to take a "time out" and see whether the new rates will apply to them. I deal with a lot of buyers and the only thing they ever talk about when discussing a lender is the rate.

ANNE..... . no, it's not, it's actually to late. Sure, it will get those on the fence off, a few at least... and I know that we are in the mess because of those with higher rates that can't refinance and the lower rates won't do anything for those. I hope you calm down and come back to this discussion later. But that is why I felt like I needed to write this. Reading several posts about lower rates, that they would come down, would be a great thing. But not one of them go into details such as I did... making people aware that it should not be about the rate. And thanks for the polite compliment.

CONNIE G. ..... . sure, it will make some stop and wait until the end of this week, to see what happens. But those aren't serious buyers anyhow... they aren't. Hence why I stressed payment and not rates... time will tell. thanks

CONNIE H. ..... . imagine that... back to back Connies... lol Hey, you can disagee with me, we both have opinions. But my take on this, you can't compare department stores slashing prices to mortgage rates getting sliced. As any financial expert on Wall Street... well, many. Some may believe this... but it's not the same. I'll do a post on that later if you can remind me.. ;o)

My whole point to this is that we need to educate and not just throw rate out there. If you can buy at 6.5%, then you can buy. If you are a serious buyer, well qualified>???? Sure, you might be in a secure job, but what jobs are secure today. That is called fear and fear is why some people won't buy. In my opinion, if you have fear, a lower rate is not going to change that. Hence why I gave examples... if $100 in savings with a lower rate makes or breaks you... you are in a world of hurt in my opinion. Means that you are done to the bone on your finances and shouldn't be buying now... thanks for your feedback.

I really doubt that mortgages at 4.5% is going to generate that much increased buying activity. Right now consumers do not want to spend money on anything unless they have to. Many people are wondering whether they will have a job 3 months from now. There is a crisis of confidence in this country right now that is going to take awhile to change.

The lower rates will be a benefit to people who want to refinance, any extra cash or income generated by refinancing will in all likeyhood go to pay off debt or keep the cash on hand for a rainy day.

BO...... . I would agree and that is a good way to look at it, a benefit than just rate. But so many look at rate... the media doesn't help and even average loan officers. As I stated, I ask what payment they will be comforable with. As you can see, sure, $100 savings is great.. or even $200.. but if that is all that you have left, you will be one that will be late on your mortgage 30% of the time in the next 12 months... my opinion, but you need more than $200 left over after a paycheck... thanks for the support and for the polite comment.

PAUL.... . I agree with everything that you said, hence why I decdied to write this... because all of those blogs that wrote 4.5% rate in the title, didn't talk about this. It was almost as bad as the media putting this out there with no feedback or insight.... we need to share insight and knowledge more than ever... thanks for those kind words...

RICHARD..... . real informtaion... bingo. You hit the nail on the head. Sure, everyone wants to hear that rates will get lower... but if you are already looking to buy, that will help you. As several others have said, it won't do much to those on the fence. Sorry, but it will only stimulate the refi boom and that doesn't put real money back into our economy. Yes, this could be argued.. but when someone buys a home, that effects more people and services.

ALAN..... . you and I and several others that I have spoken to feel the same way... again, one main reason why I wrote this... we need to see the whole picture and not just a fluff dream, in my opinion. Read Connie Harvey's comment... I totally disagree with her statement. This is not like a sale. Yes, I agree, it won't do much for those that are on the fence. ANd I am not trying to scare anyone, but it all comes back to payment... thanks for your feedback..

Hi Jeff, I was selling homes in the 80's at 18% and I must add I sold a lot of homes at that interest rate. Home cost were cheaper then so you had to sell value and payment, not the rate. Thanks for telling it like it is!

HI,

That was a very good blog message. very informative. Thanks for participating in active rain.

Make it a great and prosperous week. And an awesome 2009. Do you get extra points for adding all those pictures and such? Or is 200 the max per blog?

Kind regards,

Andrew Lowell

I had a transaction not come together this week due to a $13.86 payment. Have you ever? Of course I had the listing side and I asked the buyers agent if she ran the numbers for them, because I did. She said they had done the numbers. NOT very well in my opinion. Ridiculous.

I've been trying to figure out since yesterday when you commented on Fred's blog why you were so against the 4.5% rate drop. I was wondering if there was some kind of longterm economic impact that I did not understand. I think I get it now.

Asking a potential client "what payment are you comfortable with" as you state you do reminds me of a used car salesman who asks "how much are you looking to spend". Of course we all know that the #1 rule of negotiating for a car is to NOT answer the question. Otherwise when we say 10 grand we will be sold a car for that much, yet it is worth substantially less. The rest of that is profit to the dealer.

It works the same way with mortgages, if I am comfortable with a $2000 payment, then it shouldn't matter if you charge me 20%. But the simple fact of the matter is that it does, and of course the client is going to state "no %$#$ way" as you state because YOU pocket the difference between the rate at which the client qualifies for and the rate you charge. It's called yield spread.

Of course the rate is going to get people off the fence. The 4.5% rate is unprecedented. I've had several calls from previous clients this week who all of a sudden wish to refinance because they heard that rates are dropping. I can't see any other reason why you are against this other than the fact that clients who are looking to take advantage of the 4.5% rate won't put as much money in your pocket. Of course if your typical client is like the one with 550 score who you couldn't sell off to an investor, it doesn't really matter anyway.

To some people 100 a month is a big savings. I think we'll see the rate drop further ...maybe down to 2.5...what do you think?

Jeff, if I was dying - you'd be the player on my team that I would want on my side. You harsh? Step aside because I've been accused of the same thing. I had a file where one of the Chicago Bears front office guys was buying a home from my seller in Wilmette. When the file closed, the VP of Chicago Bears got and looked at me and said "Next time, you are on my side." So, take it as a compliment. You give shots of reality.

Rates are competitive and I didn't pay much attention to the 4.5 as I believe if we are in the low 7's, we are still in good shape. I do my song and dance to motivate and alot of it is about how/what the image about why it's really a smart time to invest in real estate. I do not expect my bankers or loan officers to take a 'bath" to make a deal work. While I appreciate it at times, if it is needed then I will assist as well but this should be a continual practice.

You are correct about educating. My sister had mellanoma 10 years back. Small spot on the leg. She asked me for my opinion - "get it checked out". Sure enough, she had to have surgery on her leg. My only sister. I ran interference and called her surgeon to see what the procedure would be and he said "no radical". I asked him if his billing was low and what did he think about law suits. My sisters surgery was done "aggressive" and the cancer was invassive. Skin cancer runs in our family. We are fair complexed, sensitive to the sun. My harshness and understand of the severity of this deadly disease saved her life. Granted she didn't talk to me for two years until one day she saw something on television and realized that if I hadn't intervened she wouldn't be around. So Jeff, it has to be harsh at times and it also has to be with these "fast finger freddies" as I call them who want to make a quick buck but do not understand long term as in loans and relationships. People can say what they want but my father has always said that we need to act like a duck at times and let the water roll off our backs.

Your are a good man and one that I want on my side. If other do not understand the intensity of your level of commitment professionally and personally, it's their problem. With enough people who care, those are the ones that will make the difference. The ones that didn't - well they are knocking at my door for loan modifications.

Stay warm. I'm freezing in Chicago with all these showings!

Jeff - Great post. A voice of reason in the midst of the masses. Well done.

Most people will just use the lower rate to buy more house....

Same mentality that got us into this mess.

Besides, we had rates below 5% last week. We don't need the damn fed meddling

Good stuff Jeff...payment and I would add "value". My historical target for the price floor is 2.25X the area median income. We have a ways to go in most areas!

Jeff - the payment is always what I ask my buyers - I could careless what they qualify for - I don't want them chained to the house and resenting me..... I hate the photo - it reminds me too much of the loss of my nephew

Jeff, I'm so glad I added you as an associate! I really learn alot from your posts! I was wondering about the rate thing myself, what difference would it really make to those who are hanging on to their shorts right now wondering about whats next in this economy, difference to renters who have little to no savings and credit in the high 500s (theres alot of them around here!). I hope it at least produces a noticable uptick in activity! I won't hold my breath though. Even so, we plan on including this in our future fishing marketing. I just hope the fed doesn't sit on this too long, why buy today at 6% when you can wait a little and buy at 4.5% - heck prices might even be lower!

DEC

2008

That first picture is pretty disturbing, Jeff. Regarding payment vs rate, absolutely! When I speak with clients, we talk about what they are comfortable with, not just what they can afford- those can be two different numbers.

EUNICE..... . I agree, even though rates were higher, the value of the home was much lower. But as you semi stated, we do need to sell payment. thanks

ANDREW...... thanks, I think... lol You get 200 pts for a blog... and 225 for adding your post into the AR channels. You get more points if you write a good quality blog, if it gets lots of clicks and views, a good ratio of that, and lots of comments... and if featured, even more points..

MISSY.... . ouch.... I have never had it happen ever... just as I made the statement in my post, they must have not been serious buyers then. Or that they didn't like the house 110%... because $13.86 would never kill a deal if someone loved the house and was a serious buyer. They used it as an excuse to get out of a house that they weren't sure of buying in the first place... just my opinion, but what else could it be. Yes, a difference in payment can make a difference... but maybe like $50 or so... depending on the borrowers budget.???

MICHELLE.... . wow, you made this statement to me ... "Asking a potential client "what payment are you comfortable with" as you state you do reminds me of a used car salesman who asks "how much are you looking to spend"."

So I am a used car salesman? Seriously, you are comparing cars to home buying just as Connie compared buying a home to sales for items in department stores. In my opinion, that is a wrong comparison. In the last 5 years or so, my first question, I always (in most cases) ask the borrower what payment that they would be comfortable with. Why would you not ask that at first? If I said I would like to buy a $800,000, knowing that I can't go over a payment of $2,000 a month, you would be wasting your time and your borrowers time until you ran the numbers. So I am going to disagree with your comment on that one.

In regards to my rate example of 20%... you are reading into it... you missed my point. Forget that rates are in the 5's and 6's. Pretend that rates are much higher.... much, much higher... again, my point is not the rate, but the payment. It has nothing to do with the profit made on a higher rate. Pretend that I am making my normal profit on that rate. Forget about YSP and everything else.

In regards to your last comment... when I talk about those on the fence, I am talking about those looking to buy. Not those looking to refinance. In my opinion, if rates drop drastically, yes, there will be lots of refinancing that will put money in your pocket and my pocket... but it won't jump start the economy. What helps the economy big time are new home purchases. Speaking of this... lenders lose money on refinances, depending on how long they had the loan. Investors don't care for refinances, even if they retain the loan. It cuts into their profit margin. And lowering a payment in many cases, that money saved won't be spent into our economy in most cases, in the right direction. When buying a home, that not only effects the lender and realtor & title company, but possibly home improvement companies or those companies that sell home materials like home depot. It has has a trickle down effect than a refinance does.

So I am going to disagree with your statement in regards to the rate issue... hence why I was semi against Fred's blog, because I felt that there needed to be a clarification, which was not in that post. I truly feel and I will stick to this, not matter what side you are on, we need to talk about both sides... that to me is educating the consumer and not just throwing a number out there to where people can make their own conclusions without thought behind it... or assuming that it will help when it actually might not. Again, this is of my own opinion... but read the comments of some other people in here. Many actually agree with my statements. With the insight that I put out there, people can now make more of an educated assesment of the situation. Thanks for your input.

MONICA...... . yes, to many people, $100 is a huge savings. But my point is, that you should have a plan previous to what rates are. It should be about payment, what you want at first. If rates go down further, then consider it a bonus to you. But if one hundred dollars in savings to you is going to put only that amount in your pocket, that you would have been strapped previous to that savings, then you will be in big trouble. And that you need to reduce your purchase price... that is the point that I am trying to convey.

In regards to rates coming down even further than 4.5%, to 2.5%. Part of my post, which I didn't get into details... it will effect us long term, with rates being low. And if they went lower, that would hurt us as an economy. And I would bet that Bernanke wouldn't allow this. What so many people are failing to realize that rates are controlled by so many things. Look what happened 2 weeks ago. The news of the gov't buying MBS's and the rates droped a whole 3/4 of a percent in one day. But just in 3 days of that news, we went back up 3/8 of a percent.. and today, it's almost even to what we originally gained. Why? Are economy is in the toilet. Bailouts are very short term. Investors don't want to buy mortgages now, because they are worth less on the open market... in many cases, because they are bad. And investors don't want them...

So no, I don't see rates going below to what they want them to. And when or if they do buy them down to 4.5%, I would bet that they go up a percent in less than a week. I would bet that the window of opportunity won't be there. from past experiences. thanks for the input and questions...

It's almost like misinformation. How can you truly gauge the difference of a lower rate to what rates are now, until you know what it will cost? Just food for thought...

What about the points?
What about the minimum credit scores required for this rate?
What about the lender fees?

IMO, this was floated in response to lobbying by home builders.

We'll see. If one can get an FHA loan with an interest rate of $4.5% and a credit score of 630 with zero points, I'll sell a home Saturday.

Jeff.

BTW, the links are not working.

BARB...... . I will admit, lower rates are good and they help. But they are the solution to our problems, especially no more than ever before. Not sure if you read this post, but I wrote this about 3 weeks ago...

Inflation vs Deflation - Is it criminal? This is part of what I am talking about. With lower rates, this could happen to us. And if we aren't careful, it could put us into a great depression. Just my opinion.

Overall, yes, we need to be upfront and to the point. You have a great example of that. I just feel that some blogs out there just leave so much thought and information out of the post. That they come across as the end all, when it could be the end to our death, sooner than later. In any case, wow, thank you very much for those kind words and for the polite compliment.

TOM P. ..... . thank you very much for that polite comment. I just think we need to show reality and what something like this, the lowering of rates, could do to us. Yes, it's my opinion, but backed by many other professionals that share the same opinion. thanks

TOM B. ...... hey, did you call Tom Plant up, so it could be the Tom & Tom show? lol In regards to your comment though... yes, I agree, we don't need gov't meddling as much as they have. In regards to having rates below 5% last week... at what cost though. On a $200,000 mortgage, you would have needed about $4,000 more just to get that rate though?? That is a part of the problem that I had with the 4.5% blogs. At what cost??? thanks

RICH...... yes, value is part of this. I just wanted to get it out there to the public, to realtors, and to loan officers... that we need to stop selling rate. Another good way at looking at this... if you told me a payment of $2,000 would be to high... and so would a payment of $1,800, but that you could afford $1,500.... and if you loved this house that your payment was $2,000, but now that rates dropped, you are excited... but your payment only went down to $1,800.... but you decided to buy it anyhow, because you feel like you got a good bargain because rates came down which lowered your payment... but it's still $300 more than what you feel comfortable with??? Rut row... you fell into the the trap. Just my opinion... but I have seen it happen. Thanks for the compliment.

THESA..... . first off, I want to apologize for the picture... but I needed to make a point and this is serious shit. So is drugs... but I needed to grab peoples attention. Again, sorry....

In regards to your other comment, that is great that you do this. But it should be explained and reinforced by the loan officer, than from anyone else. thanks

BRIAN & MARIE..... . you make a few good points. And as I mentioned in my post, this would only be a quick fix... it might get a few on the fence to come off, ... but it would hurt us in the long run. Please read the link that I left for Barb, if you haven't yet. That is part of my fear in all of this. And thank you very much for that kind compliment.... it's appreciative.

CAROL..... I am sorry, just as I stated to Thesa... but it's my point that I am trying to get across. The whole picture should be disturbing to us, to our economy, if rates come down big time... it could actually hurt us more than help us. Sure, this is my opinion. But I have talked to many professionals that I respect and they actually feel the same way that I do. Overall, yes, the payment and price can be two totally different numbers. thanks

Jeff,

Great post. Rate is only one part of the deal and even as we all need a fix right now we should remain realistic. have a great and successful week!

Sound advice Jeff and well put. BTW, your photo links are broken.

Jeff, you have a point, actually a strong point. I read your column that you posted, thank you. You see things that most don't and I am greatful that you share and rattle some cages opr turn the lights on. Right now we are in serious trouble. I see it with food fluctuating, gas shooting up to $4.50/gallon and people riding the bus and then disucssions of gas going down to $1/gallon. We are in big trouble. People are careful what they buy. I actually watch if people are using credit to buy their food and watch how many people are going into Starbucks. I have a building that is in multiple offers right now and I have solid offer prices and ones that I call "scavenger offers".

My apologies if I didn't artciulate on my former post but I heard every word you said and then got on my own soapbox on your post.

The Big 3 being in trouble is a concern for me. I'm concerned that I can go into Dominick's here in Chicago and see food prices jump up $1.50 in the last couple weeks but head on over to Target and their pricing is still stable and not increasing. We can spiral down and fast. I was in DC last year around September and I spoke and told "the boys" that if we don't make the right decisions, based upon a solid solution understanding the results of these decisions instead of how much money they would make off of this mess, they won't have a resume to polish up because we will no longer be flying the American flag. Other countries own more of America then we as Americans do. It will be costly to get our land back. The whole thing is a mess. We know that. We are in serious trouble - and its not like anything before. If this continues, we will be worst then the Great Depression. I actually believe that we are there and depending on how the economy is handled, the laws are made and if they don't rewrite or amend the Constitution of the United States to reflect how we have been acting this last decade and reverse some of those actions, we stand a chance. But there are alot of what ifs. I scared that free enterprise will be taken away. It is almost there but not in writing. Oops, soapbox again.

Hey Jeff- Let me know when those 4.5% rates are available! I'll make a bundle. Well really, maybe not. That would only be if this applied to refinances but I don't think it does. The buyers I have in my pipeline are qualified and ready to buy at 6.5%, just looking for that perfect house. Maybe the savings would push them to look at a more expensive house but I doubt it, more likely they'll stay in the same price range and pocket the "savings". The larger point is that this will be GOVERNMENT subsidized!!! That's right, just add on to that deficit. Why the heck not...

A key component to the lower interest rate is marrying it to a modification of the loan amount and a standard 31/43 DTI. We are now seeing banks lowering the amount owed on a first to adhere to FHA standards and writing a second note at a 0.0% rate in an effort to recoup as much funds as possible and avoid foreclosure. Ideally we want for the second to be forgiven completely with a strong record (2-5 years) of making consistant payments.

While this is not a popular solution in some circles, it is in everyones interest that programs like this are utilized by all banks to address the immediate crisis. Saving the customer relationship should always be the focus and onceyou have a customer making payments in the longterm (5-7 years) you will recoup cost and make a profit.

Jeff you're right, when I 1st started rates were 13.5, folks were still buying and it was about monthly payment. Somewhere we got all messed up and not sure who to blame. Honestly, here in Michigan the 4.5% could help plenty but most are really upside down and have been cut back on income. So not helping much.

BTW I like the Lenn attitude

Exelletn post...I explain the same thing to my clients and recently had a client decide not to buy as a result of this same conversation. I don't want to be the one to put someone into a house they can not afford...isn't that how we got in this mess. I am a Professional Realtor and as such it IS my job to counsel and refer to professionals.

Hey Jeff - The 4.5% rate is something thats being considered and not reality yet. I've also heard that it may only apply to new construction (bailout for the builders). Besides no inteligent person would buy a house in this market even at 4.5% when most major economist including Nouriel Roubini and Paul Krugman are saying that housing prices are going to decline another 10-20% before we bottom out. For those who don't know who these two economist are you should check out their blogs. They've been calling it correct for the last two years. Jeff you are dead on with another great post. It's the payment that matters to people not the rate. It amazes me how people get so hung up on interest rates that they lose sight of whats important (closing costs, etc.)People are astounded when they see what little difference a .25 .50 or even a whole point makes in a payment. It's the loan amt that has the greatest effect as in your example above. Again thanks for the great post and keep up the good work!

Excellent post... Have we not already had enough of the artificial inflation of home prices from policies created to avoid the last recession?

For some reason the cost of this program to bring you the quick fix (aprox. $1 Trillion) seems to always be left out??

We have more of an ability to even buy a home problem then a lending problem with all of the layoffs, foreclosures and Bankruptcies that have easily taken a million or two people out of the market no matter what the interest rate is.

On another note.. I'll certainly take advantage of the program depending on what strings are attached if it's going to be offered but I'm not going to buy just anything....

Well I don't know - at one point I think that interest rates based on alot of factors should be lower than they are now YES? Is 4.5% the number to jump start the housing market? Don't know - they did this once before and the market was still stalled out for 6 months. I think that portion might have to do with overall consumer confidence. My 2cents.

As usual good post with alot to think about.

Each state is different. In my area, it is all about jobs. Our nation will have a tough time making a go of it if the only jobs out there are minimum wage and we all sell our fast food to one another. The debate about interest rates might be interesting to discuss, but our country is facing some serious issues on many fronts, and they all can't be cured by the government printing more money.

The graphics are disturbing and detract from the post instead of enhancing it.

Ah Ha. Someone has done their homework. Thanks for sharing. You're right. The numbers don't seem to make a huge difference.

Jeff, you? Harsh? You can get by with it by being smart. Lots of great information. And buyers need to pay attention to their payment and the value of the house they are buying.

DEC

2008

Jeff, I wish they had never even started talking about the possible 4.50% rate; all it has done is take away some of the confidence about how great rates are right now in the 5's! Heck, they were "historically" great rates in the 6's. Now though I have buyers who ask about the possible 4.50% rates and are a little disappointed when I inform them that this is just a proposal.

Jeff, It doesn't matter whether it's 6% or 4.5%. Or whether you save 200.00 month on a mortgage payment. Bottom line is there are so many individuals who are not accountable and they will default regardless of payment or rate. Besides that, I don't think you are harsh enough. What happened to the days when buyers such as my wife and I were required to have 10% downpayment before banks would even talk to you. We purchased our first home during the high rates of the 80's and yes monthly payment amount did matter, but we also had hard earned equity. Now a days it's just gimme gimme gimme.

What can I add, it has all been said. I think those of us in the mortgage industry have a much better insight than most people on the state of things. Even if by some chance that rates do get to 4.5%, the nature of man is that they will not save, they will not be conservative in their spending, they will just buy more!! that is what got most of them in this trouble in the first place. Buying too much house or too many toys to keep up with the neighbors. America needs to focus on getting back to basics with our spending habits. We may all need to learn the hard way as our grandparents and great grandparents did during the Great Depression!

DEC

2008

Interesting stuff. I hate to admit that I skillfully started in real estate in 1981 with rates at 13% and watched as they went to 18% so interest rates aren't the real issue. It's the repayment of mortgages that is the problem.

If govt or anyone else wants to fix this market they need to reduce the glut of inventory coming on the market which drives prices through the floor. The problem with a 4.5% rate is the only people who will qualify for loans probably already have a house so they'll just refinance and sock some more money away. REALITY CHECK (How many people who should have bought a house in the past 5 years DIDN'T buy) So what we have left are a few new divorced types as buyers and a few young couples or singles who have just gotten into the market. This number is hardly enough to make much of a dent in our glut of housing.

What needs to be done is restructuring mortgages for those who CAN make a house payment in thier current location. We just, as taxpayers, bailed out a whole bunch of people who made bad loans and are now throwing SOME people out of housing they could stay in if THEY could get 4.5% financing. Remember these people who leave these properties dont disappear they reappear as indigents or overcrowded neighbors when they lose thier homes.

While I would love to refi my house at 4.5% I can assure you that my refin would not save the housing market but rather would just cause another mortgage backed security to be partially redeemed.

DEC

2008

Jeff - Great post as usual. Your 100% accurate in regards to your statement that it should never be "rate" as the reason to buy or not buy. The real question is "can you do it comfortably".

As for deflation, there is a real risk right now, but I'm not so sure I agree that we're heading that direction in the long term. The Federal Reserve is printing money faster then we can really spend it, and boy are they pushing it out the door in a hurry. Hurray that they told the automakers no, but they won't tell Wall Street no, and that's party of the problem.

Now the tax payer is going to be buying Mortgage Backed Securities. Again we fail to address the real issue, OVER SUPPLY IN THE MARKET, and we again want to focus on attempting to stimulate something that is over stimulated. It's like giving a patient who over dosed on Crack Cocaine and extra shot of speed! It may get the heart pumping for a little while, but it's going to just collapse again. The real scrary thing is what the Fed is doing to the money supply. Pretty soon the Glenn Beck's of the world are going to be correct, we are going to be in such a deep hole that National Bankruptcy will be the only answer. I just hope I have some currency in the world at that time that is going to have value. That's not doom and gloom, it's unfortunately reality.

DEC

2008

Jeff,

Question regarding your math, for a $200K loan at 6% the interest payment would be ~$1000/mo. for the sake of the argument. For a 4.5% rate it would be 3/4ths of that, i.e. ~$750/mo.

these numbers don't agree with your post. What am I missing here?

FEB

2009

Qualified First Time Home Buyers and Current Home Owners refinance with new 4.5% fixed

rate mortgages would stimulate the economy like nothing else.

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Jeff Belonger-The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Cherry Hill, NJ

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