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What Obama Needs To Do To Fix The Economy - OPINIONS

By
Mortgage and Lending with Equity Resources NMLS 67179 Licensed in NC

There's a New Sheriff Coming to TownObama recently said he wanted to hear the ideas "out there" for a better stimulus package.  Paul Krugman, who recently won a Noble Prize for his Economic Genius, has some ideas... and he recently shared those with Rolling Stones!

In his post, Krugman notes... "One more thing: even with the Obama plan, the Romer-Bernstein report predicts an average unemployment rate of 7.3 percent over the next three years. That's a scary number, big enough to pose a real risk that the U.S. economy will get stuck in a Japan-type deflationary trap."

This doesn't sound good...Need More

According to Krugman.. "There's nothing to suggest that the plunge in the job loss will end anytime soon."  He specifically thinks that we need a program on the scale of the "New Deal."  He suggests that cutting taxes will help... but with unemployment headed to a number above 8%,

we need J-O-B-S! 

Bernanke also spoke today from London about what the Fed can do to further slow down the drop in property values and bolster the global economy... although Krugman notes that there's really not much more the Fed can do...

The Fed leaked in late November that they intended to push mortgage interest rates lower.  IMHO... this is what is truly needed.  Any program that will ACTUALLY get us below (or to) the publics' "magical" 4.5% - THAT'S what Obama needs to do, and do it QUICK!  I say this BECAUSE I believe that there are people out there who can purchase, and they are waiting for the "bottom."  The lowest mortgage rates since World War II would be a great sign! 

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On a separate note (in response to Lenn and Aaron) here are my opinions:

  • Lenn Harley Wants My Opinion?Lenn has suggested on multiple occasions that a plan floated by my Congressman, Rep Miller, to allow Bankruptcy Judges change the Principal Balance on the mortgage loan is a good one.  I disagree.  One of the reasons Mortgage Interest Rates are NOT where they should be (in the low 4's) is because NO ONE is purchasing mortgages.  IMHO, allowing a judge to set the "value" and forcing a cramdown is not the best alternative.  Do I think Banks SHOULD accept Cramdowns, and re-negotiate Principal Balances, absolutely - but I think it's more fair, and would stabilize overall markets better if there was a MECHANISM (other than Bankruptcy) that would force Bank's to do what they are suppose to be doing. We FURTHER jeopardize the flow of Mortgage Backed Securites with Rep. Miller's plan.
  • Aaron has a featured post about "Talkin' about Walkin'"... the comments follow along the theme that banks are going to let loose of the stringent foreclosure and bankruptcy guidelines in 2 to 3 years.  Again, just my humble opinion, but I don't think there's any way on God's Green Earth that would happen!  Subprime loans are not coming back, loans to people with no equity are not coming back, the market for Mortgage Backed Securities is RUINED.  The NEXT foot to drop (IMHO it will be this year) is Pension Funds, which are quietly going broke.  When the Commercial Paper hits, (later this year like Subprime) - we are going to finally find out how many State Pension Funds, how many Teacher Pension Funds are heavily invested in what has traditionally been considered a stable investment.  Because these funds have (and will continue) to avoid mortgages (we're junk bonds at this point)... there's no way the guidelines are going to be loosened for those who file NOW.  Banks are going to have an elephant's memory about this!  7 to 9 years would mean that the next "boom," by your definition, would be in 2015 through 2017!!

If you have questions about which way mortgage rates are headed, call us, we'll certainly share our opinion!

Comments (11)

Randy "Lazarus" McAtee
Lazarus Realty - Fresno, CA
Owner/Broker, Lazarus Realty, Fresno California

So -- what is better -- mortgage rates at 4.5% with ever fewer people able purchase a home due to job loss -- or unstable employment; or interest at 7% with a relatively stable income (job)?

 

 

Jan 13, 2009 02:05 AM
Eleanor Thorne
Equity Resources - Cary, NC
Advantage Lending 919-649-5058

I'm an immediate gratification kinda' chick.  I want lower rates now... and more jobs.  Lots and lots of jobs!

Jan 13, 2009 02:07 AM
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

I don't think Obama can fix the economy; it's not something government can fix. The trillions they've already spent has done little to help. Now, unemployment is the growing problem. And it's not the 7.2% they're quoting; it's already around 10% and will probably rise more this year. We simply can't spend our way out of debt. The recovery will be slow in coming because the problem has been building for years.

Jan 13, 2009 02:12 AM
Eleanor Thorne
Equity Resources - Cary, NC
Advantage Lending 919-649-5058

John - I agree.  That's why I said Aaron's post today that FICO scores will go down in 2012 is unrealistic.  VERY unrealistic.  We need to assume we are in a full Depression and ACT Accordingly!

Jan 13, 2009 02:15 AM
Jim Crawford
Long & Foster - Fredericksburg, VA
Jim Crawford Broker Associate Fredericksburg VA

The problem is "WE HAD JOBS!"  They paid great money.  Maybe now they won't pay as much for that greeters job at Wal-Mart.  Politicians screwed this up royally!  NAFTA etc.  Why doesn't the Federal Government hire them all the laid off workers?  It is obvious that no one is doing their jobs now anyway.  Have you in your entire life ever heard of the Federal Government laying off?  Firing employees?  It doesn't happen.  That is why we have outbreaks of bad food produce - meats, bad medicine, illegal aliens, smuggling drugs across the border in truckloads in a post 9/11 world.  The system is broke beyond repair!

The problem will be in real estate we do not count.  We do not receive unemployment.  We are independent sub-contractors.  So are many mortgage brokers, appraisers, inspectors etc.  The actual unemployment numbers will be in double digits.  It is obvious Congress, nor the president don't have a clue on how to lie their way out of this one!  Very scary!  That is my opinion!

 

Jan 13, 2009 02:21 AM
Chad Baird
Re/Max Spirit - Dayton, OH

Push rates down as low as you want.  If Somebody is unemployeed, or looking at being unemployeed soon they are not going to buy or sell a home.  The longer they have no job, the more they are going to get behind on credit cards driving their credit score lower each month, they are got going to qualify a loan when they get back to work. 

Jan 13, 2009 02:23 AM
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Eleanor - Very clear and concise post. I agree that the suggestions for BKO judges to lower values and that we will soon see loosening credit are preposterous. As a confirmed conservative, I was not a supporter of the president elect, but honestly, I think he probably has the best chance of fixing what is broken. The Congress would not have worked with McCain (ever) to fix anything but will with Obama. Will the fixes be right? I don't know, but I hope so. A national infrastructure program may be the best way out of where we are. After all, we have roads and bridges going to hell all over the country, why don't we get people working on them? IMO, I think you have the right take on things. Time will tell!

Jan 13, 2009 02:28 AM
Eleanor Thorne
Equity Resources - Cary, NC
Advantage Lending 919-649-5058

Jim:  A friend told me last year... the problem with those of us in the Housing Industry is that we've been laid off for a year, we just didn't get the pink slip!  I understand what you're saying.  That's why I would like SOME kind of stimulus (lower rates?) for HOUSING!

CHAD!  Dude, totally agree with what you are saying.  That's why we need to get the construction workers back to work building schools and libraries... put the HVAC folks to work revamping public buildings!  J-O-B-S!  We need those!

Fred!  If I'm right... we are in a Depression.  right now.  And we need everything we can get.  Thanks!

Jan 13, 2009 02:41 AM
Bo Hussung
Bell Title /Triserv LLC - Nashvle, TN

Eleanor, to your 2nd point, the FED is the market for MBS and they are proposing to be the market for at least 12 months or until the credit markets thaw. My humble opinion, still too much inventory. The lastest round of corporate profits or losses as it is, will cause more expense adjustment, adding to the jobless numbers. Of course that affects the ability of buyers to move forward with housing purchase plans. It is definitely not a pretty situation and for ever negative announcement, the problem is perpetuated. The only impact that Obama can have is more stop gap measures to keep it from getting worse. Government involvement is necessary for balancing the issues. Too much however is just as bad as not enough. The markets need help through careful intervention, not control.

The other problem is there is no economic precedent here, no textbooks for everything happening all at once and at the pace that it has happened. Milton Friedman, JM Keynes would be totally befuddled by this extraordinary environment we are in. The best minds are already there and doing the ebst they can. But it is a hit or miss proposition. Let's hope that they start getting some of it right and are nimble enough (are allowed the latitude) to make quick adjustments....like where to use the bailout monies (ie. moving from a TARP plan to an "buy-in" plan)

Thanks for the post and elevating the discussion. Incidentally, I am an avid floower of Jhon Mauldin's "Thoughts form the Frontline" If you are not suscribing, I stronlgy recommend him. He is pretty darn close to "spot on" 90% of the time.

Bo

Jan 13, 2009 03:14 AM
Mike Saunders
Retired - Athens, GA

Eleanor - jobs is what will restore the economy, we had double digit unemployment in the late 70's/early 80's and very high mortgage rates, 12 - 18%. FDR created jobs which appeared to help the economy, until he raised taxes and stopped the increase in government jobs which did not contribute to national productivity. Obama needs to remember that lesson in anything he is doing to stimulate job growth. That growth has to be in the private sector and not reliant upon government money and increased taxes. Theat growth needs to feed true productivity and GNP, outside of the growth of government.

Jan 13, 2009 03:22 AM
Eleanor Thorne
Equity Resources - Cary, NC
Advantage Lending 919-649-5058

Bo!  Thanks for the suggestion - I'll start following John Mauldin - appreciate that.  I normally follow Calculated Risk.  BTW  Did you know that Chase closed it's Mortgage Wholesale Division today?  Think that's a coincidence? Citi closed - then said Okay to Cramdowns...

Mike! I'm with you!  We need jobs, jobs jobs!

Jan 13, 2009 03:48 AM