Lower Expectations

This is idiocy. I'm not jumping into the housing market until princples become affordable, period.

My feeling from the start was that the government's best way to "bail out" all of us from the economic crisis, initiated in the halls of DC and the banks of NY, was to essentially place a ceiling on mortgage rates. Converting the greedy ARMs to reasonable fixed rate loans, and dropping the fixed rate loans for those of us in them already, seemed to be a better proposal than giving 700 billion to banks that, to the present day, refuse to confirm whether they are actually easing their lending practices. In a simplistic view of our economy, the housing crisis either is mostly responsible for our current problem, or at least has contributed to it in a very significant way. To ignore the mortgage situation is to ignore a root cause of our economic peril.

Let's not forget the 2-4k the banks/mortgage companies tack onto your mortgage to refinance folks...and all the little details there-in.

Let's play devil's advocate.

If we lower the rate to 4.5% why does the government need to subsidize it? What does that mean - would the homeowner pay 4.5% and the government pay another 1 or 2%, so our tax dollars allow the mortgage company to make money on our dime? How does the government make our tax money back if they subsidize the mortgages?

The more important question is - on a refinanced loan, what will the basis of the houses' worth be - the original purchase price, or the current adjusted price? If I bought my house for 250k in 2006 but now it's only worth 195k on the open market, is my refinanced mortgage now for 195k or 250k?

If it's the original purchase price of 250k, why would I refinance a house for more than it's worth? If it's the adjusted price, why would the mortgage company want the deal since they would have to write off a substantial amount of assets on their books?

And who decides the price - the same appraisers who artificially inflated the prices in the first place? And what happens if the prices don't stabilize - can I refinance my-now-worth 195k house for 165k in 2011? Can the Fed write in a threshhold that says the most you can adjust a basis downward is, say, 20%, and you can't do it again for at least 5 years? And what's a workable threshhold; 20%? 30%? - does anyone know?

4.5% sounds like a good idea on paper, but have we thought it all the way through? One thing that is obvious in the post-TARP world is that we have jumped too soon too often without looking beyond the immediate crisis. Is there any reason we need to jump on this now? Is there any reason to put it off?

I believe there are intelligent people out there who can ask these questions - and they need to start asking them.

Only time will tell if anyone comes up with the right answers.