BluefoxToday blog : The ailing housing market needs more than lower mortgage rates

The ailing housing market needs more than lower mortgage rates

Up to now Washington has come up with quite a few different remedies to lift the reeling real estate market out of the jaws of defeat. Most of them have focused on helping the battered mortgage industry and it surely looks like the right road to take. Yet, the results have been less than satisfactory. The carnage goes on as foreclosure filings keep piling up and empty houses dot the landscape.

With that in mind, still another idea has been tossed out there for public discourse. What if the government, more specifically the U.S. Treasury, would subsidize mortgage interest rates so that they would go down to 4.5%? As of now the initiative would apply only to homebuyers and would exclude refinance candidates.  

It would provide some relief to the situation, mainly on the demand side. The action would likely spur first-time buyers and fence-sitters into action but that might be about it. Those who would like to move up find it difficult to sell the existing home first in this depressed environment and they make up a large chunk of the marketplace. The overall effect would appear be minimal, again.  

Another thing is that despite the home loan rate going down today's tough underwriting standards will still keep many borrowers from qualifying. How many of them can put down 20%? Or even 10%? Inadequate FICO score is another potential impediment for loan approval. Lack of verifiable income causes many applications to be turned down, especially in a place like Las Vegas. And the weak economy predictably curbs many from spending any money on a major purchase like a home.

One solution would be to provide lenders financial and regulatory support so that they can ease up on strict loan standards. Fannie Mae and Freddie Mac are already established in the business that makes them natural choices to be the conduits between the Treasury and the finance community. Lenders have to be assured that they can take a bit more risk with borrowers and once that is accomplished demand in housing would accelerate. This track has more upside potential than cutting mortgage rates.    




Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 10 commentsEsko Kiuru • December 06 2008 11:22PM


Esko you have given a lot of food for thought here. Besides the tightening of reg's by Fannie and Freddie the PMI Companies are even presenting a bigger challenge here in Connecticut with there every changing guidelines and no warning.

As far as the Fed's subsidizing the rate I am not really for that.  I think that what they did by buying $500 million in mortgage back securities played a huge part in the rates going down the last couple of weeks.  If they were to continue down that path we could possible see rates in the very low 5's or upper 4's in my opinion.  And as both know my opinion and a couple of dollars will basically get you a cup of coffee at your favorite coffee shop :) :)

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 10 years ago

I have the Buyer's with the high scores stable jobs but no down payment. It makes more sense to me that you give assistance for down payments to people with good scores and stable jobs. Not low interest rates to lower scores.

Posted by Denise Gray, Realtor SRES, Wichita Kansas Homes (Realty World Alliance) over 10 years ago


I always appreciate your points of view. They broaden the discussion here for all readers.

Posted by Esko Kiuru over 10 years ago


Getting good borrowers approved  today for a mortgage is a stretch.

Posted by Esko Kiuru over 10 years ago


I blogged the whole concept of government borrowing on Treasury's and spread lending to home buyers, I was looking for 4%. That a month ago. The WSJ picked it up and here we are.

I have been selling real estate for 31 years. I have sold about 1500 houses around Bergen county, New Jersey area. My average sales price for the past 5 years is about $2,000,000. I also build about 10 homes per year in that average range of about $2.500,000.

What I will say is this. 4.5% fix rate mortgages is our only way out. With out this buyers are not getting financing and they are not incentives to take risk. If people get these loans we will be out of this in 12 months.


Posted by Richard Stabile, Bergen County New Homes Builder Realtor (Re/Max Real Estate Limited) over 10 years ago


Lower mortgage rates will definitely help in the recovery efforts.

Posted by Esko Kiuru over 10 years ago

With 150 BPOs on my desk my brain is tired so I have nothing to add but I wanted to leave my mark.  Another great post Esko and a feature :)

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 10 years ago


Thanks for your comments.  Are things that different in Vegas than the balance of the country.  I'm in Texas and I'm an investor but we are still in a reasonably good situation.  I hope someone is listening and reading your comments.  thanks again.

Posted by Charles Gardner-Realtor/Investor (ZIP Realty, Inc-Houston District) over 10 years ago


Thanks for coming by anyway, despite those BPOs.

Posted by Esko Kiuru over 10 years ago


The mortgage industry has gone from one extreme, being really nice, to the other and that's an issue now.


Posted by Esko Kiuru over 10 years ago