What may become a ritual every six weeks is the Fed announcing rates cut. I for one do not believe that this will have a great effect on mortgages. Fueling a car that has flat tires does not cause it to start running, fixing the tires first is recommended.
The flat tires here are the investors who have left the market, people whose rates have or are about to reset and the 160 plus lenders who have closed shop.
There are no incentives in the market place, au contraire, buyers are facing more hurdles when they apply for loans: high down payments and almost perfect credit scores.
What is needed is a program designed to rescue those who face foreclosure now by:
1. Setting a moratorium for all foreclosures and allowing the borrowers to keep paying back at the pre-adjustment rate,
2. Converting those ARM loans into fixed mortgages or extending the term to up to seven years,
3. Mandating buyer training for all new mortgages,
4. Monitoring new products and lenders.
The benefits of these proposals are numerous:
People get to keep their homes,
Lenders continue to collect their income,
Reduction in litigation expenses,
Productivity will increase,
Inventories will fall and over time home prices will stabilize.
Cutting rates alone cannot accomplish all of the above. The solutions that have been proposed so far have not worked and the rate of foreclosures is increasing instead of declining.
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