However at least one Portlander has figured out that it's an opportune time to refi with the new low rates.
Jan. 23--It remains to be seen whether the Federal Reserve's interest rate cut Tuesday will avert a recession. But it's good for Don Christensen.
And, to some degree, that was the point of the huge, unexpected cut. The lower rates will allow the 49-year-old Portlander to consolidate his mortgage loan with a home equity line of credit and credit card debt, saving him about $200 a month. "We couldn't do it without the rate cut," Christensen said.
The feds hope that the lower rates will give the faltering mortgage industry a healthy shot in the arm, increasing transaction activity. Which, of course, keeps mortgage bankers and brokers from being among the unemployed.
"In my opinion, this is an obvious indication that the Fed is panicking," said Steve Emory, of Pacific Sunset Mortgage in Beaverton. "They're concerned about the credit market." Portland's home sales and prices have held up much better than most other markets around the country. But even here, the mortgage industry has struggled. Dozens of firms have folded or closed their local offices. About 8,800 active mortgage loan originators were on file with the state as of the end of December, down more than 4,300 from 12 months before. "Our volume and the industry's volume is off 25 to 50 percent," said Todd Williams, a broker with the Evergreen Ohana Group in Portland.
The rate cut, hoping to curb the cascading effects on the global economy, is a controversial move. Some saying it's won't make a whit of difference, others saying it comes too late.
But there are also some positive voices out there on it's effects on the housing market.
"The cumulative impact of all the rate cuts will provide some much-needed relief to homeowners facing resets on adjustable-rate mortgages," said Greg McBride, senior financial analyst at Bankrate.com.
Gregory Miller, chief economist for SunTrust Bank, said he expects mortgage rates will eventually fall and the housing market to be revived.
Banks have tightened their credit standards and discouraged borrowing, in the wake of the subprime crisis. But if banks' own cost of funding declines, Miller says they may change course. If mortgage rates do drop to around 5 percent, "We see potential buyers moving back into the market," he said.
Indeed, the mortgage industry's response to the increase subprime ARM defaults has been to over-tighten lending criteria... an extreme swing from the prior "easy money" days to the "only perfect borrowers" trend now.
On the heels of the rate cut is a rare demonstration of bipartisanship in DC. Majority leaders Pelosi and Reid huddle with WH officials, busy planning a way for a one time "give back" of taxpayers money to some, plus additional gifts to those who did not make enough to pay taxes at all, in a stimulus package.
Yet will a one time gift of our own money back from Congress... totalling anywhere from $300 to $1200... provide any permanent relief? One can't significantly increase a business on such amounts. $300 is unlikely to cover even one mortgage payment for those in the arrears.
Under the plan, individuals would receive rebates of up to $600 and couples could receive $1,200, plus $300 per child, Paulson said. Rebates would be phased out for individuals earning more than $75,000 and couples earning more than $150,000. Individuals must earn at least $3,000 to get a $300 rebate.
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Two business incentives were included in the measure. One would allow large businesses to take a 50 percent bonus deduction on new equipment. Small businesses would be allowed to deduct as much as $250,000 in equipment purchases, up from $112,000 now.
I, for one, tend to see a danger in these measures. Granted, they are likely to provide relief, and shift the tide. However it does not tackle the base problem that got us here to begin with... that being a lack of discipline exercised by too many for living within their means. Remember that it was the domino effect of a small percentage of ARM subprime loans that has caused all this bru-ha-ha. Those opting for ARM subprime mortgages purchased homes that they could afford only in the first years of low interest, but not the reset interest rate. In short, they purchased more home than they could realistically afford.
To offer bail out measures does little to re-train a portion of the population into living within their means. And I'm not alone in these thoughts.
Now, Washington is abuzz with talk of a $145 billion economic stimulus package. Yet, some feel the large rate cut and stimulus package send all the wrong signals. What's needed, they say, is a dose of hard discipline, not a return to the days of easy credit and easy money. "If we try to artificially stimulate the economy through lower rates or a national stimulation plan then we could be setting ourselves up for yet another correction." said Eric Wiley, of Pacific Residential Mortgage in Lake Oswego. "It's like they say, no pain, no gain.' "
Perhaps the most interesting observation: prior to the late January rate slash, numbers and trends were beginning to improve. Would they have continued to correct with the prior measures in place? And have we added fuel to the overspending fire with the latest Federal Reserve moves?
Only time will tell. But one thing is for sure.... with the fed's decision, it's one great time to either buy or refinance.
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