Apparently there just aren’t enough companies out there offering mortgages, and you people just won’t live where you’re told. Later this week, the Atlanta Development Authority will begin offering mortgages at 3.5% with up to $50,000 in down payment assistance to those who are willing to live where the ADA tells you, which happens to include areas along proposed Beltline.
“It is very exciting to be able to offer a below-market interest rate on our first mortgage product,” said ADA home-ownership manager Tracey Powell in a statement released on Wednesday. “We strive to create programs that aid home buyers in successfully sustaining their homes to create wealth for their families and generate home appreciation for Atlanta communities.”
Huh, I would have thought demand for property along the Beltline would be rising since it’s such a fantastic project.
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“…successfully sustaining their homes …” What???
And, …”create wealth for their families and generate home appreciation for Atlanta communities.” Looks like someone hasn’t been out in the real world lately.
$50,000 down payment assistance? Good God, man, that’s a hell of a free lunch.
Well, flip my house…..Incredible.
Have we learned nothing with easy money ?
Did Isakson or the Board of Realtors come up with this public assistance program ?
Sounds like a page out of Chairman Maobama’s new centralized economic planning by the Central People’s Committee on Housing (Fannie Mae). If these ADA loans are backed by Fannie or FHA is simply re distribution from the borrowers to you.
This new national mortgage re finance scheme has a lofty goal to refinance 30 million mortgages to 4% or less. It is estimated that the program will inject $6.6M per month ($79.0M annualized) of disposable income into the economy by freeing up $300 per month for borrowers that refinance. Problem is this $300 per month is not picked from the magical Chairman Maobama money tree, it represents wealth redistribution from taxpayers and Mortgage Backed Securities investors to borrowers.
The national economy will get a $79.2B injection of disposable income, but it only represents 1/10th of 1% of annual Personal Consumption Expenditure. It is unlikely this injection will change much in the economy.
The real problem is that the $79.2B will benefit the Fannie Mae, Freddie Mac, and FHA borrowers with lower interest rates, but the money comes from future receipts on Mortgage Backed Securities held by the Federal Reserve, the Treasury, and Commercial banks. Wait a minute?
We the taxpayers of the United States are on the hook for Federal Reserve and Treasury debt. Their losses turn into debt that our children and grand children are responsible to pay-off. I also remember that the Federal Reserve bailed-out the Commercial Banks with taxpayers money. Remember TARP?
If these ADA mortgages are Fannie or FHA backed it indeed sustains “their homes and creates wealth for their families”. It is a direct transfer of your wealth to the new borrowers.
Welcome to Chairman Maobama’s new world of equality.
As is typical, you equate the current situation, regardless of past or present government interference, as “free market”, while any proposed solution as government interference. It must be so easy to live in a simple, black/white world. Unfortuntately, the rest of us are burdened to live in reality.
The reality of the situation is that those government backed securities were worthless until the government stepped in and decided to explicitly back them, and in $1.3 Trillion worth of cases, actually buy them.
The homeowners we are talking about now aren’t the deadbeats nor the folks that bought more house than they could afford. They’re still making thier high payments, all the while watching the value of their real estate fall because of the foreclosures happening all around them.
In most of these cases, it is the appraisal value alone that is keeping them from re-financing at a lower rate.
You’re the first person to jump on these pages and scream “Regulation” when you think that’s the proper default answer from your magic 8 ball, yet you can’t see that changes in mortgage regulations have kept these people who are doing the right thing trapped in 6-8% mortgages when others are able to finance at the MARKET rate of 3.5%.
And despite you claiming otherwise above, this doesn’t cost the government or taxpayers anything. Any mortgage backed by any of the government institutions are free to be refinanced in full at any time without pre-payment penalty.
What you and opponants are advocating is that governemnt regulation trap homeowners who are paying their mortgage on time be forced to stay in high interest rates mortgages to protect the returns that were already inflated by TARP and the fed mortgage purchases that you rail against so often.
You are arguing against yourself and can’t even see it.
@Charlie. I didn’t understand much of what you wrote, but I did understand this …
“In most of these cases, it is the appraisal value alone that is keeping them from re-financing at a lower rate.” Actually that is not quite accurate.
In 2003/2004 Fannie and Freddie purchased/insured riskier loans at higher spreads to origination loans. But, when the Fed dropped interest rates in 2008 to provide liquidity to households and boost consumer demand, Fannie/Freddie raised barriers to home refinancing by changing the loan level pricing adjustment. This is a set fee that can be paid up front or is paid in the overall interest rate of the mortgage. This move defeated the Fed’s Large Scale Asset Purchase program to purchase mortgage securities in order to increase home refinancing.
The Freddie 30 year Fixed rate mortgage index is ~4.75% while the Mortgage Bankers Association index is falling below ~3.0%.
That spread must be paid by someone and that someone is you.
No, it’s not.
The Fed is not losing a spread of 1.75% on every mortgage. That’s just wrong.
Furthermore, what I’ve been trying to explain is that these mortgages can and should be re-financed if the borrower is continuing their existing mortgages. We’re not talking about making new mortgages, save for the fact that a re-fi is technicall a new mortgage which replaces the old one. New purchases are not to be considered for this program. We’re only dealing with loans already on the hook to you and me.
Lowering the payments and/or amortization schedules for these loans already on the books – loans already backed by you and me – to the lower interest rates reduces the risk of foreclosure and gets them out from their negative equity position faster. We face less risk, not more.
Furthermore, with the Fed already holding $1.3 Trillion of these notes, there is precedent for them holding the entire portfolio and doing away with Fannie/Freddie entirely. With the Fed holding the notes on the re-fi’s (my proposal, not the one you referenced), there is no cost of funds, save the administrative expense of servicing and loss reserves. 1% would cover that. That’s why I recommend the Fed offer re-fi’s on a 15 year term, because there is no cost of funds to the taxpayer, the homeowner benefits with a home that sheds its negative equity, and a payment of a 30 year mortgage at 7% and a 15 year at 1% is roughly the same.
The cost, as you point out, is to the bond holder. These bonds only have value because of federal intervention. I have no problem with them receiving 100% of their investment back to re-invest in productive uses, while those still paying for thier mortgage are allowed to pay down the negative equity (or pay off entirely) their house under a program that guts the multiple middle men that currently feast off this broken system that is propped up by the government at every turn.
“We’re not talking about making new mortgages” – I got this it’s a refi.
“Lowering the payments and/or amortization schedules for these loans already on the books – loans already backed by you and me – to the lower interest rates reduces the risk of foreclosure and gets them out from their negative equity position faster. ” – I got this too. I refi’d to a 15 year at 3.75% in the spring.
“With the Fed holding the notes on the re-fi’s (my proposal, not the one you referenced), there is no cost of funds, save the administrative expense of servicing and loss reserves.” – This I do NOT get. Maybe I’m slow today. The FED and Fannie and Freddie hold mortgage backed securities at the original interest rates and principal. They have on their books interest payments and principal payments based on those mortgages. If Fannie and Freddie refi 30 million mortgages at 4% or below (3.75% rate in Atlanta) … who eats the difference?
I say the taxpayer, you say the taxpayer vomits up the bad mortgages it already ate? Do I have this correct?
The Federal Reserve creates and/or kills money via monetary policy every day. They sell bonds and they buy bonds. By buying bonds (to cover our deficits) they are the reason that interest rates are at historic lows.
As part of the “solution” to this housing crisis, they’ve already purchased $1.3 Trillion of these bonds which are backed by mortgages, so the precedent is there for them holding something other than US Treasuries. So long as they get their principal back, they’re not losing anything, as they have no cost of funds. They’re the Fed. Any profit goes back to member banks should there be any, but the Fed isn’t run as a for-profit entity. It’s a conduit. And remember, the key point is that they print and destroy money (conceptually) to control the money supply. They literally set interest rates.
The only real downside is if they re-fi all outstanding federally backed loans at 1%, it would be similar to a QE-3 if done in a vaccum. They would have to conduct some form of open market operations to keep the process from being too stimulative all at once, keeping the overall money supply somewhat stable.
Once done, however, these problem loans are gone once and for all, and the housing market should be returned to somewhat “normal” in 3-6 years.
” They sell bonds and they buy bonds. By buying bonds (to cover our deficits) they are the reason that interest rates are at historic lows.” – I think it’s just semantics. The Treasury or its bond broker sells the bonds, but the FED does buy the bonds from member and large money center banks.
“As part of the “solution” to this housing crisis, they’ve already purchased $1.3 Trillion of these bonds which are backed by mortgages, so the precedent is there for them holding something other than US Treasuries.” – agreed
“So long as they get their principal back, they’re not losing anything, as they have no cost of funds. They’re the Fed.” – agreed
“Any profit goes back to member banks should there be any, but the Fed isn’t run as a for-profit entity.” – the FED pays all monies after costs back to the Treasury Department.
“… they print and destroy money (conceptually) to control the money supply. They literally set interest rates.” – agreed as well as set reserve requirements.
“The only real downside is if they re-fi all outstanding federally backed loans at 1%, it would be similar to a QE-3 if done in a vaccum.” – I’m lost again. If they did this it certainly would input more disposable income into the economy by the borrowers, which is like QE-3. But, it would drastically remove liquidity from the owners of the mortgage backed securities. Less interest payments. The write-down would be horrific and in the end the FED and government would need to bailout the banks even more.
Regardless of what happens they intend to put the cost on the backs of the taxpayers. I think this is what you are saying – we are already on the hook.
The best way to correct housing is to let all those people who made decisions take their lumps. Homeowners who took on too much house, banks making bad loans, etc. But most especially Fannie Mae and Freddie Mac should be privatized and let them unwind all those bad mortgages and sell them off to entrepreneurs that think they can do something with them.
Gotta go. Rivers are flooding here in Valley Forge.
PS. Confirm that we are speaking about refi’s on mortgages under water. Mortgage above water are a non issue.
***Bangs Head Into Wall***
It’s not “semantics”. Instead of getting your knowledge of the Fed from people who prefer its other title as the Creature from Jeckyl Island, try understand what it’s actual function and purpose is. When the Fed “prints” money, it does so buy buying bonds. When the fed needs to suck up liquidity, it does so by selling bonds. By doing this, the fed actually controls the money supply and interest rates.
You then agree to most major points, but decide you’re tired of thinking, and decide that somehow it’s people holding mortgage’s fault that their house has fallen 20-50% in value, so just screw them, they’re locked into a mortgage and somehow in 20 years or so this problem will work itself out. Meanwhile, we lose a generation of economic productivity in this country because you can’t seem to follow the semantics within an issue, but just know that somehow the government must be involved so you can’t be for a solution.
I remind you that those we’re talking about are the ones trying to do the right thing, not these proverbial deadbeats that you keep envisioning who may have gamed the system and were foreclosed on a year or two ago.
And no, we’re not just talking about the people who are upside down, because that’s the government picking winners and losers again. One program, open to anyone currently holding a goverment backed mortgage. No reason to set up moral hazards as all programs have to date. You have one, you get the re-fi. That’s the “fair” solution, (realizing that nothing in this world is fair).
After all this argument, you’ve gone back to the intellectual laziness of blaming the homeower, without even beginning to understand how the government helped put them into this position, and that it’s the government, not the ‘free market’, that’s keeping them there. It’s just too much narrative for your “I hate everything” mentality to wrap around, so you fall back to where we started. Nice waste of time here.
LOL… offering low interest mortgages so people can borrow their way to ‘create wealth’…. as opposed to allowing high paying job growth, so people can work their way towards creating wealth.
Geez,.how many more years before these Keynesian gimmicks are given up for good?
They. Have. Already. Borrowed. The. Money.
More Keynesian semantics.
Daniel Adams may be responding to the original article Buzz posted as opposed to your back and forth with SOGTP regarding your plan. Maybe. Maybe not.
This proposal is just like transfers from one credit card to another, extending the term, and creating more debt. And it only works for those with government backed loans. What about the rest of us that are servicing our 30 year conventional loans? As usual, the best credit risks, aka the most productive people, get left out of any give-away program. Sure, we can refi on our own but where’s the 50 grand for us?
Government intervention in any free market segment is Keynesian foolishness, and only serves to postpone the pain that will always come.
You do understand that over 70% of the current mortgages in the US are government backed? The majority of the ones that aren’t are non-conforming in some way (i.e., jumbo loans or to the severely credit challenged/no doc/no down payment types).
I advocate reducing the term, not extending it. Thus pushing principal pay down, rather than your characterization of adding a credit card to a credit card.
As for your charge of Keynesian, please tell me which one of Keynes’s theories this best applies to, other than “I see something that involves government that I don’t like (or understand) so I’ll just invoke Keynes.
I’m invoking a new tenant of Godwin’s law. There can be no blog post refering to economic policy that will not ultimately end with someone shouting Keynesian.
KEYNESIAN!!!
And everytime someone says Milton Friedmen a libertarian gets his wings.
Are we saying the Fed creates inflation? That’s fine by me – I don’t put any faith in the dollar or Euro anyhow. Let them create all of the money they like. I’ll price my goods and services in real terms.
The Fed MUST create inflation. Remember, fiat currency is created by debt which must yield interest, therefore there must be inflation. The Fed even publishes its inflation targets.
Prior to the creation of the Fed in 1913 inflation didn’t exist except for price changes caused by supply and demand.
Prior to the fed you had periods of inflation and deflation, and an economic panic about every 5-7 years. But please don’t let economic history get in the way of what you learn at Ron Paul meetups.
Charlie,
Educate me. What I cursory read on the ADA site appeared to be different than your points e.g. we are on the hook for all these mortgages. Understand the ADA issued TAD bonds for public infrastructure but thought the residential developers were getting their funding from many sources (MerrillLynch, Regions, Feds…) & as units sold, mortgages were placed with various sources, probably, primarily FHA, VA….
The area addtionally benefits from tax breaks. Certainly properties not paying city taxes put the bonds in a bind. That is a big problem.
No issue with FHA cutting a lower interest deal to keep folks in place or sell repos (think the rules require participants to sell all other properties) of properties the taxpayer is exposed to. But is that the case in many of the situations here ?
A questionable activity is the down payment assistance handout, particularly if it involves property not currently on the public financial hook. Isn’t that a tricky writedown and really a short sale or at best an income event ? Without smoke & mirrors the IRS considers those a taxable event.
My concern is not that we are trying to do the best with taxpayer funds already at high risk but that we continue adding or delaying the inevitable with high leveraging of high risk folks.
These perceptions could be wrong as I just gleaned the info and am not expert on ADA activities.
I tend to jump thread to thread via recent comments, and didn’t realize well into this discussion that we weren’t on last weeks thread. You’re correct, the city of Atlanta is a totally different program, and not the one I’m advocating for above. I frankly haven’t had time to study it, where the source of funds are, etc.
Don’t drink & jump…..Sometimes what appears as Tea is Kool Aid…..
Charlie,
“With up to $50,000 in down payment assistance” should have been your clue this is not the same issue as before. It’s for a purchase in ATL.
Perhaps if you saw the part which said I was only reading SOGTPs comments you would have your first clue.
I didn’t realize you stated it was SOGTP’s comments you were following. I know you realized it was not the same thread. I’m just giving you grief. My opinion remains the same in this thread as the other. Does the (up to) 50K giveaway change yours?
Charlie, Charlie, Charlie. Sometimes I really DO bother to worry about you. Like when you undertake such utterly pointless endeavors.
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