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 Being in the mortgage business, I do my best to keep informed of the myriad of opinions from all the economic gurus in the media. When Fed Chairman Alan Greenspan and his merry band of policy makers decided to engage in a campaign of "measured" rate hikes last June, most, if not all, economic talking heads were predicting higher mortgage rates in 2005. It"s no surprise that short term mortgage rates have shot up. The Fed controls the federal funds rate and other short term rates will follow suit, including adjustable rate mortgages. But long term rates have caught everyone by surprise. Let"s take a look at the ten year treasury bond, a good benchmark of long term mortgage rates. On June 30, 2004, the Fed bumped the fed funds rate by 25 basis points, to 1.25 percent. Two days before the move, on June 28, the ten year treasury bond was yielding 4.76 percent.
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The latest example of the conflict between PR and policy, concerns the effort to standardize loan rules nationwide. Such legislation is needed, we"re told, because puzzled and bewildered lenders can hardly keep up with the complexity of changing state rules. Remember, these are the same people who manage to assemble reams of mortgage documents that borrowers are supposed to read and sign in 20 minutes at closing. When it comes to squeezing a dollar out of the poor, the illiterate and the financially troubled, our national goal is to leave no lender behind. If you don"t believe it, take a look at the alleged Home Ownership Equity Protection Act of 1994 (Section 32 of Regulation Z, part of the Truth in Lending Act), the national joke that"s supposed to protect consumers from the country"s worst lenders.
Have you ever analyzed the difference in monthly payments between mortgages with different interest rates? Everyone wants to get the lowest interest rate possible. Savvy borrowers will shop around, contact different mortgage lenders and try to negotiate for the best terms. But do they really do the numbers? Do they look at the actual monthly payment that each loan will require? For example, what do you think is better for a $200,000 loan: a 6 percent interest rate with one point or a 6.125 rate with no points? Keep in mind that a point is one percent of the amount loan -- or in our example $2,000.
I got the impression at the recent National Association of Realtors convention that most folks believed that President Bush"s re-election meant no change in the status quo. In other words, the real estate gravy train would not be derailed any time soon. There was some genuine concern that tax reform was again on the agenda in Washington. Whenever that happens, the real estate industry worries that someone might again propose eliminating the mortgage deduction. Because the administration is pro-housing and realizes full well that the housing industry kept the economy afloat for the better part of its first term in office, the fear that the deduction will be lost isn"t all that real. When officials were asked how they felt about the failure of the proposal to make private mortgage insurance deductible as well, the response could have qualified as pretty much of a yawn.