Mortgage Rate News

Writedowns have so far cost banks $1 trillion, causing the U.S. dollar to plunge, companies like Morgan Stanley to be downgraded, and worries about the economy to resurface. Yesterday’s Fed rate cut can only do so much to stave off worries about the economy and try to fight against recession. Indeed, with all of these bank writedowns, it is rather doubtful that mortgage lenders and consumer lenders will be doing much in the way of issuing loans — even if there are plenty of borrowers available.

And that means that economy won’t be kickstarting anytime soon, since borrowers are needed to keep the wheels turning.

Citi Ponzi scheme and the financial meltdown

We’ve been hearing so much about Madoff lately, that we’ve overlooked a Ponzi scheme that might have contributed to this huge mess: One from Citi. Stock Market Funding offers this on the Citi Ponzi scheme:

Investor-plaintiffs in the suit accuse Citi management of overseeing the repackaging of unmarketable collateralized debt obligations (CDOs) that no one wanted - and then reselling them to Citi and hiding the poisonous exposure off the books in shell entities.

The lawsuit said that when the bottom fell out of the shaky assets in the past year, Citi’s stock collapsed, wiping out more than $122 billion of shareholder value.

However, Rubin and other top insiders were able to keep Citi shares afloat until they could cash out more than $150 million for themselves in “suspicious” stock sales “calculated to maximize the personal benefits from undisclosed inside information,” the lawsuit said.

(Naturally Citi denies it all.)

At any rate, it is clear that in addition to legal, but poor, decisions regarding investments, there was plenty of illegal and unethical dealings going on to contribute to the financial crisis. Actions that we will all feel the consequences of.

But, tell me again, who is it that is getting all the bailout money?

Well, it happened. Congress decided to make a stand. Over a paltry $14 billion loan. After dishing out nearly $1 trillion to ensure that the financial companies are fine, the Senate balks at a relatively small loan for the auto industry. The Senate requires the auto industry to come with a plan to make themselves more viable, the auto industry does this, and the automakers are denied. Even after pledges of $1 a year salaries and no health benefits for top executives.

Let’s review what mortgage insurers (like AIG) and mortgage lenders (like Citi) were required to do for their a bailout goodness:

Not a damn thing.

AIG even got more money after blowing a great deal of what they had been given. And Citi is thanking the taxpayers for their generous bailout by making sure executives get their bonuses and by jacking up interest rates on credit cards. But they’ve got their money, while the auto industry is on the verge of failure — and likely to take others down with them — and thousands of jobs and pensions and future financial well-being of individuals is at stake.

It’s sort of hypocritical. Okay, it’s not sort of hypocritical. It is hypocritical. Now, I’m not a big fan of bailouts. But if you’re going to give billions and billions and billions to one “essential” industry, you should give some money to others. All this talk about taking responsibility for your poor decisions is ridiculous, since Congress has already given the financial industry a pass on responsibility.

Holding taxpayers responsible

In the end, though, the auto industry is likely to get help from somewhere. TARP is a big contender. But, in the end, the only people paying any consequences are the American taxpayers. While Citi and other mortgage lenders wag their fingers at irresponsible homebuyers, telling them to face up to the consequences, they are enjoying the fruits of our labors. Perhaps the real bailout should come in the form of an enourmous cash payment to individual taxpayers.

Mortgage interest rates are much lower now than they were a few months ago. In fact, long term mortgage rates are at lows not seen for four years. Mortgage News Daily reports on the new 30 year fixed mortgage interest rates:

The 30-year fixed-rate mortgage (FRM) averaged 5.47 percent with an average 0.7 point for the latest week compared to 5.53 percent with 0.7 point during the week ended December 4.  This is the lowest interest rate for the 30-year FRM since March 2004 when it averaged 5.40 percent.

This is an interesting development, spurred in part by a huge decline in the initial jobless report for November. When the mumbers showed record unemploymnet, it caused bond yields to fall. And, as bond yields pull back, there is room for long term mortgage interest rates to ease as well.

Will lower mortgage rates help the housing market?

Of course, it remains to be seen whether or not these new, lower mortgage loan rates will help the housing market. While the rates certainly look inviting to new homebuyers (and even those looking to refinance), it may not help prevent foreclosures. And it may not mean more houses bought. While more people may apply for home loans, there is not guarantee that they will get them: Mortgage lenders are still showing reluctance to finance those whose credit may not be perfect, or who may not have a larger down payment.

Another consideration is the fact that lower mortgage interest rates are not very likely to help in terms of foreclosures. Even though the foreclosure rate drew back last month, there are predictions that next year will see a huge increase. Loan modifications and foreclosure moratoriums and other efforts to fight foreclosures are only like to work in the short term, and this is a long term problem.