Isn't This How We Got Here?

Here's a fun one (from Mortgage Ledger Newsletter):

The CEO of K. Hovnanian Homes, Ara Hovnanian, recommended to Bloomberg TV that interest rates should be lowered to three percent for the 30-year fixed rate mortgages in 2009 provisionally.

In 2010, the rate would then increase to four percent with the future direction unknown.

Now, I can't believe that Hovnanian is ignorant of how this stuff works, so I want to ask him - who, exactly, should lower the rates? The government? The government, when last I checked, didn't set mortgage rates. The lenders? They can set the rates wherever they like already. Brokers? Brokers take the rates from the lenders.

I suppose, in theory, the government could buy so many mortgage-backed securities that mortgage rates would drop into the 3% range, but I can't see any way to make them stay there, no matter how much money the government spent. And believe me, $700 billion doesn't go anywhere near where you'd have to go to cut rates more than in half, which is what he's talking about.

He went on to say that the major problem in the housing market is affordability. Well, Mr. Hovnanian, you can cure the affordability problem much faster by chopping the prices of your ridiculously overbuilt stock than by spending a few trillion - of other people's money - to game the mortgage market.

Fortunately, the market ignored him. We're trading in a very tight range for the past week. Rates are holding almost steady, but did get fractionally better today.

Incidentally, if you live local to Lehi, you can start looking for my articles in the Lehi Free Press, as I've been asked to write a weekly financial column for them. It's called "Singin' in the Rain". Ideas would be greatly appreciated. I'm gonna get stuck for stuff to say, I just know I am.

Cj
801-310-3407

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