I know we’re in crazy economic times here, but it’s still a bit weird seeing economists suggesting that our government get into the mortgage business at below market rates.
I say the economic times are so crazy that I’ll worry about getting a refi at “below market” rates when the market shows some signs of sanity.
The last time I was in the mortgage market, in late-2004, I obtained a 30-year fixed-rate mortgage at an interest rate approximately 1.6 percentage points over the 10-year Treasury bond yield at the time; that’s exactly what Hubbard and Mayer consider a normally-functioning-market spread in the W$J op-ed that CR takes on today. The same spread today would imply a rate of 3.8 percent! Now maybe a lender today would require a “world going to hell in a handbasket” premium. Fair enough. But as Hubbard and Mayer observe, that could be 70 bp and that would put us at this magical 4.5 percent. Just how much riskier are full-doc conforming prime mortgages?
Now I’m not keen on re-inflating the bubble per se, or creating a right to a 4.5 percent mortgage. But under the circumstances, there seem to be worse things that Uncle Sam (or Uncle Ben) can do than to lend money at normal-ish spreads on otherwise prudent terms — the “prudent” part being a missing element of a lot of bubble-era lending, of course.