Low Mortgage Rates Not Helping Consumers

Mortgage rates are as low as they have been in decades, and yet consumers are still having trouble getting new mortgages and being able to refinance existing mortgages. The really frustrating part of this for consumers is that the rates are low thanks to billions of their tax dollars being injected into the financial system by the U.S. government.

The very same banks that just a year and half ago were giving even unqualified borrowers approvals for mortgages are now making it difficult for people who have excellent credit to refinance. Consumers are feeling locked out of a market they bailed out.

The tight credit markets are hurting everyone. The inability to borrow money is slowing down the rate of economic recovery. In addition, people are unable to access the appealing lower interest rates and must continue to make payments at the higher rates. Every dollar unnecessarily spent on a higher mortgage payment is a dollar that could not be saved or put into the economy. The refinancing of a mortgage can also help consumers avoid foreclosure.

The Obama administration is trying to put pressure on the lending institutions to force them to increase the pace of loan modifications. In fact the government would like the banks to loosen up all credit markets. The President has not hesitated to blame the recession on greedy bankers that sold complex financial products for big profits without regard for risk. The President himself is going to meet with the CEOs of some of the country’s largest institutions including Citigroup, Wells Fargo and Bank of America.

The current mortgage rates are at 4.8 percent but that doesn’t do consumers much good if the banks will not process loans. The banks are refusing to refinance some properties because of the falling property values leaving little or no equity. So the market is in the unusual position where the government has forced interest rates down through government subsidies, yet consumers have been unable to benefit.

Rubbing salt in the wound is the fact that these low mortgage rates will probably not be around much longer as the recovery begins to accelerate. The government program that drove the home interest rates down will expire in March and will almost certainly not be renewed. In fact the mortgage rates could rise to 6 percent this spring.

It is interesting to note that banks are now being asked to raise cash reserves by the government. In order to do so they have to lower the number of loans made in general. That fact coupled with the need to tighten loan qualification requirements has made it difficult for banks to lend. Even loan modifications backed by the U.S. Treasury have progressed at a snail’s pace. Lenders are denying loans for all kinds of reasons including lack of equity. Yet for many consumers the lack of equity is due mostly to the collapse of housing values.

Unfortunately it has come to the point where many consumers will have no choice but to let their houses go into foreclosure. Their last hope is the Home Affordable Refinance Program (HARP) which was intended to provide refinancing for millions of Americans. To date only about 117,000 mortgages have been refinanced under this program.

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