Thanks. Here is another must read, I think Greenspan is trying to hold the housing bubble up no matter what.
Greenspan Suggests Lenders
Offer Mortgage Alternatives
By GREG IP
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- Federal Reserve Chairman Alan Greenspan questioned whether American homeowners are making the most cost-effective choice in their preference for fixed-rate long-term mortgages.
"American homeowners clearly like the certainty of fixed mortgage payments," Mr. Greenspan noted in a speech to the Credit Union National Association here Monday. Fixed-rate mortgages protect against higher rates while offering the option of refinancing should rates drop. But homeowners pay several thousands of dollars a year for those benefits, he said.
With a typical fixed-rate loan, a homeowner protects himself from the risk that rates will rise sharply later by increasing his payment. A homeowner can, of course, refinance if loan rates drop sharply. But Mr. Greenspan said homeowners may pay 0.5 to 1.2 percentage points more than they otherwise would for those benefits. Fed staff estimate homeowners "might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade," Mr. Greenspan said, though not if interest rates had trended "sharply upward."
"American consumers might benefit if lenders provided greater mortgage-product alternatives to the traditional fixed-rate mortgage," Mr. Greenspan said. If homeowners are worried about a sudden jump in mortgage payments but are "willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."
Mr. Greenspan also reiterated that households appear to be in "good shape" and their rising debts relative to incomes don't reflect increased "financial stress." In fact, he said, their cost of servicing those debts has been relatively stable in the last two years thanks to falling interest rates. Unlike homeowners, however, he said renters' increased financial obligations for expenses such as rent, student loans and car payments, "may be of concern."
Increased bankruptcies "are not a reliable measure" of household financial health, he said.
More of the story here, it might need a subscription, not sure>http://online.wsj.com/article/0,,SB107754832733336557,00.html?mod=home_whats_news_us |
