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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: Bald Eagle who wrote (369842)	3/11/2003 5:37:18 PM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 769670

Yep, good idea to lock down long term rates. (Not so good if you don't have a job though). More on the refinancing boom: Yesterday, the stock market seemed to be on the edge of panic. McDonald's dropped back to levels it hasn't seen in 10 years - $12.42. SBC hit 9-year lows. Fannie Mae and Freddie Mac fell 7% and 6%, respectively, after St. Louis Fed president William Poole wondered aloud if they had enough capital to withstand a shock in the mortgage market. The two government-sponsored lenders may or may not be able to survive a major tremor in housing...but surely many of their customers will not. Fannie and Freddie, it might be recalled, were set up to finance houses for people who couldn't afford them. Gradually taking business from competitors, and given a huge boost from lower interest rates, they became the major players in the biggest boom ever in the mortgage industry. When houses are bought and sold in America - even old houses - a curious thing happens: the net level of debt goes up. You might think that the fact that Mr. Jones moves out of 110 Willow Ave. and Mr. Smith moves in would be, economically, neutral. The house is just as it was; no new wealth has been created. But Mr. Smith, typically, finances the purchase through Fannie Mae at a higher price, and with less equity remaining, than Mr. Jones had. In this manner, across the entire U.S. of A., debt increased by $350 billion last year, says a Fed report, much of which was spent. Often, Mr. Jones doesn't even leave his house. He merely refinances it. Rarely does he use the occasion to reduce his debt; instead, he almost always increases it. Altogether, again according to Fed figures, the debt load on America's houses went up $700 billion - an amount equal to 10% of the nation's total housing equity at the beginning of the year. This is the money that is keeping the economy growing (barely). But the cost is high. For if Americans take out 10% of their equity every year, soon they will have none left. They will all be renting - from Fannie Mae! Recent signs point to a turnaround. People are getting weary of digging deeper and deeper holes for themselves. More of them are going bankrupt each year. Health care and energy costs are rising steeply. ("Soaring Gas Prices Changing Lifestyles," says a Washington Post headline.) It has become more and more difficult to find good jobs. They're still refinancing; they need the money. But they are less willing to part with money when they get it. Walmart reports slowing consumer sales. Even savings rates are headed back up - recently clocked at about 4%, up sharply from their level below 2% in the late '90s. As long as they have jobs and housing prices are rising, people will probably keep making their mortgage payments. But come the day when housing prices fall...(the year-on- year median price of new houses fell by 2.6% in January)...or people lose jobs...then, Fannie & Freddie will be in serious trouble. They may survive the shock - but not with today's share price.

To: Bald Eagle who wrote (369842)	3/11/2003 5:55:27 PM
From: American Spirit	Read Replies (1) \| Respond to of 769670

Only problem is many people are living off their home equity now, burning up their home savings, while their IRA's are down 50% or more. I too am considering taking out a home loan with the cheap interest rates, yet I am under no illusion that this is some great deal with money markets paying less than 1% and the stock market too risky to have any confidence of making a profit by buying now. So what'll I do with the cash? Just keep it probably.