Earlier in the week, The Wall Street Journal called for many U.S. decision makers to take a hard look at the housing market and find a way to to positively effect it. Ben Bernanke talked about the housing market about a week ago and urged Congress and the President to develop a “future path” for housing according to the Dow Jones. Given political realities, it is hard to imagine any type of fiscal push right now, housing or elsewhere. Even Warren Buffett, amended his view that housing would recover by the end of 2011.
The Fed has tried to spur housing with its “Operation Twist” effort by dropping the long-term interest rate below their historic meager levels. Many experts and people within the industry, including myself, agree that these rates will not help much if consumers cannot qualify for mortgages or cannot refinance because the value of their home has declined or they do not have much equity. This is where changes can be made.
According to The Wall Street Journal’s recommendation, the people who are current with their mortgages should be able to refinance to take advantage of the rates near 4%. The savings resulting from a refinance of a current mortgage would go into additional spending and stimulate the economy. It would also boost a consumer’s economic psychology, which is critical. Fear, morale and uncertainty are just as much of a part of the current economic state as are the financial conditions of the country. Even if the savings was used to pay down the principle amount of the loan, it would do good.
It is clear that mortgage qualifications are tougher than ever. Qualifying for a home loan became too easy during the peak of the housing bubble and now the pendulum has swung too far the other way. The key is trying to find middle ground and return this part of the purchase process to a moderate, normal state. Lenders have become too black and white and there are many loans that should be approved in the gray. The key will be too lend to qualified borrowers without excessive risk to lenders.