An interesting Bloomberg feature Wednesday looks at Ben Bernanke’s penchant for studying up on the Great Depression, and details the Fed chairman’s faith in low mortgage rates leading the way out of the nation’s housing mess:
Conventional mortgages averaged 4.61 percent in 1951, 4 percent when backed by the Veterans Administration, and 4.25 percent by the Federal Housing Administration, according to “The Postwar Residential Mortgage Market,” a 1961 book written by Saul Klaman and published by Princeton University Press. Rates during the 1930s were as high as 7 percent. Bernanke, a Harvard-educated student of the Great Depression who spent his 20-year academic career writing and teaching about the 1930s, is using his knowledge of that era to avoid the missteps policy makers made then. He’s bringing down mortgage rates, supporting the banking system, and buying back government debt and mortgage-backed securities to relieve the scarcity of credit.
As the Bloomberg story points out, he may not get a four percent mortgage, but it appears that Ben is going to get sub-5 percent mortgages for at least something resembling the foreseeable future. (Give or take a few points paid up front, of course.) But I’m not sure that low rates are the answer here, given that the nation’s jobless rate is soaring — nearing 10 percent, officially, and well over 15 percent if you add in underemployed. And underwriting criteria are tougher to navigate than ever. (Need a second mortgage, or PMI? Good luck.) In other words, low rates benefit the best borrowers but do little to help those on the margin — which, ostensibly, is the group that needs to have the confidence and the ability to begin buying (we’ll leave the debate about whether this group should be buying for a different post). After all, money was pretty cheap on the way up, too. Which, on some level, makes you question the wisdom of pushing out cheap money now, as the market is attempting to correct.
