"Come Again?"

Re-posted from contribution made to Seattle Avenue Newsletter.


As I was ferrying my two youngest back home on my lunch break the other day after picking them up from my wife at her Dentist appointment, I tuned in to AM 1000 to catch some financial news and see how the market was responding to the 1/2 point move by the Federal Reserve.

To my dismay and utter bewilderment I sat staring blankly at a red light, perplexed by the mortgage market commentary being offered by an Economics guru from one of our state universities. I really couldn't believe my ears.

Asked a series of questions by hosts Manda Factor and Bill Yeend, the Economist's responses were dismal at best. Here's my recollection of his comments (in a nutshell, referred to below as "IANS"), and my response to each:

Question: Is now a good time to refinance?
Economist (IANS): Well, maybe, IF you can qualify, but most people won't, based on the credit crunch.

James: Come again? The 'credit crunch' is not even applicable for many borrowers. There have been changes to loans that allowed for no or low down payment, low credit scores and no or low-income documentation; however, for the majority of borrowers, if you qualified 12 months ago you qualify today.

For programs that have been affected, it usually means that I sit down with the borrowers and we put a 2-to-6 month game plan in place to help them prepare. We put a budget together; we identify ways to improve credit profiles. We put the horse squarely in front of the cart.

I don't mean to sugar-coat changes in the credit and mortgage markets, but in all too typical fashion they have been grossly over-exaggerated.

Question: But aren't rates a historic lows?
Economist (IANS): Well maybe but banks just aren't making the loans. They are advertising low rates but when you go into to lock the rates you don't qualify.

Come again? Humor me for a moment, but why would banks spend hundreds of thousands of dollars advertising rates if they didn't plan on offering those rates to customers? I don't even know what else to say to that.

Question: What about the FOMC lowering the Fed Funds Rate, won't that help borrowers?
Economist (IANS): Well, the banks are just going to sit on those funds to increase their liquidity, so it won't help the consumer.

Come again? I may be oversimplifying this, but the whole point of the Fed lowering that key rate is to pump additional funds into the system so the banks WILL make more loans. The reason banks get one rate and charge a higher rate is so they can make a profit. If they don't lend it out, they lose money because they are paying interest on those funds and that doesn't help the banks or us.


Someone once said you can't believe everything you hear. Well shucks, I guess they were right!