Mortgage Rates Rise, Applications Fall, and Officials Debate the Bailout
Sep 24th, 2008 @ 8:16 PM by Amber Nelson
The U.S. mortgage industry saw rising interest rates and declining demand in the latest week, as officials in Washington battled over the Bush administration’s proposed bailout of several major financial companies.
According to the Mortgage Bankers Association Wednesday, the average rate on a 30-year fixed rate home loan, excluding points, rose to 6.08 percent from 5.82 percent the previous week. Rates on 15-year fixed rate loans averaged 5.84 percent, up from 5.54 percent and one-year adjustable rate mortgages carried an average rate of 7.01 percent, an increase from 6.95 percent the week before.
During the same week, the MBA recorded that its mortgage application index dropped 10.6 percent to 591.4 on a seasonally adjusted basis from 661.7 the previous week. The Association’s refinance index fell 11.2 percent while home loan demand also decreased with the purchase index declining 10.4 percent.
Meanwhile, the Bush administration and the Treasury Department argued fiercely on Capitol Hill this week to convince Congress of the need for its $700 billion mortgage bailout plan.
“The financial markets are in quite fragile condition, and I think absent a plan they will get worse,” Federal Reserve Chairman Ben Bernanke, pleased before the Joint Economic Committee Tuesday. “I believe if the credit markets are not functioning, that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way.”
The economic plan proposed by the Treasury calls for massive government intervention in order to stem the tide of bankruptcies among major U.S. banking, investment, and insurance companies. The federal government would buy up troubled assets, including soured mortgage loan securities, thus freeing those companies of bad debt and creating conditions conducive to greater consumer lending.
Yet the plan calls for an enormous amount of debt to be placed upon the backs of taxpayers now and in the future. Many have questioned whether the price of the proposed action is really worth the predicted short-term benefits.
Treasury Secretary Henry Paulson, addressed these concerns Wednesday in statements before the House Financial Services Committee. “I understand the view that I have heard from many of you on both sides of the aisle, urging that the taxpayer should share in the benefits of this plan to our financial system. Let me make clear – this entire proposal is about benefiting the American people, because today’s fragile financial system puts their economic well-being at risk. When local banks and thrifts aren’t able to function as they should, Americans’ personal savings, and the ability of consumers and businesses to finance spending, investment and job creation are threatened.”
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.