Mortgage rates are good simply because everything else is so stinkin' bad

The game has changed yet again, folks. Hank Paulson has had a change of heart in his planned allocation of the 700 billion dollar bailout. Instead of purchasing what he described as “shaky and illiquid” mortgage-backed securities, they are going to directly buy more equity (stock) in banks. So, as opposed to buying assets that are most likely undervalued, they are buying stock in companies that are actively de-levering their portfolios and will likely drop in value. Also, to prevent other credit markets from unwinding, some of the 700 billion is being considered to backstop auto, credit card, and student loans.

Dang college kids and their hacky sacks.

I’m not gonna lie: this ticks me off in a big way. This is the ‘throw dirt over the toxic waste and hope it goes away’ policy versus the ‘actually get rid of the toxic waste’ plan. It will not fix the mortgage market in any appreciable way, but will bolster stock prices and, by proxy, Wall Street and all the retirement funds that rely on Wall Street. Unless a drastic restructuring of our securitization and banking industries accompanies this taxpayer-funded stock purchase, the actions will only delay the inevitable unraveling of a fundamentally broken finance system.

What we’re rapidly heading for is the “lend and hold” method of mortgage lending where banks actually hold in their own fund any loans they issue. Sadly, we as a country don’t have NEARLY the capital in our banking system to support the weight of high homeownership rates. Drag, dude.

Fannie and Freddie have coordinated and are taking yet another feeble stab at staving off preventable foreclosures. It is aimed at helping those who are over 90 days late on their primary home’s mortgage and haven’t filed for bankruptcy. Of course, jack-squat is being done for Mr. and Mrs. Homeowner who are struggling but would rather not trash their credit by missing three consecutive payments.

The shining ray of good news for rates: job growth and gross domestic product are slipping consistently enough that mortgage rates are going to stay historically low for at least the next quarter. A strong dollar impeding exports, the auto industry in dire straits and a global recession will keep the economy weak enough to keep benchmark rates low and disallow the resurgence of inflation.