Living Littleton

   We’ve all read articles lately about how the government is doing everything it can to drive home loan rates down to the 4% range, to stimulate the economy.  Most of these articles originate from various departments of our federal government, and while I agree rates at 4% would be a big boost, I’m afraid we’ll never see them.  I attended a loan conference last week where they explained what was going on in the home loan business.  Their assessment was that the government had already done everything they can do to cause home loan rates to fall into that 4% range.  If that was the case then why aren’t they there, yet?  According to the speakers, it was because the banks weren’t allowing that to happen, for two main reasons. 

   First of all, the rates are already at historically low levels, and while loans may be tough to get because of all the new loan restrictions, banks are presently swamped with people trying to buy or refinance their current homes.  Because banks don’t want to hire additional personal to handle this influx, they currently have all the business they can handle.  If the banks would allow the rates to actually go to the 4% range, they wouldn’t be able to handle the increased influx. 

    The second reason banks don’t want to let the rates drift lower is the fact the banks get to keep the yield spread, from where rates currently are to where they would be if the banks let them go to 4%.  This means when the banks go to sell the loans on the secondary market, they can sell the loan to investment companies for more money because these loans are paying a higher return than what the current cost of money is currently paying.  This increase in income is being used by the banks to bolster their reserve accounts, which has taken such a beating with the loan foreclosures.  The government requires banks to set aside funds to cover these loan losses.  When there isn’t enough money to cover these loses, banks are declared insolvent.  By boosting these reserves, the lenders are making themselves healthy, again, and thus in a better position to pay back the government’s TARP funds.

   While you may not like the fact your rates may be higher than they need to be, don’t be fooled into waiting for those magical 4% rates to appear.  They’re still at historical low levels.

     Here’s something that’s kind of fun although it can have other informative uses.  There’s a web site that gives the demographics on any zip code.  It gives information like longitude & latitude, population, density, break down by education, household income, marital status, race, and age.  Are you curious about where you live?  Then go to http://www.zipskinny.com.