US homeowners could save close to $18bn on their mortgage repayments this year if they refinance

TO BE NOTED: From the FT:

"US banks swamped as refi fever takes hold

By Greg Farrell and Saskia Scholtes in New York

Published: May 13 2009 19:44 | Last updated: May 13 2009 19:44

The rush of US homeowners to refinance mortgages at lower rates is creating a boom in the home lending business, prompting banks to hire thousands of new employees and put them to work on extra shifts to process mountains of paper.

“Many of them work all day, go home and have dinner with their families, then go back to the office and put in a few more hours, because there’s work to be done,” said Greg Gwizdz, national sales manager of the Wells Fargo home mortgage unit.

Lenders could originate up to $2,780bn of new mortgages this year, the Mortgage Bankers Association says. Statistics from mortgage financiers Fannie Mae and Freddie Mac suggest 80 per cent of that activity could involve refinancing.

With interest rates for 30-year fixed rate mortgages at around 5 per cent, US homeowners could save close to $18bn on their mortgage repayments this year if they refinance, according to economists at Freddie Mac.

The process is taking longer than in past booms because of the disappearance of easily handled “no-documentation” mortgages - a product that played a signficant role in causing the subprime lending crisis.

Ken Lewis, Bank of America chief executive, said on Monday his company was adding 6,000 workers to beef up its mortgage capabilities. Wells also has added mortgage staff, although it won’t give out specific numbers.

However, even with extra workers, brokers are struggling. “It’s amazing how much paperwork is involved for each application,” said Sandy Wagner, a mortgage broker with Preferred Empire. “It’s hard for the brokers to keep up.”

Customers, too, have been frustrated by processing delays. “It’s a challenge”, said Mr Gwizdz of Wells, which handled $83bn in mortgage applications in March alone. “Consumers need to understand that and have proper expectations. The days of taking it from application to close in 30 days right now are over”.

However, Guy Cecala, publisher of Inside Mortgage Finance, said the diminishing number of lenders would create fatter profit margins for banks than in past refinancing booms. “Historically, the mortgage industry has not made money on the origination side”, he said. “But today, it’s a lender’s market as opposed to a borrower’s market. We haven’t seen that in a long time.”

a dramatic acceleration in the pace of foreclosure starts for non-agency jumbo prime mortgages, LPS said

TO BE NOTED: From HousingWire:

The prepayment rates for borrowers at various stages of delinquency show current borrowers are refinancing at rates exceeding those seen among 30-day and 60-plus-day delinquencies. (source: Lender Processing Services Inc.)

Jumbo Prime Foreclosure Starts Spike: Report

Posted By DIANA GOLOBAY
March 27, 2009 2:35 pm

Mortgage delinquencies declined by 1 percent in February from December 2008, when in the past during the December to February season, delinquencies have declined an average 6.5 percent, according to a monthly Mortgage Monitor Report released Friday by Lender Processing Services Inc. ([1] LPS: 30.41 -0.75%). Total February delinquencies are now at 8.37 percent. The data also show a dramatic acceleration in the pace of foreclosure starts for non-agency jumbo prime mortgages, LPS said.

February posted the largest single-month percentage increase in foreclosure inventories since December 2007, LPS said. The February foreclosure rate increased 8.2 percent month-over-month and 75 percent year-over-year, to a total rate of 2.23 percent. Non-agency foreclosure sales continued a downward trend in the month, while FHA foreclosure sales followed suit, ticking down toward record lows. “The moratorium on Fannie Mae ([2] FNM: 0.72 -2.70%) and Freddie Mac ([3] FRE: 0.80 -4.76%) foreclosure sales expired on January 31 and was reinstated on February 13, to continue through the end of March,” LPS analysts said in a media statement regarding the report. “During the two-week period when the moratorium was lifted, agency foreclosure sales approached all-time highs.”

Agency foreclosure starts from December to February surpassed FHA foreclosure starts, although private-party foreclosure starts still hold the highest pace of starts. Subprime is still king of the roost when it comes to foreclosure starts by product, though the category did show a bit of a decrease in the past month. Option ARMs soared past Alt-A in terms of foreclosure starts, although both hold at historic highs.

RealtyTrac [4] in mid-March reported surprising data: foreclosure filings, which were driven by new defaults and reported REO inventory, surged for the month, although actual foreclosure sales had fallen. The foreclosure halts in place at the GSEs and some major banks kept many properties from going through the foreclosure sale process for a time, but they did nothing to keep borrowers from entering the process after becoming delinquent. The effect is a backlog of properties somewhere along the way from a notice of default to becoming REO. That backlog, once the stops are removed, leads to an influx of foreclosure sales.

LPS’ data show the volume of first payment defaults — when a borrower becomes delinquent defaults without a single payment — on Federal Housing Administration-insured mortgages has reached historic highs recently and spiked up again in December after November’s lull. When taken with historic highs of FHA originations as a percentage of the total volume of originations, this observations loses some of its shock. As LPS noted, “there has been no observed increase in the rate of first-payment defaults for either FHA or non-government loans.”

LPS, which also studies the prepayment rate — or the rate of refinance, which treats a mortgage in a loan pool as paid-in-full, although the loan has not disappeared but simply moved to a different pool — found that the rate of prepayment among borrowers current on payments has spiked considerably from December to February and now sits at a high not seen in the reported data from January 2007. The prepayment rates among delinquent borrowers, however, has not changed much in the last few months and are lingering far below the rate for current borrowers. These data suggest delinquent borrowers are not able to refinance as easily as current borrowers. Additionally, LPS found that refinance activity in the last several months has been “concentrated primarily in the highest FICO category” of 720 plus. “Prepayments have continued to increase significantly, but refinance liquidity is concentrated most in borrowers who need help least,” LPS said.

Modification, an alternative to refinance in which the borrower can reach some other repayment plan with the lender, did not fare particularly better in recent months, according to the data. The rate of recidivism — or re-default after modification — has improved little. According to LPS, continued recidivism rates exceeding 50 percent six months after modification attest to the “quality” — or lack thereof — inherent in the volume of modifications made during the fourth quarter 2008.

A look into roll rates — or the rate at which loans move from one stage of lateness or delinquency to another, ultimately to 90 plus days delinquent or real estate-owned — shows a startling trend that has developed after the burst of the housing bubble. Overall, the volume of loans rolling from better to worse has outpaced those rolling from worse to better for much of 2008. A brief glance at February’s data would almost give the impression that worse-to-better roles are racing to catch up, meaning borrowers are finding some means of payment. While essentially this assumption is true, LPS was quick to point out that the worse-to-better roll rate included a recent surge in refinanced mortgages, which shows up as an influx of prepayment and pulls a mass of borrowers out of the delinquent buckets and into the paid-in-full bucket.

“When the prepayment impact on roll rates is removed, the trend toward higher rates of loans improving in status is eliminated and there is no observed increase or decrease in that category over the last several years,” LPS said.

The six-month increase in the percentage of loans rolling from 30 days delinquent to 60 days delinquent — or from bad to worse — was highest in the Anchorage, Alaska metropolitan statistical area (MSA), followed by the Seattle-Bellevue-Everett, Wash. MSA and the San Francisco-San Mateo-Redwood City, Calif. MSA. Taking the middle slots of the top 10 MSAs were New York-White Plains-Wayne, N.Y.-N.J.; Santa Rosa-Petaluma, Calif.; Edison, N.J. and Lake County-Kenosha County, Ill.-Wis. The bottom of the top 10 list filled out with an Oregon-Washington MSA and another California and New York MSA.

Jumbo Prime took the cake in terms of which product showed the highest deterioration in 30-to-60-day roll rates from February to July 2005, followed by non-agency conforming prime.

Read [5] the statement and [6] full report.

the estimate of expectations for six month's hence, which purportedly is a better indicator of future consumer spending, rose as well.

Free Exchange champions two of my theories:

"The already stimulus

Posted by:

Economist.com | WASHINGTON

Categories:

Business cycles

SO HERE is a piece of information that's somewhat at odds with broader trends—according to a common, University of Michigan index, American consumer sentiment rose in January, which makes two consecutive monthly increases. And the estimate of expectations for six month's hence, which purportedly is a better indicator of future consumer spending, rose as well.

What's the deal? There does seem to be a Barack Obama effect( THIS IS ONE MY PREDICTIONS. ONCE BUSH IS OUT OF OFFICE, THERE WILL BE A DIMINUTION OF THE FEAR AND AVERSION OF RISK. ). Americans seem to anticipate better policy ahead and expect positive results from the president-elect's large stimulus plan. But there's something else that might be at work. Prices for food and energy have plummeted in recent months. Consumer prices fell in December for a third straight month. And while core prices have been largely flat through that time, food and energy costs have tumbled. Energy prices in December were some 21% below their level a year ago—remarkable considering the growth in prices between December of 2007 and the summer of 2008.

While a deflationary spiral would be extremely negative for the economy, a large negative shock to food and energy prices acts to give consumers significant new room to manoeuvre. This leeway quite obviously failed to contribute to increased spending in December, it's true, but that's doesn't mean it was entirely unhelpful. Consumers may have taken the opportunity to reduce debt( YES. AND REFIS. ) or to avoid loan defaults. And if the added income( ADDED BUYING POWER ) only served to improve consumer sentiment( THIS IS MY THESIS THAT REBECCA WILDER ASKED ME ABOUT. ), then that might nonetheless be good. Sunnier consumers might be more likely to utilise stimulus tax rebates or take advantage of low mortgage rates.

Obviously the housing collapse and financial crisis have been the principle stories of this recession, but when all is said and done, and more interesting and subtle story about the rise and fall of energy and food prices may be told. In a debt-saddled society, such large swings in disposable income are quite enough to produce some macroeconomic fireworks"

As I say, both points were made here a while back. Too bad no one reads my blog.

"throw out everything you thought you knew about mortgage and housing — very little that excite the markets are actionable in reality"

Mr. Mortgage with an excellent post on what's going on with mortgages. I'm not happy, but it's what I felt would happen to new mortgages with falling mortgage rates, which is not much. The refi situation puzzles me though:

"The Very Flawed Weekly Mortgage Applications Survey

Posted on January 6th, 2009 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

Mortgage and housing are back in the spotlight like never before. Everywhere you look there are silver linings, lights at the ends of tunnels and ‘mustard seeds’ of hope. This is all great — I encourage hope as a broader theme in life. But ‘hope’ should not be the primary metric in an important business or investment decision — most analyst and media have based their mortgage and housing analysis primarily on ‘hope’ for the past two years.

Since conforming mortgage rates (= or <$417k) fell from 5.875% - 6.125% in November to the 5.25% - 5.5% range today, there has been increasing hype surrounding the weekly mortgage applications survey. In the past, this has been a decent measure of future refi and purchase loan fundings but not any longer.

In mid-December, a weekly release was put out that citing results that compared with 5-years ago. The bottom calling rush was on. The end result was scores of media, economists and analysts calling for the ‘great refi-boom’ to carry the nation out of its housing crisis and onto great things.

Of course, the primary thesis was that ‘if the refi market is at the same pace as 2003 then what followed 2003 in housing, mortgage and the macro economy may follow’. This is not the case. The fact is that refi loan application counts are far fewer than 2003 levels and actual loan fundings far less than that. Data being represented in this manner have led to several disappointments over the past two years. The fall out makes for less trust and weaker markets.( VERY TRUE )

Does anyone really believe that with 60% of CA, AZ and FL home owners and over 90% in NV in or near negative equity that refi’s can be anywhere near 2003 levels?

By virtue of the headline number being ‘near 2003 levels’, it highlights the imperfections with the survey. Remember, at the end of 2003 the nation was in the midst of a mad refi and purchase boom and the first few innings of the ‘Great Bubble’. Rates on intermediate-term interest only ARM money were in the 4%’s, fixed were in the 5%’s. Everyone could get and loan because of easy qualifying and stated income and there was no negative-equity — 70% to 80% of all loan applications actually funded compared to 35% to 45% today.

Mortgage applications have increased in recent weeks and subsequent fundings will as well…there is little doubt about that. Some will be able to do well taking advantage of today’s low rates, which is great for those individuals. But is putting the home owner who is already in a great position into a little better position really going to do much for the broader housing market and economy( IT WILL HELP LOWER DEBT )? The fact remains that for the majority, those that don’t need the credit can get it and those that do can’t. ( BAD NEWS )

Housing is in the perfect credit crisis storm; one which low rates alone( TRUE ) can’t ‘fix’ nor provide much protection. Mid-year 2007 when it was plainly obvious that unless something was done immediately the fall-out could be devastating — this measure may have made the difference between a housing recession and absolute implosion. Instead we heard ‘contained’ rhetoric for over a year.

Now with home prices at the median down 50% in the bubble states so vital to the nation’s economy and $9 trillion in guarantees made to most every other sector but residential real estate, the move is a day late and 5% short. As a matter of fact, even if rates were zero, it could not help the borrowers that need it the most.

The TRUTH About Mortgage Applications

The weekly survey only covers the top 10 lenders by volume

Back in 2003 through 2007, there were hundreds of national lenders. The top 10 were a driving force then but today the top 10 do the lion’s share of all loans. Therefore, even though the top 10 lender’s volume maybe equal to 2003, total national application volume is far less.

Portfolios shift from one lender to the next as rates fall - double, triple, quadruple counting

Most banks will not just roll-down a rate lock to current market if rates tumble after the borrower locks in. Some will but at a large fee. Rates tumbled a few separate days on news events in December and then backed up over subsequent days. On days when rates tumble, borrowers and brokers re-lock their loans with other banks in order to get a rate better than the one they have locked in — entire portfolios can switch lenders multiple times.

Therefore, much of last week’s jump in mortgage applications was much of the previous month of already counted loan applications switching to different lenders for the best rate. Many borrowers have four or five loan applications going with different banks simultaneously. These are all counted in their respective weekly surveys.

With three to four week underwriting and six to eight week total turn times to get a loan done right now, borrowers and brokers are not loyal to the lender at which their loan is in process making it very easy to switch. Ironically, a major reason for the long turn-times in getting a loan done is because of the long-turn times. Obviously, banks can lose a lot of productivity and revenue when losing loans worked for weeks during these volatile times. Additionally, when banks have no clue about what in their pipeline is real or what will actually fund, it is nearly impossible to hedge with any accuracy and can lead to incredible losses.

Loan applications do not necessarily lead to fundings. The overall fall-out rate is at an all-time high.

Back in 2003-2007 due to the variety of loan programs and easy approvals, 70%-80% of all applications actually funded. During these times, tracking the weekly survey was valuable. Now, 35-45% fund. Even less fund when rates are highly volatile due to the reasons explained in the previous bullet point.

The primary reasons for fall-out during 2008 were because a) the property value is too low b) the borrower does not qualify due to today’s sensible standards( I AGREE ) c) the rates are not really as low as the borrower has heard advertised by the media for their specific case d) and there is nothing in the Jumbo arena that makes sense for anyone( TRUE ).

Middle-market mortgage bankers are not pulling their weight leading to fewer fundings - they may never be able to

From HousingWire - As Refi’s Swell, Is There Enough Credit

The volume of warehouse credit providers has fallen recently from 30 to about 10, according to an article featured last week by American Banker, raising the question as to whether there is enough warehouse capacity to handle a refinance boom that has clearly surfaced in the past week.

“[I'm] not sure what mortgage companies are going to do, but there is no way all these loans will get funded any time soon with no warehouse money,” said one of HW’s sources, a mortgage banker who spoke on condition of anonymity.

A better gauge of mortgage applications

Lastly theMaxx, a research firm that I rely upon to gain more clarity on the real mortgage application counts, confirmed my research in its 12-22 issue. TheMaxx eliminates all multiple applications. They show applications only up 1.4% week over week. More importantly, theMaxx is at 158 today after this surge in applications and got in the 300’s back then. When you consider that back then 70-80% of all applications funded and now 35-45% fund, you see how bleak the picture is. Apples to apples, actual refi loans are down at least 60% at best.

In summary, The reporters covering the weekly survey must be getting analysis and PR help from the now infamous Lawrence Yun or David Lereah. This is just another example of why you have to throw out everything you thought you knew about mortgage and housing — very little that excite the markets are actionable in reality. -Best Mr Mortgage"

"Mortgage applications in the U.S. last week reached a five-year high as borrowing costs slid. "

Interesting news from Bloomberg:"By Shobhana Chandra

Dec. 31 (Bloomberg) -- Mortgage applications in the U.S. last week reached a five-year high as borrowing costs slid.( GOOD NEWS )

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan rose to 1,245.7, the highest level since 2003, from the prior week’s 1,245.4. The group’s purchase gauge climbed 1.4 percent and the refinancing measure fell 0.4 percent.

The drop in borrowing costs, sparked in part by the Federal Reserve’s plan to buy mortgage-backed securities, is the lone bright spot in a market plagued by record foreclosures and plunging home values. While lower rates will help owners reduce monthly payments( AND DEBT. GOOD NEWS ), they have yet to stimulated sales( I DIDN'T THINK IT WOULD ), indicating the housing slump will persist for a fourth year.

“We’ve seen a bit of recovery in mortgage applications as borrowing costs are easing,” John Herrmann, president of Herrmann Forecasting LLC in Summit, New Jersey, said before the report. “The housing market has not yet reached a bottom. Sales and prices will continue to grind lower into next year.”

The Fed in November announced a program to reduce the cost and increase the availability of credit for homebuyers. Yesterday, the central bank selected four firms to manage a $500 billion purchase of mortgage-backed securities, to be completed by June. Only fixed-rate agency mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae are eligible assets for the program, the Fed said.

The mortgage bankers’ purchase index increased to 320.9 last week, from 316.5 the prior week. The measure reached an eight- year low of 248.5 in mid November and peaked at a record 529.3 in June 2005.( GOOD NEWS )

Refinancing

The refinancing gauge decreased to 6,733.8 from the prior week’s five-year high of 6,758.6.

The average rate on a 30-year fixed-rate loan dropped to 5.03 percent, the second-lowest level since records began in 1990, from 5.04 percent the prior week. At the current rate, monthly borrowing costs for each $100,000 of a loan would be about $539, or $91 less than the end of October, when the rate was 6.47 percent.

The share of applicants seeking to refinance loans slid to 82.9 percent of total applications, from a record 83.2 percent the prior week.

Today’s report also showed the average rate on a 15-year fixed mortgage decreased to 4.79 percent, the lowest level since March 2004, from 4.91 percent the prior week. The rate on a one- year adjustable mortgage dropped to 6.15 percent from 6.36 percent.

Mounting foreclosures and slumping sales are accelerating the drop in property values. Home prices in 20 major U.S. cities declined 18 percent in October from the same month last year, the most on record, the S&P/Case-Shiller index showed yesterday.

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week since 1990, covers about half of all U.S. retail residential mortgage originations."

I guess the view that dropping rates wouldn't vastly increase home sales is turning out to be correct. We might see a bottom to the decline in housing prices if the mortgage rates stay low and housing prices drop further. However, it looks like my original 5 % more will be more like 10% more ( On average ).

"This is a key point - these lower rates don't help underwater homeowners."

I didn't think that lower interest rates where going to effect home sales much. However, even refinancing is turning out to be a tough buy. From Calculated Risk:

"From the Miami Herald: Refinance rates low; few qualify

Recent drops in interest rates have homeowners rushing to call local banks and mortgage lenders about refinancing. Loan applications are pouring in.

Yet, South Florida homeowners are mostly getting a big fat ''No!'' from the bank when they ask to refinance. The chief reason: Falling home values mean they owe more than their homes are worth( SO THE MORTGAGE CAN'T BE PAID OFF BY THE NEW LENDER ).
...
In South Florida, four in 10 homeowners who bought or refinanced over the past five years owe more on their home than it is worth, according to sales and mortgage data analyzed by Zillow.com ... Many of them chose adjustable-rate loans and other expensive mortgages because that was the only way they could afford the payments.
...
''This is only putting people who are in a good position in a better position,'' [Justin Miller, a broker with Resource Mortgage Group in Plantation] said.
...
Before LaPenta begins processing an application, he said he makes sure customers are aware of the essential criteria needed to refinance: 20 percent equity in the property, a homestead exemption, a credit score of 700 or higher, a mortgage debt-to-income ratio of no more than 45 percent and the ability to fully document income and assets.

This is a key point - these lower rates don't help underwater homeowners( EXACTLY ). Also, I think the 45% debt-to-gross income ratio is a little higher than most lenders will allow now. "

This was the problem all along. Even if rates fall, they can only help buyers who are in perfect shape to buy or even refinance. All the other options would lead to bad loans, which we are trying to avoid now. Unfortunately, all options to help underwater homeowners are leading to losses, and it's just a question of who'll take them and how much they will be.

"remains almost 2 percentage points above conforming rates and the spread between them may set a record this month"

Calculated Risk with an interesting point:

"Freddie Mac reported Long-Term Rates Fall for Eight Consecutive Week Setting Another New Low

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.14 percent with an average 0.8 point for the week ending December 24, 2008, down from last week when it averaged 5.19 percent. Last year at this time, the 30-year FRM averaged 6.17 percent. The 30-year FRM has not been lower since Freddie Mac started the Primary Mortgage Market Survey in 1971.

The MBA reported: Near Record Low Mortgage Rates Boost Mortgage Applications in Latest MBA Weekly Survey

The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.04 percent from 5.18 percent, with points increasing to 1.17 from 1.13 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The contract rate for 30-year fixed-rate mortgages is the lowest recorded in the survey since the record low of 4.99 percent for the week ending June 13, 2003.

Note the surge in refinance applications too!

However, Bloomberg reports: Jumbo Mortgage Shoppers Get Little Relief From Rates

Jumbo mortgage shoppers in the most expensive U.S. housing markets such as New York and San Francisco aren’t getting much relief from lower borrowing costs.

The average 30-year fixed rate for home loans of more than $729,750 remains almost 2 percentage points above conforming rates and the spread between them may set a record this month, according to financial data firm BanxQuote.
...
The difference between the two averaged 2.13 percentage points in December, 10 times the spread from 2000 to 2006 and above last month’s 1.95 percentage points that was the highest on record.

It's jumbos rates that matter for most of California and other higher priced markets. "

This is another odd spread. The question is whether the problem is the high price or market in which these high priced homes are being sold.

"mortgage applications for home purchases has fallen this year. A similar refinancing gauge has more than doubled in the past month"

Bloomberg says that refinancing is the main beneficiary of lower rates:

"By David Wilson

Dec. 17 (Bloomberg) -- The Federal Reserve’s efforts to make homes more affordable have yet to bolster buying and instead are fueling a surge in refinancing, according to data compiled by the Mortgage Bankers Association.

As the CHART OF THE DAY shows, the association’s index of mortgage applications for home purchases has fallen this year. A similar refinancing gauge has more than doubled in the past month. Last week’s figures came out today.

Both indicators appear in the top panel. The bottom panel shows refinancings as a percentage of all applications, which climbed last week to the highest level since June 2003.

“The dramatic steps the Fed is taking to lower mortgage rates are mainly intended to spur purchases” and stem a decline in prices, Peter Boockvar, a strategist at Miller Tabak & Co., wrote today in an e-mail.

There is “very little evidence” so far to suggest the central bank’s moves are working, Boockvar wrote. “The Fed is truly out of bullets” to support housing if the industry fails to recover by next year’s second quarter, he added.

The average rate on a 30-year, fixed-rate home loan has declined about a percentage point since the end of October to 5.47 percent, according to Freddie Mac."

I didn't think this would do much good.

"about the only people who benefit from this new Treasury proposal are the homebuilders, who have been lobbying for a bailout."

Roubini and I basically agree on this ( I'm sure he was waiting to hear my view ) as well, but I want to talk it out. Via Clusterstock:

"From TechTicker: A new Treasury plan to lower mortgage rates won't solve the housing crisis and is a "essentially a direct bailout of the homebuilders," says Nouriel Roubini, economics professor at NYU Stern School and chairman of RGE Monitor.

Homebuilding stocks like Toll and Lennar surged early Thursday, a sign Roubini is not alone in sharing this view.

Using Fannie, Freddie and other GSEs, Treasury will "encourage banks to issue new mortgages at lower rates by offering to purchase securities underpinning the loans at a price equivalent to the 4.5% rate," according to the Wall Street Journal."

I'm not sure why he finds this so troubling. I'm not for it, but let's read on:

"The plan will be effective in lowering rates but interest rates aren't the key to resolving the housing crisis, Roubini says: "Prices went through the roof" and need to fall another 15% before housing bottoms and homes become affordable to the majority of Americans. (The new Treasury plan does nothing for Americans looking to refi but last week's Fed announcement was aimed, in part, to help existing homeowners and refi activity surged in reaction.)"

I don't disagree, but if people can buy houses at this price and afford them, then that's the price. Obviously, if interest rates are lower, then housing prices can be higher. But is that a law? When I bought my house, I got it for 10% less after bargaining.

"Furthermore, there's not enough Americans who are credit worthy and confident enough in the economy and/or their job security to absorb the record levels of unsold homes on the market, says the notoriously bearish economist. "For new programs you have to qualify. Very few people qualify," Roubini said. "If you are loosening the criteria then you are creating a credit risk for the government because you're creating mortgages people cannot afford and some of them are going to default. You create another fiscal problem down the line."

Well, loosening the criteria would truly be insane. If that's what will happen because of this plan, then it's a disaster in the making. However, I don't believe that. In fact, I don't think that this program is worth the money. It simply won't do what it's supposed to, precisely because there aren't a large number of people who are going to qualify, and those people who do would be better off waiting for housing prices to decline, unless you believe that mortgage rates are going to immediately shoot up.

"That being the case, about the only people who benefit from this new Treasury proposal are the homebuilders, who have been lobbying for a bailout. Unfortunately for the rest of us, it looks like their efforts have paid off."

Now I see what he's worried about, and I agree. Bailing out homebuilders is not enough of a reason for this plan. I understand the political pressure to do something about housing, but this is not, in my opinion, the way to deal with this problem.