I agree, it is not a good idea for the government to compete at the retail market and to offer below level rates. The answer is to allow mortgages to extend to 100 years. This will reduce payments by 2/3rds. Any time a house is sold the mortgage is paid off anyways.
I agree, especially when the market in question already has so many elements of politics affecting it. Thanks for the civil conversation.
Good thread. On the surface, the 1% mortgage seems like a good solution, but I agree with the poster who argued that it artificially keeps RE prices too high. I think we all agree that what happened with RE from 2000 until 2006 was completely ridiculous. The system needs to clean itself out. Prices need to continue to come down to become affordable based on real incomes. The only solution I can think of which would help, but not stop the slide, would be to change 30 year fixed mortgages into 40 year fixed for people who want to stay in their houses and can continue to make less expensive monthly payments. The extra money freed up would be a great help to the average family, and it wouldn't reward the reckless dopes who were way too overleveraged to begin with b/c they still wouldn't be able to afford the 40 year.
I don't think it would _keep_ prices too high. Make it a one time deal. 1% re-fi's for all homeowners during 2009 and 2010, for example. It stimulates the economy, and interest rates return to normal market based rates after the period expires. The rates may actually be a little lower, since demand will be off. That's good for business, and not inflationary. Allowing new home purchases during the 2 year window would be fine with me too, but those buyers will see a steep loss of equity as the period draws to a close (while re-fi'ers would likely see a temporary "bubblet" in their home values that would end as the window closes, but having a short term "bubblet" right now certainly wouldn't hurt anyone). 100 year mortgages may be a good option to have, but I would never get one or reccommend one to anyone. For one their interest rate would be quite high. Also, You probably wouldn't build any real equity in your house for the first 60+ years or so, and the holder would be way more exposed to downside movement in the home value. The mortgage interest tax deduction would be nice to have for 85 years or whatever, but that doesn't get even close to outweiging the downside. The only reason I could imagine a 100yr fixed rate mortgage being good for the holder is in a sharply inflationary environment. Maybe if they could be structured as the 100 yr fixed rate, convertible to a 30 or 15 yr fixed rate mortgage (at market rates, so sort of a put on inflation) at the borrowers discretion. This would be good for financially sophisticated and disciplined people, but likely bad for society as a whole. you can't really discriminate that blatantly against <del>stupid people</del> people of modest intellects, and many would get sucked into the poor financial choice of having too much house & mortgage, never convert to the shorter term, and get stuck with a poor investment.
The plan in my mind does not offer 1% for new buyers, but existing motgages on the primary residence only, not multiple properties. This should also help to eat into inventory as people that wind up relocating or moving into another house will likely not sell the house with a 1% mortgage, which would create demand as every new buyer is not merely offsetting another home he will sell. This is a bottom up solution, not the top down one that will never work.