Sunday, May 30, 2010

The Irony Of The Latest Decline In U.S. Interest Rates

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Article written By Douglas Castle (
Originally published in THE GLOBAL FUTURIST (
Release Date:  05.29.2010

Dear Friends:

An article follows from the ASSOCIATED PRESS which speaks of the lowest US mortgage borrowing rates in many years. The inference is that this should be great news for homeowners looking to refinance and for home purchasers.

While this appears to be good news on the surface, it may be largely inapplicable for the large majority of applicants seeking loans from banks for these reasons:

1) The “advertised rates” are only for prospective borrowers with excellent, unblemished credit histories and the highest credit scores pursuant to the FICO (Fair-Issac) consumer credit-rating standard – the standard for credit evaluation used by most US lenders. Banks typically charge higher rates to lower-scoring applicants in order to adjust for their increased “credit risk.”

2) The same banks and affiliated credit card companies [which largely, because of their negligence, recklessness and unbridled greed created and fueled the global economic meltdown have severely damaged the credit scores of countless consumers through loan foreclosures, repossessions, increased personal bankruptcies, credit card line reductions, credit card closures, late fees, over limit fees and other lawless and opportunistic moneymaking opportunities associated with institutionalized consumer fraud perpetrated on a credit-addicted society] are the ones who are now applying increasingly stringent standards to loan applicants.

In fact, these banks are tightening up their underwriting guidelines weekly due to policy guidelines being handed down to them by their principal insurer, Fannie Mae. Be reminded that Fannie Mae was one of the biggest defaulters in the economic meltdown. But, unlike consumers, the government deemed them “too big to fail,” and started the printing presses rolling to bail them out.

Some of the biggest bailout beneficiaries are now reporting record profits – they are, in essence, using taxpayer money gifted to them by the Fed (in plainspeak, the banks and financial institutions pissed away all of the taxpayers’, savers’ and investors’ money, and now the government is making the taxpayers PAY TWICE to maintain the banking system’s entrenched entitlement to profits), and buying government securities (which increases the national debt, for which the taxpayers will have to pay YET AGAIN.

This is an incredible economic debt loop which cannot be broken without some kind of actual productivity, earnings, employment and fresh thinking. In the meantime, all of the money (either scrip or electronic book entries) is being hoarded by the financial institutions. They are being rewarded for not taking any entrepreneurial risk. They are making money by using debt (or bailout welfare money) to purchase more government debt.

Here are a few things to anticipate:

1)  Following the stabilization of the Euro, and of the European capital markets, the US dollar will again dive in value, and our sovereign credit rating will drop, institutions outside of the US will stop buying our Treasury Paper (which is, by the way, what is temporarily driving US interest rates down for the time-being), and rates will begin to creep up again. What we are experiencing now is just a brief bit of luck that the European Markets look a bit worse than those here in the US. Our Treasury Securities are the “default investment” when things get dicey in Europe;

2)  The US Treasury is going to be taking the muzzle off of the Internal Revenue Service – its hired gun, so to speak - within the next month or so, in order to start replenishing its empty war chest. Expect vigorous, aggressive and brutal IRS audits and assessments, and heightened, expedited enforcement action (seizures and sales of assets) to raise money from the easiest targets: individuals and small businesses, most of whom are easily intimidated, cannot afford to mount a defense, and will do virtually anything in order to pay whatever the IRS says that they owe. The percentage of taxpayers audited will increase, collections will increase, and the economy will be profoundly damaged.

Friends – this is nothing short of a reign of terror.

3) Because of items 1 and 2, above, expect many Boomers and recent graduates to leave US citizenship behind in favor of working in Asia, parts of Europe, and Middle East. This will produce an unprecedented brain drain in the US. Of course, businesses, opportunities, entrepreneurs and innovation will flee from the US as well. This is already happening at an alarming rate.

4) The stragglers, those left behind in the US, will be government employees, the ultra-wealthy, those who are incarcerated, or those who are part of the ever-present underground economy.

The AP article follows:

Mortgage rates sink to lowest this year

By ALAN ZIBEL, AP Real Estate Writer Alan Zibel, Ap Real Estate Writer 2 hrs 42 mins ago
WASHINGTON – Mortgage rates have fallen to the lowest level of the year as investors poured money into the safe haven of U.S. government securities.
The average rate on a 30-year fixed rate mortgage dipped to 4.78 percent this week from 4.84 percent a week earlier, mortgage company Freddie Mac said Thursday. It was the lowest level since early December, when rates fell to a record low of 4.71 percent.
The average rate on a 15-year fixed-rate mortgage fell this week to 4.21 percent_ the lowest level in nearly two decades.
Concerns over the European debt crisis have sent yields for 10-year and 30-year Treasury bonds to their lowest levels of 2010. Rates on 30-year home loans often rise and fall in line with the 10-year note.
Analysts say the opportunity may not last. If Europe's woes subside and the U.S. economic recovery stays on track, rates are likely to move higher. That's because traders will move their money back into riskier investments.
"Strike now," said Greg McBride, senior financial analyst at "If they move quickly against you, it just takes money right out of your pocket."
Homeowners appear to be taking notice. Applications to refinance surged this week to the highest level since October 2009, the Mortgage Bankers Association said Wednesday.
But mortgage applications to purchase homes fell to the lowest level since April 1997. A major reason for that drop: tax credits expired on April 30.
A campaign by the Federal Reserve to reduce borrowing costs for consumers pushed rates down to extraordinarily low levels last year. Rates were expected to rise after the program ended this spring. Instead, they have dipped. Fears that Greece's government would default on its debt shook world markets and boosted demand for U.S. Treasurys.
Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.
Rates on five-year, adjustable-rate mortgages averaged 3.97 percent, up from 3.91 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 3.95 percent from 4 percent. That was the lowest average since May 2004.
The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount.
The nationwide fee for loans in Freddie Mac's survey averaged 0.7 a point for 30-year, 15-year and 5-year loans. The average fee for 1-year loans was 0.6 of a point.

Douglas Castle

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