Banks Giving 1-2% Teaser Mortgage Rates As Modifications

The re-leveraging of the US home owner has begun. It was just reported on CNBC that part of CITI’s plan was to give temporary teaser rates of 1-2% to ‘help’ borrowers avoid foreclosure.This will ultimately lead to lost decades in housing.

Its sad when the only way to ’save’ housing and get borrowers out of default is keep them terribly leveraged by cutting their rates to 1-2%. Exotic loans with teaser rates is what got us here in the first place.

What is also sad is 1-2% is about the rate needed to compete with the exotic loans given to everyone in the past 6 years. This emphasized how much leverage was in the system. This really does nothing to save housing it just keeps housing propped by allowing the borrowers to stay terribly leveraged. This does nothing to clear the market, only push the problem out. This does nothing to help the gross amount of negative equity around the nation, which is the primary reason for loan default.

To those of you interested is this, be careful. It is my opinion that a mortgage modification must be a market-rate fixed rate loan at a level you can afford to pay with 28/36% debt-to-income ratios. This means principal balance reductions. If not, you are just renting your home because housing prices will not ‘come back’ any decade soon. That is of course, they bring back all of the exotic loan programs that allowed a $80k a year income buy a $800k home or wages rise 300%.

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