Commentary
Hillary’s Rate Freeze Screws New Homeowners
Hillary Clinton has been touting her bold plan to save the crumbling housing market, which would call for a halt on foreclosures for 90 days and, most alarmingly, an interest rate freeze on mortgages for five years. There’s only one problem: her plan will screw new homeowners by increasing mortgage interest rates. It would also enter political risk into U.S. securities markets, putting us on par with tin-pot dictatorships.
The freeze would actually help hapless homeowners who are struggling to pay the ever-rising rates on their adjustable rate mortgages. But, those taking out new mortgages would be stuck with much higher interest rates down the road.
Since investors who hold the mortgages Hillary wants to change would be denied the rates they were promised, they would make up the difference by buying new mortgage securities that paid a higher yield. They would want to be compensated for the risk that politicians, following popular whims, might decide to alter the terms of U.S. fixed income securities in the future..
This would be disastrous for an already sick and suffering real estate market. The cost of owning a home would actually increase, shutting more buyers out, causing inventories to build and prices to fall even further. In addition, her plan would bail everyone out, allowing reckless speculators off the hook at the expense of new home buyers- bravo Hillary!
What this amounts to is the introduction of political risk to America‘s financial markets. For a nation that prides itself on the transparency and stability of its markets, this type of stone-gloved government intervention would be a severe blow to our standard of living. International investors- the ones who loan us the money we need to survive- would shun securities issued by our government and the private sector. The interest rates we all pay on our mountain of debt would skyrocket and the dollar would sink to new lows.
Please, Hillary, if you do manage to wrest the nomination from Obama with your super delegate strategy, promise to sober up before you take on McCain in November.
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Tags: campaign 2008, Commentary, foreclosures, Hillary-Clinton, housing-market, interest rate freeze, mortgage interest rates, Politics, real-estate Discussion
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i disagree with you. i feel the rate freeze will stimulate home sales. right now those that may be interested in buying a home may be waiting for the rates to go lower. the five year freeze will promote buying before the freeze is lifted. it’s uncertainty that is killing the economy we need to put a hold on that.