By Scott Redler, Chief Strategic Officer at T3 Capital Management
I like to judge public policy through experience, so when I walked into my JPMorgan Chase bank to refinance my mortgage the other day, I learned something very troubling. With rates this low in decades, I figured it would be a good time to refinance my real estate. My wife and I maintain great credit (780+) and as a couple fit into a high-income tax bracket, but, as it turns out, doing things the right way gets you nowhere.
About a year-and-a-half ago, I refinanced my vacation home into a 15-year fixed at 5.1% trying to be responsible, so that hopefully I can own it for cash by the time I'm 50. My thinking is that I will have fewer bills and a possible retirement spot down the road.
Today's advertised rate for the 15-year fixed is 3.94%, while the 30-year fixed is 4.5%. The mortgage broker took my social security number, reviewed my stats and said, "Let me run the numbers." He came back and said with the electronic appraisal being 25% lower, if I were to refinance into a 15-year fixed it would be higher than what I got 18 months ago based on the new standards. He said that 3.94% is only for those individuals whose equity is 40% of appraisal. (I don't think any homeowner who bought in the last five years would qualify unless they paid cash). I found this so very misleading, like a bait-and-switch scheme. Or, he said, if you are delinquent for 8-10 months you could get modified into a 2% rate, but that was obviously not for me.
Then I asked him to run my primary residence that I "refinanced" into a 15-year fixed six months ago to 4.56%, and had to come up with a ton of money to do so. I was in a 30-year fixed at 6.125% and figured it could be a good way to put myself in a better position again when I'm over 50. He said once more, "Let me run the numbers." Again, he said, there is nothing they could do. "You just refinanced and you are current on all payments, you don't qualify for this advertised rate or any of the refinancing programs."
These low rates are only for the banks and not doing any good for the people or the economy. The mortgage re-modification programs have been designed by the banks to keep money flowing in, while they should be used to stimulate our sagging economy. I'm not one for a free lunch, but if they did refinance my real estate at the rate that the bank advertises, there would be more money in the pockets of those who are current and in a position to spend.
Lowering rates for those who are current on bills -- vs. those who are delinquent -- is a simple mechanism to inject more money into the this flailing economy without huge stimulus packages. With more money in our pockets, instead of the banks', consumers would be more confident to spend, which in turn would allow corporate earnings to derive growth from higher revenues, not just from cost-cutting. Companies would once again be motivated to hire, and consumer sentiment would lift. In turn, this would stimulate the housing market. Putting more money in the pocket of responsible citizens who are motivated to spend should be the priority of government policy-makers.
I'm just a technical analyst, but these selective low rates are doing nothing to help the economy -- just a cop-out so that those in power can say that they are doing all they can. The only thing they are focused on is trying to get re-elected.