"According to the news, it seems 4% is not only for workouts, but also for normal transactions!!!! Mortgage applications soared in the past a few weeks due to low mortgage rates, GOV will lower mortgage rates to slow down the housing price decline. I hope it will not happen, cause it will create so many problems, crisis might be delayed, but will get deeper and deeper."
If this is the case, then the government may essentially be trying to neutralize the housing deflation "problem" and buy time for the economy to readjust to its new paradigm; that is, a new economy based not so much on the trading of debt and the artificial stimulus of HELOC abuse. So, the government steps in and tinkers with the mortgage rates, helps slow down house price declines over the next few years (during ARM explosion period) and suckers people into believing that maybe, just maybe, housing will return to the good 'ole days. Less people walk away from their homes (which means less immediate bank/tax payer losses) and people on the sidelines are less apprehensive to jump in because the prices will have appeared to stabilize. Meanwhile, the economy recovers and becomes stable. THEN the government slowly raises rates to the natural rate dictated by the market. At that point inflation will be back to its historical normal 8% (and would be climbing upwards I would bet!) and this will exert downward pressure on house prices, thus ushering in phase two of the bubble burst.
The battle with the enemy of deliquent mortgages is delayed for another day. A familiar and very old strategy.
Is it possible that when the fundamentals for home ownership finally become favorable as outlined in IR's book, the financially responsible renter-types may be purchasing with a 50% down payment and a 15 year fixed rate loan?
