Published by Kartik Subramaniam
A recent article I read in the Wall Street Journal talks about a common problem homeowners face when attempting to refinance their homes.
Today, bankrate.com shows an average 30 year mortgage rate of 5.03%. Pretty killer deal, right? This is likely much lower than the current rate on your home loan and you may be tempted to refinance.
The issue that at least a quarter of all homeowners will have in attempting to refinance is a lack of equity due to declining home values. This isn't such a big surprise - everyone knows real estate values have dropped and many owe more on their homes than they are worth.
But what I liked about this article is that it shed light on the fact that if people were actually able to refinance it would have a positive impact on the economy. The following is the chain of logic I had while I was reading this article.
If people can refinance their home, it becomes more affordable.
If more people can afford their homes, there are less foreclosures.
If there are less foreclosures property values will stabilize.
If property values stabilize, this could stabilize other facets of our economy.
If other facets of our economy stabilize, our country may recover faster.
This is kind of a chicken-and-the-egg scenario. You can't refinance because your home value has dropped, but if banks refinanced borrowers this may stabilize home values.
Of course, the problem of declining home values isn't something that appeared out of thin air. It's a purge of the gluttony that the real estate industry partook in from 2003-2006.
The Wall Street Journal article closed by reporting that the Obama administration is looking into whether or not FHA can help refinance homeowners that don't meet the traditional loan-to-value requirements necessary to refinance.