One of the challenges faced by the average home owner or potential buyer is deciphering how to react to big-picture news about the mortgage market. Often, the right move runs counter to the news cycle.

Over the past week, that news cycle continued to focus on negative stories. For example:

• Mortgage foreclosures were reported to be up sharply in February over the prior year’s levels
• Treasury Secretary Henry Paulson outlined proposals to tighten regulation on mortgage lenders
• Meanwhile, one result of mounting economic concerns is that mortgage rates remain near the 6% level, which is low by a few different measures

In other words, the macro-economic view of housing and mortgages continues to be bleak. It may be counter-intuitive, but this could well be an environment which calls for action, on the part of home owners and potential buyers alike.

A little perspective on mortgage foreclosures

The figures on mortgage foreclosures certainly sound discouraging. The headlines proclaimed that foreclosures had jumped 60% in February. That makes it sound like the mortgage market is in a rapid descent into chaos, but a little perspective reveals a milder view of things.

First of all, one should always be skeptical of percentage increases off of a very small numerical base. For example, if one raindrop falls, and then another, the second drop represents a 100% increase in the amount of rain. Surely, the great flood is on its way again! No, the reality is that it doesn’t take much to make a huge percentage change from a small numerical base.

Foreclosure figures are that kind of small numerical base. Nationally, even after the increase they stood at one in every 557 homes. The figures are serious, but they still involve a small proportion of households. Also, many of those foreclosures are concentrated in a handful of trouble spots, such as Nevada, California, and Florida. Across the country, foreclosures are nowhere near as universal as the headlines imply.

Locking the barn door…

Treasury Secretary Paulson’s advocacy of tighter regulation on mortgage lenders was a somewhat predictable piece of political correctness, given public pressure for action. These proposals are largely a case of locking the barn door after the horse has already been stolen. The paradox is that in the same comments, Paulson urged the lenders to keep lending, though of course, tighter regulation would make it tougher to get a mortgage.

Mortgage refinance looks good, and home buying looks better

Meanwhile, the course of action for an individual looked very different from the macro-economic view. For an existing homeowner, rather than being turned off by the mortgage mess, this would be a good time to contact mortgage lenders about refinancing. Low rates are what matter most on the micro level.

The same goes for potential home buyers. Lower mortgage rates substantially reduce the cost of buying a home, and with home prices sharply lower in many parts of the country, the opportunity is better still.

None of this should dismiss the seriousness of the macro-economic environment. Conditions should continue to be volatile – interest rates could spike back upward, and future legislation could make it tougher to obtain a mortgage. Still, the fact that things could change quickly is a reason for action, not for inaction. 

Tags: interest rates, lenders, mortgage, mortgage lenders, mortgage rates, refinancing

This entry was posted on Thursday, March 13th, 2008 at 11:05 am and is filed under Weekly Wrap-Up. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.