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Mixed Week for Mortgages Amid Grim Economic News

Economic news was generally grim this week, highlighted — or lowlighted — by a sharp increase in unemployment. Unemployment figures are one of the most accurate signs that the slowdown is affecting the real economy. What’s worse is that unemployment can lead to further economic weakness, as consumer spending power is dampened.

Against this backdrop, mortgage news was mixed. Some prominent stories:

Mortgage Application Activity Rises

In a less troubled context, the rise in mortgage application activity would be seen as mildly optimistic, especially since it included a rise in purchase applications as well as refinance applications. Under the current circumstances, though, this news seems like more of a minor blip than anything else. Mortgage applications naturally tend to respond to changes in mortgage rates, and last week those rates fell, so it wasn’t surprising to see application activity rise. It is certainly encouraging to see that some housing and mortgage demand remains, but for now, this is just a small upward turn in what has been an overwhelmingly downward trend in mortgage activity.

A Shift in Bailout Strategy

As for Paulson’s announcement of a shift away from buying troubled mortgage-backed assets, this represents evolving thinking about how to pump liquidity back into the lending sector. It is generally agreed this change makes sense — since so many mortgages were purchased away from the original lenders, it was questionable whether buying mortgage-backed securities would really encourage lending very much. However, two bigger problems remain. One is weak demand. So far, many of the government’s efforts to stimulate lending have been examples of pushing on a string — encouraging lenders doesn’t help much when there is little new demand for borrowing. The other problem is that lenders seem overwhelmed with the logistical effort of dealing with troubled mortgages. As a result, part of what is slowing down the lending sector is simply a lack of personnel to sort out the problems.

Revamping Mortgage Disclosures

As for the Department of Housing and Urban Development plan to simplify mortgage disclosures, this is a well-intentioned idea that will probably have little real effect. Their focus in particular is on making sure people understand fees and more complicated mortgages where monthly payments can vary. The problem is, there are already truth-in-lending laws in effect, but they don’t seem to have helped much. Regulators have a habit of relying on disclosure to cut down on undesirable practices, when perhaps addressing those practices directly would be more effective. It is a reminder, though, that the ultimate responsibility remains with the borrower. Borrowers owe it to themselves to be educated consumers, by using internet resources and other research to compare lenders and read up on mortgage-related topics. A well-prepared consumer will always be more effective than any amount of legislation.

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