What
the Democratic takeover means for housing | | By
Holden Lewis • Bankrate.com |
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Homeowners and prospective home buyers will see changes
when the Democrats take control of both houses of Congress early
in 2007. Democrats have different priorities from Republicans on
issues such as affordable housing, land-use restrictions and predatory
lending.
The political party that has the most influence over
the size of Americans' monthly mortgage payments didn't get a single
vote. That's because the Chinese Communist Party wasn't on the ballot.
Every day, we Americans buy more foreign-made stuff
than we peddle to other countries. And every day, we consume more
government services than we are willing to pay for via taxes. The
cash to pay for these things has to come from somewhere, and in
recent years America's most enthusiastic lender has been China's
central bank. Japan, the United Kingdom, South Korea and "petro-nations"
are other big creditors.
These
countries lend us money by buying myriad types of bonds: U.S. Treasury notes,
mortgage-backed securities and corporate bonds. If investors didn't want these
bonds, yields would have to be high to entice buyers. But the world overflows
with investors who want to buy U.S. Treasuries and mortgage-backed securities.
With lenders eagerly lining up for the privilege of extending credit, we can pay
them low yields. That keeps mortgage rates low, too.
What if ...
No one knows for sure how much higher mortgage rates
would be if foreigners curtailed their purchases of Treasury notes
and other debt, but that doesn't stop people from guessing.
Kenneth Thomas, a lecturer in finance at The Wharton
School at the University of Pennsylvania, says international investors
push long-term U.S. rates down half a percentage point or more.
"So if you're paying, let's say 6.5 percent on a mortgage,
or 6.75 percent, you might be paying 7 or 7.25 if it wasn't for
the Chinese," Thomas says.
The doomsday scenario would
happen if China abruptly stopped buying American debt. Interest rates would zoom
upward. It's not in China's interests to do that because Americans would have
less cash with which to buy Chinese-made goods. But Thomas says the Chinese might
feel provoked into doing something radical if Congress passes a bill that would
impose a 27.5 percent tariff on Chinese imports if China doesn't revalue its currency
quickly. The bill, S. 295, was introduced in early 2005 by
Sen. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., and has 13 co-sponsors
from both parties. It hasn't gotten anywhere, but Thomas worries about the fallout
if the bill makes some progress in the next session of Congress.
When it comes to housing and mortgage issues, two
of the most important members of the next Congress will be Democrats:
Rep. Barney Frank of Mass., who probably will be chairman of the
House Financial Services Committee, and Sen. Chris Dodd of Conn.,
in line to be chairman of the Senate Committee on Banking, Housing,
and Urban Affairs.
Lobbyists for the mortgage and housing industries
say both men are knowledgeable and collegial. If the lobbyists didn't
say that, they might have trouble getting their calls returned.
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