Thursday, Dec. 4
Posted 4 p.m. EST
WHAT'S UP WITH JUMBO CONFORMING?: A reader from the Bay Area asks why conforming jumbo rates have remained high. I'm wondering the same thing. Why haven't they fallen? I'm sure at least one of my beloved readers has a theory. Fire away to hlewis@bankrate.com.

Hi, Holden, I know that Jumbo Conforming limits for 2009 are dropping substantially or have been eliminated in many counties (based on your article--thanks!). However, I live in high-priced San Mateo county in the SF Bay Area (one of the counties where the jumbo conforming limit will still be over $600,000 in '09). And I'm finding that my searches for jumbo conforming loans less than $600,000 and more than $417,000 have turning up rates of more than 7 percent the past few weeks, which is more like the 150 basis point premium over conforming rates associated with full jumbos. In the past, jumbo conforming loans have been closer to 50 basis points higher, so what gives? Are lenders just waiting for the mid-Dec FHA 2009 guidelines to be issued and protecting themselves until then by lending anything non-conforming at jumbo rates? I figure this might be the case given how jumbo conforming rates jumped substantially (despite the dramatic fall in rates over the past week) since early- to mid-November, when banks imposed deadlines in order to close loans in 2008.

For readers who don't live in the land of jumbo conforming, much of the above might look like gibberish. For those who fall within the jumbo conforming limits, it's probably very understandable. If and when I get an explanation, I'll make it clear to all of y'all.

Posted 11 a.m. EST
LOBBYING FOR JOBS: The Washington Post says the Treasury is "strongly considering" a proposal to intervene in the mortgage markets and cut the 30-fixed to 4.5 percent or less. The article has four reporters, including the excellent Dina ElBoghdady, and each of the reporters has better sources than I have. Still, I have my doubts that Treasury is "strongly considering" the proposal.

It appears that the National Association of Realtors hatched this idea. The NAR proposed that the Treasury buy enough mortgage-backed securities to drive the 30-year fixed down to 4.5 percent. But only -- get this -- but only purchasers would be allowed to get that low rate. Refinancers would be out of luck.

The Treasury has the authority to buy mortgage-backed securities and drive down rates. But to limit low rates to buyers, and to leave refinancers out in the cold, would require Congress to pass a law. I propose that such a law be titled the "Employment for Realtors Act." Maybe the Employment for Realtors Act has a chance of passage. After all, this year the Realtors persuaded a gullible Congress to offer a repayable tax credit to first-time homebuyers.

The Realtors are one of the most effective lobbying groups around. They're good at what they do because they focus exclusively on what's good for their members. They don't worry about what's good (or bad) for anyone else. It doesn't matter to the Realtors if this proposal would prolong the recession, inflate another housing bubble and treat current homeowners unfairly. What matters is whether it would benefit the NAR's membership of real estate agents by boosting home sales. If it would, the NAR will lobby for it strongly, no matter the cost to the rest of us.

Neel Kashkari, the Treasury official who oversees the $700 Billion Big Bailout, told the Realtors to go forth and lobby Congress. Rest assured that they will, and that the Realtors in your town are calling your representative and senators.

They're calling the congressional switchboard at (202) 224-3121 or (202) 225-3121.

TWITTER: I have a day-old Twitter account and I'm picking up a follower about once every hour. But most of my followers are industry people. If you're a Twittering consumer and you're shopping for a home or a mortgage, follow me @HoldenL. I'll keep you apprised of goings-on, including sudden rate moves. Take a look at my followers, too; some of them, such as mortgage broker Dan Green, provide good and fast info.

Wednesday, Dec. 3
Posted 9 p.m. EST
TREASURY PLAN: The Wall Street Journal and Washington Post report that a couple of industry groups want the Treasury Department to consume mass quantities of mortgage-backed securities, sending mortgage rates as low as 4.5 percent.

The news is likely to cause mortgage rates to sink Thursday morning. I think this rate dip will be a temporary condition, as it becomes clear that the report is premature. This supposed Treasury plan might never come to fruition.

The Post and Journal are not saying which industry groups are behind this inchoate proposal, but clearly we're talking about the National Association of Realtors and National Association of Home Builders. It's easy enough to deduce that. Those two groups would benefit more than anyone else -- consumers included. What's unclear is how seriously the Treasury is considering this entreaty from the NAR and NAHB.

According to the Post, the idea is for Treasury to do what the Federal Reserve is about to do: Buy billions of dollars' worth of mortgage-backed securities from Fannie Mae, Freddie Mac and Ginnie Mae, which securitizes FHA-insured loans. This brings up the question of why the government would duplicate the effort.

My colleague Greg McBride, who appeared tonight on CNBC to talk about this proposal to Treasury, wonders what the unintended consequences could be. The main worry is that the Fed and Treasury would end up inflating another housing bubble. It's rather scary to think that, indeed, maybe that's exactly what the Fed and Treasury want to do -- that they believe another housing bubble would be better than the alternative.

If the federal government does succeed in spurring home sales (instead of allowing the housing sector to recover on its own accord), then house prices will rise, reducing affordability. Many would-be buyers have been sitting on the sidelines, saving money and waiting for the right time to buy. Not all of these future buyers would benefit from a swift upturn in house prices. That's especially the case for people who are still saving for a down payment, and aren't ready to buy just yet.

There's also a question about the disparate treatment of conforming and jumbo mortgages. By targeting conforming mortgages, the Fed and Treasury would be excluding jumbo loans from treatment. Jumbo rates are sky-high. This is a big deal in California, where houses are so expensive that even solidly middle-class families get jumbo mortgages to buy modest houses in the big metro areas. Why aren't the feds taking steps to bring jumbo rates down?

Wednesday, Dec. 3
Posted 11 a.m. EST
TWITTER: Follow me on Twitter for brief updates on what's going on in the mortgage world, at http://twitter.com/HoldenL. I'll tweet as soon as the results of our rate survey come in this afternoon.

RATES: Today is the day when I endeavor to guess what our weekly rate survey will reveal. Bankrate's research department surveys mortgage rates every Wednesday morning, and the timing makes it difficult to make a prediction. I won't bore you with details about why the timing of the Fed's yadda yadda yadda.

Sigh. It's really hard to make this prediction this week. I'll say that our survey will say that the 30-year fixed rose 14 basis points this week, to 6.11 percent.

I could be way off. It's possible that our survey will say that rates are down 3 basis points or 5 basis points, instead of up 14 basis points. Or the survey might say that rates went up a lot more than 14 basis points. As I said, the details would bore you. Suffice to say that last week's tremendous volatility makes it hard to do a week-to-week comparison.

Yadda yadda.

GOOLSBEE: At the beginning of March 2007, the subprime mortgage market blew up. Prominent subprime lenders such as Fremont General, Ameritrust and New Century collapsed. In the middle of the month, Ameriquest closed. Then HSBC stopped buying loans from smaller lenders. Those are just the big ones. It was a subprime bloodbath.

On March 29, 2007, three weeks after the subprime dam collapsed, a University of Chicago economist named Austan Goolsbee published an op-ed in The New York Times, in which he pooh-poohed the idea that people were fooled into buying homes that they couldn't afford.

Goolsbee wrote:

Almost every new form of mortgage lending - from adjustable-rate mortgages to home equity lines of credit to no-money-down mortgages - has tended to expand the pool of people who qualify but has also been greeted by a large number of people saying that it harms consumers and will fool people into thinking they can afford homes that they cannot.
Congress is contemplating a serious tightening of regulations to make the new forms of lending more difficult. New research from some of the leading housing economists in the country, however, examines the long history of mortgage market innovations and suggests that regulators should be mindful of the potential downside in tightening too much.

Goolsbee noted that many types of new mortgages were invented between 1970 and 2000. "These innovations mainly served to give people power to make their own decisions about housing, and they ended up being quite sensible with their newfound access to capital," Goolsbee wrote.

He added that the market should trust borrowers who believe that their incomes will rise in the future. Let them buy too much house now and let their incomes grow into it: An efficient market, Goolsbee wrote, is one characterized by "people's decisions unrestricted by the amount of money they have right now."

Read that again. He says lending decisions shouldn't be based on the incomes and down payments people have now; decisions should be based on how much borrowers think they'll earn someday.

Goolsbee concluded that when you look at the market that way, "the mortgage market has become more perfect, not more irresponsible. People tend to make good decisions about their own economic prospects."

I think he was terribly wrong.

When I look at people who have low credit scores, I see people who don't make good decisions about their economic prospects. I see people who don't pay bills on time, don't keep jobs for long, and who regard the state lottery as a retirement plan. Apparently, when Goolsbee looks at subprime customers, he sees sensible people who can accurately assess their future economic prospects.

Why does it matter what a University of Chicago economist said almost two years ago? It matters because Goolsbee was the Obama campaign's chief economic adviser. He will be the staff director and chief economist on President Obama's Economic Recovery Advisory Board, and will be one of three members of the president's Council of Economic Advisers.

You can take the economist out of the University of Chicago, but can you take the University of Chicago out of the economist? We must hope so, because the Chicago School's anti-regulation fervor has been discredited by the mortgage meltdown.

This March, a year after that Times op-ed appeared, Goolsbee wrote a short essay for The Washington Post, explaining what an Obama administration would do to turn the economy around. The first priority, he wrote, would be to "enact a comprehensive plan to help bring an end to the foreclosure crisis that threatens millions of families."

Goolsbee advocated an FHA refinancing program for delinquent borrowers. Such a plan has has since been started, called Hope for Homeowners. (In its first six weeks of operation, the FHA took a grand total of 180 Hope for Homeowners applications nationwide.)

Goolsbee added: "Obama would couple this plan with a direct interest-rate subsidy for low- and middle-income borrowers patterned on the mortgage interest deduction now predominantly used by high-income itemizers, as well as with comprehensive credit counseling, additional aid for loan workouts and reform of the bankruptcy code."

Maybe Goolsbee has adopted some humility.