Thursday, May 15, 2008

Interest rates and qualification

The chat I linked to in a recent post on what better regulation of the financial sector might look like has a table showing at a combination of lower interest rates, lower down payment requirements, etc. all combined to massively increase a home buyer's ability to spend money on a house. This increase was completely captured by existing homeowners who saw the prices for their property skyrocket, new homeowners just took on additional debt at the same monthly payment.

I had thought that the Fed was complicit in the 1% interest rate, but that other parameters were driven by mortgage lenders. I was wrong, lower credit standards was also driven by the financial industry as a response to the Fed's (near) Zero Interest Rate Policy (nZIRP). Hear the whole story on This American Life.

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