Harry L. Jensen's

To This Moment
&
The Moment Yet To Come.

Are You Economically Viable?

As the Fed works through the current credit crunch issues of 2007, there is an economic positive resulting from the lower mortgage rates of 2001-2006.

The result of 100% financing programs, available early in the 21st century, allowed many americans to become home owners with limited investment in the property. Today, the "No Income/No Asset" (NINA) loans are causing a major problem for the U.S. financial system.

Today, the credit challenged borrowers of yesterday are causing a disruption in the smooth flow of mortgage funds throughout the US economy's financial markets. This disruption is causing financial hardships to all involved parties, but will be corrected over the next 12 months.

It's my opinion, the 1st & 2nd Adjustable Rate Mortgage (ARM) foreclosure issues, will continue to cause financial market disruption, but will not cause an appreciable economic slow down. The Fed will have to adjust their rates lower, so that the ARM indices will adjust lower.

The lower rates will help many ARM borrowers, that have been experiencing increasing mortgage payments due to increasing ARM indices, relief from any further mortgage payment increases. Indeed, the monthly ARM payment will level off and go lower as the Fed adjust their rates lower.

Markets will follow the Fed's lead.

Rate cuts will be good for the U.S. economy. If only the politians would lower taxes, reduce spending, and get out of the way of progress, the U.S. economy would become even more productive than it is today: Unlock the mind and the purse so the economy can function.

What all the financial economic pundits fail to recognize is the impact of the lower 2001-06 interest rates on today's economy. Many mortgage borrowers were obtaining 15, 20, & 30 year interest rates as low as 4.125%. The average rate was around 5.25%. The monthly mortgage payment was lowered for a vast majority of homeowners via the fixed rate decision.

Many homeowners lowered their interest rate by 20 to 40% (ex: 6.75% to 5.25%). As a percentage of monthly take home pay, this lowered the monthly lender payment (P&I), as a percentage of monthly net income, down from 42% to as low as 25%.

This created unprecedented household residual cash flow (ex: more money to spend, save, or pay down the mortgage).

Today, 10's of millions of american homeowners are still enjoying the benefits of the low rates presented in the 2001-06 time frame. Many homeowners refinanced 3, 4 or more times before reaching the lowest rate available during the interest rate decline of this period. The home owner, that recognized the benefits of lower interest rates, took advantage of their opportunity to reduce their mortgage payment.

Life was good.

The results of low interest rates was prosperity in the mortgage lending world. As the Fed advance interest rates and the cost of money increased, mortgage lenders and capital market became creative in their lending approach. More ARM products and easy underwriting standards pushed the envelope relating to qualified borrowers. The sub-prime crises is directly related to market greed, easy underwriting standards and flawed Fed policies.

From June/04 to June/06, the Fed increased their key rates by only a 1/4% each meeting. The markets did not understand the impact on ARM indices and the resulting higher mortgage payments caused by these increases. This was a disaster waiting to happen.

This gradual increase in rates over 24 months is a major reason for the current catastrophic financial market meltdown. Lenders did not reign in their appetite for mortgage loans and associated profits. The "Fully Indexed Rate" was a problem when the ARM loan was closed.

The Fed and financial markets turned a blind eye to the ARM underwriting problem.

Fortunately for a majority of home borrowers, low rates at this moment in time were a blessing, as incomes were gradually increasing. This scenario of improving family incomes, lower mortgage payments, static monthly household expense and improved home values were the reasons for low unemployment, high productivity and acceptable economic growth.

Today, the economic pundits wonder aloud why consumer spending continues, while the stock and financial markets are in continued flux.

In my world, it easy to understand.

The same families that obtained lower rates and associated lower monthly mortgage payments are still benefiting from that fixed rate decision. They still have money to spend.

Today, these families still have substantial monthly residual income (cash flow) available to spend on consumer products. As long as the family income remains positive, the worst that will happen is the consumer will switch from spending to saving. Saving is OK to.

What is the biggest threat to continued U.S. prosperity?

It is our out of control political class.

To continue to take money (taxes) from the working family will ultimately cause more problems and result in economic disaster. Government must reign in spending and eliminate programs or this generation's legacy will be the death of a wonderful experiment in free choice.

The 2001-06 lower mortgage rates improved the economic well being of the nation. Will the nation slide back into disharmony, because of government's redistribution of wealth?

Today's decisions will impact the economic future of this nation.

In human kind's evolution, this is just a moment. It is an important moment in the evolution of the United States economic future. The question begs to be asked:

Will working families allow government to seize their hard earned wealth?

What will tomorrow's moment look like?

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