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n. Illinois | Its been said that the interest rates cycle is generational. I have seen nothing but lowering rates in my Adult life. Full time employment starting in 1982 and interest rates were north of 12% for a variable rate loan on a house. There were no 30 year fixed rates except via some specialized programs for 1st time homeowners. First home bought with a 30 fixed rate of 11 5/8% via a first time homeowners program from the state of Indiana. 2nd home was at 9.5% fixed for 15 years and I thought I had seen the promised land. final home is at 3 5/8% fixed for 15 years. Fannie is selling 5% money to fund it.
The risk the system faces is that the interest rate risk has been transferred to the lenders and not a single one of them is protected from a spike upwards in rates. So what happens when the lenders can't make spread on their current book of business??? How much higher will they have to price new business to make up for negative margins on their current book of business. Ignore the talk that they bought protection from higher interest rates because who is the player who can actually follow through on the payout on Trillions of dollars when the interest rate bet they made is actually wrong? None of this existed in the 1980's and no one knows how this is going to play out.
There is only certainty that I know, Whatever happens will be caused by the Federal Reserve or made much worse by the Federal Reserve. | |
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Rolling over debt
