Who Actually Benefits from Low Mortgage Rates?

So who is benefitting from low mortgage rates?  The plan currently being studied to help more Americans qualify for home refinance has been highly touted as a key to staving off another round of foreclosures.  CNBC analyst, Diane Olick, however, points out that the people who actually benefit from these new low rates are not middle-class Americans, but rather the super-rich.  So far, the benefits are not going to the people who need it most.

The interest rates are advertised as flirting with 4% plus or minus a few points.  Refinance rates, however, actually vary by the law of supply and demand.  When consumers are beating down the doors to get the new rates, lenders raise those rates to control the numbers coming through the door.

According to Christopher Whalen of the Institutional Risk Analytics, “Two of every three mortgage refinancings done by banks and guaranteed by the GSEs since 2008 have gone to higher income households.”  He continues, “The behavior of the GSEs and the top four banks (JP Morgan, Bank of America, Citigroup, and Wells Fargo) which prevent lower income Americans with performing loans to exercise their contractual right to refinance borders on the criminal.”

Even currently advertised low rates are higher than they should be.  They are supposed to be tied to the 10 year Treasury rate, but when the ten year rate was at 1.88%, the 30 year fixed mortgage rate was at 4.03%, a whopping 215 point spread compared to the 153 average spread over the past 10 years. Banks do know how to come out ahead!