The central bank said it plans to extend its program of buying government-backed mortgage bonds, which should have the effect of reducing mortgage rates.
So while the thought of reducing mortgage principals would gives the likes of Jamie Dimon and his peers nightmares, perhaps a fund to compensate those who were wrongly foreclosed on is a decent solution.
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In March Citi said it was reducing residential mortgage assets in the U.S. mortgage market to 20% below 2007 levels.
There is a better way, but to understand it you first have to confront a fundamental error in one of the most fiercely-held myths about home ownership that reducing your mortgage debt is a way to create wealth and a sign of financial success.
The Obama administration, like George Bush's team before it, has tried schemes to encourage lenders to keep people in their homes by reducing their monthly mortgage payments.
Too bad reducing the primary home mortgage exemption would be an untimely candidate for base broadening.
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This reticence may illustrate why commercial mortgage bankers are reducing retail properties as a percentage of newly issued securitized mortgages.
As a result, the Fed and other central banks were able to push interest rates lower than in the past, reducing the cost of a mortgage.
"It has already succeeded in reducing borrowing costs, with some mortgage rates at their lowest for five years, " said a Treasury spokesperson.
Such an action would drive historically low interest rates even lower, including the 30-year mortgage rate, furthering reducing the barriers of entry for potential homebuyers.
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Building wealth is not only about growing your assets, but also reducing your liabilities, be it a mortgage, student loan, car loan, credit card debt, or a small business loan.
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Some lenders already have programs that lower payments by reducing interest rates or extending the life of a mortgage.
In March Citi said it was reducing residential assets in the U.S. mortgage market to 20.0% below 2007 levels.
Its aim is to allow banks to purchase government insurance that will effectively turn a 95% loan-to-value mortgage into a 70% LTV mortgage for regulatory purposes, thereby substantially reducing the capital charge for the banks.
No 10 insisted the government's overall approach was "clear and coherent" and designed to overcome obstacles in the mortgage market that were stopping people from getting finance and reducing the number of new homes being built.
The fall in inflation, which is driving down future nominal returns and so reducing the prospective value of the endowment policies, also means that homebuyers are paying less in mortgage-interest payments.
As well as being coaxed into reducing leverage, the banks may face pressure to ditch some of their illiquid assets, such as mortgage-linked securities and private-equity stakes.
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Another round of quantitative easing that is, the purchase of government bonds and mortgage-backed securities (MBS) is likely, with the objective of reducing longer-term interest rates to induce spending and growth.
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Since October the government has encouraged people to buy houses by cutting the minimum mortgage down-payment on their main home from 30% to 20% and by reducing stamp duty and other taxes on property transactions.
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True, spending on new houses fell sharply again in July, but mortgage rates have been cut by the government's Housing Loan Corporation, and the government is considering reducing real-estate taxes and relaxing regulatory measures such as limits on the height of houses.
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