Ip, Greg. 2004. "Fed Chief Questions Loan Choices -- Greenspan Says Certainty of Fixed-Rate Mortgages May Not Be Worth Cost." Wall Street Journal (24 February). "In a rare evaluation of the interest-rate options that households face, Federal Reserve Chairman Alan Greenspan questioned whether American homeowners are well-served by popular fixed-rate long-term mortgages. "American homeowners clearly like the certainty of fixed mortgage payments," Mr. Greenspan said in a speech to the Credit Union National Association in Washington. Fixed-rate mortgages protect against higher rates while offering the option of refinancing should rates drop. But homeowners pay thousands of dollars a year for those benefits, he said." "Mr. Greenspan said homeowners may pay 0.5 to 1.2 percentage points more than they otherwise would for those benefits. The Federal Reserve staff estimates that homeowners "might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade." "American consumers might benefit if lenders provided greater mortgage-product alternatives to the traditional fixed-rate mortgage," he said." "Mr. Greenspan reiterated that U.S. households appear to be in "good shape" and that their rising debts relative to incomes don't reflect increased "financial stress"." "Increased bankruptcies "are not a reliable measure" of household financial health, he said, and delinquency rates also are flawed, though they currently paint a more encouraging picture, he said.
-- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu michaelperelman.wordpress.com
