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Could Rising Interest Rates Boost The Economy?

Published on Monday - June 10, 2013

With nongovernment entities facilitating rising interest rates, the housing market appears to be on the road to recovery. As a result, more financial institutions are implementing trends that raise interest rates. As predicted, interest rates are continuing to climb. However, with that being said, those with less that perfect credit will now be able to acquire a mortgage.

According to representatives affiliated with Citadel Loan Servicing Corp., the California-based company intends to loan to potential borrowers with less-than-stellar credit. Subsequently, Citadel Loan Servicing Corp. expects to make approximately $6 million in loans to borrowers with subpar credit lines. The rising interest rates associated with the projected loans are expected to more than double the averag on typical 30-year fixed mortgages.

Though similar, these loans are not representative of the ones that helped to cripple our economy. According to Inside Mortgage Finance, a publication dedicated to providing statistics for executives in the residential mortgage business, the maximum loan-to-value ratio for a loan is 75 percent. While interest rates are the highest we have seen in recent years, they are still lower than those associated with subprime loans during the last boom. Therefore, those who can apply for these loans should take advantage of them while they still can.

The emergence of financial institutions that are willing to implement high-risk loans to those with subpar credit may rejuvenate the economy. If some borrowers with subpar credit gain access to mortgages, demand for homes would increase, lifting sales and offering more business to everyone involved with the industry. Increased transactions could serve to stimulate the economy as a whole.

Inside Mortgage Finance has acknowledged that Citadel Loan Servicing Corp. is making loans with $200 million in private backing. According to Dan Pearl, CEO of the loan company, Citadel Loan Servicing Corp. is attempting to securitize high-interest rate loans by this time next year. Doing so may result in the return of safer subprime loans and increase the number of mortgages signed in a given year.

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