A Suze Orman exclusive

Did you know that about two-thirds of our country's spending - what the wonks call Gross Domestic Product - is courtesy of you and me? Consumer spending is what has kept our economy afloat for the past few years. And a major factor in consumer spending was all the refinancing that went on as rates fell from above 7 percent a few years ago to below 5 percent and lower in 2003. As part of the refinancing, many of us took out built-up equity in our house and used it to finance a vacation, a new car, a Jacuzzi, you name it. Our crazy spending pace kept the economy from cratering in 2002 and 2003. But since rates started stabilizing in the middle of last year, the refi craze has slowed. Refinancings are down 60 percent since last May. Uh-oh. That spells trouble for the economy, if you ask me.

While no one knows exactly what Mr. Greenspan was thinking when he made the ARM argument, I sure have some theories. I'm thinking that he wouldn't be too unhappy if his comments set off at least a mini-boomlet in new refinancings (from fixed to adjustable) which in turn would rev up consumer spending again, and voila, the economy starts looking strong. (By the way, I will save for a future column my thoughts on how crazy and dangerous I think this home-equity-driven spending spree is.)

A pickup in ARMs could also benefit the banks (lenders). If rates were to rise, lenders could impose their rate hikes, then turn around and have more money to loan to businesses…at more profitable higher rates. But if they are still collecting that measly 5.5 fixed rate on your mortgage, they can't take advantage of the rising interest.

While we're on the subject of lenders, I want to point out a very important shopping tip: you must realize that lenders are determined to get you the biggest mortgage you can afford. And they have become incredibly creative in helping consumers buy bigger and better homes. You can even get a zero-interest loan these days. But what is best for the lender (big payments from you, without building up equity, so you have to pay and pay and pay) isn't exactly smart for you. Don't rely on lenders to tell you what you can afford! Remember, 100% of all homes in foreclosure today are from people who qualified for a mortgage but in the end could not afford it. Do your own math and figure out what you can comfortably handle in a monthly mortgage. You want to be able to pay the mortgage without being a financial wreck who can't afford an emergency cash fund, investing for retirement, or setting aside some money for the kids' college education.