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Treasury Ponders 4.5% Mortgage Rates
This leak, or announcement if you prefer, is long on sizzle and short on beef, but for what it’s worth, Henry Paulson and the Treasury Dept. are considering giving mortgage rates a more deliberate shove toward the cellar.
Treasury Considers Plan to Stem Home-Price Decline
Rates Could Be as Low as 4.5% for Newly Issued Loans
By DEBORAH SOLOMON and DAMIAN PALETTA
WASHINGTON — The Treasury Department is considering a plan to revitalize the U.S. housing market by reducing mortgage rates for new loans, according to people familiar with the matter.
The plan, which is in the development stages, would use mortgage giants Fannie Mae and Freddie Mac to bring loan rates down as low as 4.5%, a full percentage point lower than the prevailing rates for 30-year fixed mortgages.
I’ve no idea exactly how this would work or who might qualify, so we’ll wait for more details. Until last week’s plunge in rates, the 30 year fixed rate had obstinately held its ground recently months even as the economy circled the drain. Usually economic bad news is helpful to borrowers, but worries over the ultimate cost of the bailout caused speculation that rates would ultimately have to increase. Last week’s announcement that the Fed would purchase $500b of Fannie/Freddie assets gave the market a goose. Now let’s see what this proposal brings…
December 4th, 2008 at 11:02 am
Marc,
This is short term thinking to a problem that needs long term solutions. Yes lower rates will increase affordability and home sales. But when rates return to there true market value in the future, home values will have to come down to maintain affordability. When that happens you will see a new wave of foreclosure and short sale activity as people once again go negative on equity. So the question is do we just suffer the pain now and get through this market quicker, or do we artifically prop up home values with low mortgage rates and string this market out over an long period of time.
December 5th, 2008 at 9:58 am
After the nearly $8 trillion wave of bailout money swept through like a tsunami and failed to help homeowners in any meaningful way, Congress is now embarrassed and trying desperately to reach out to “main street” (I hate that term). I agree that this won’t fix anything.
Today’s Sac Bee reports in a Q&A section that the proposal would exclude refinances, so who does this really help? Will it stimulate the purchase side of the market enough to stimulate a recovery in real estate?