Treasury Considering Plan to Drive Mortgage Rates to 4.5%

The global financial crisis is currently more than a year old and although the specifics, in terms of what triggered or accelerated it vary across central banks and developed economies, we can all agree that the root of all evil was housing. Obviously at this point it’s anyone’s guess when the most dangerous shock in advanced financial markets of nearly 100 years will end. In the meantime however, there are some positive developments taking place. According to WSJ, the Treasury Department is currently considering a plan to revitalize the U.S. home market in the hopes of driving down interest rates for loans to purchase a home.

From the Journal: The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages.

Treasury views this plan as potentially halting the slide in home prices by enabling borrowers to afford bigger loans, thus increasing demand and pushing up home values. The lower interest rates would be available only to borrowers who are buying a home, not those refinancing a mortgage.

The Treasury and the Federal Reserve are already working to bring mortgage rates down through a program announced last week in which the Fed will buy up to $600 billion of debt issued or backed by Fannie and Freddie, along with Ginnie Mae and the Federal Home Loan Banks.

The plan however, remains in discussion and may not be made final before the current administration’s term ends in January.

Last week’s Fed move drove mortgage rates down to 5.5%, from 6.06% a week earlier. The average rate on 30-year fixed-rate mortgages conforming to Fannie’s and Freddie’s standards was about 5.75% Wednesday, according to HSH Associates.

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About Ron Haruni 1070 Articles
Ron Haruni is the Co-Founder & Editor in Chief of Wall Street Pit.

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