U.S. Weighs Plan To Lower Mortgage Rates

Washington Post: Intervention By Treasury Department Would Aim To Buoy Housing Market By Forcing Down Cost Of Loans

(Washingtonpost.com)  This story was written by David Cho, Zachary A. Goldfarb and Dina ElBoghdady.

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The Treasury Department is strongly considering a plan to intervene directly in the mortgage industry to dramatically force down rates and stimulate the moribund housing market, according to sources familiar with the proposal.

Under the initiative, the Treasury would offer to buy securities that finance newly issued loans for home purchases, according to the sources. But to participate in the government's program, mortgage lenders would have to set exceptionally low interest rates, for instance, no more than 4.5 percent for traditional, 30-year fixed-rate loans.

These securities would be purchased primarily from Fannie Mae and Freddie Mac, the financing giants that buy most mortgages from U.S. lenders, according to sources who spoke on condition of anonymity because the plan has not been finalized.

The cost of the plan and source of funding remain unclear. One possibility is for the Treasury to raise money by issuing bonds to the public at 3 percent interest. This could allow the government to turn a profit because it would be buying securities that pay 4.5 percent.

At a meeting attended by the Treasury's Interim Assistant Secretary for Financial Stability Neel Kashkari and the National Association of Realtors in mid-November, senior Treasury officials said they were optimistic that subsidizing lower mortgage rates with taxpayer dollars would help revive the housing market, sources said.

Treasury officials told the Realtors that the plan could be a more effective way to help homeowners than focusing efforts solely on borrowers who are struggling to meet their monthly payments, the sources said. Democratic lawmakers have been advocating a proposal to modify the mortgages of distressed homeowners.

A source said Treasury officials suggested at the meeting that the Realtors start a grass-roots campaign to press the mortgage rate plan with lawmakers.

Treasury officials described the situation as fluid and said the plan was still being finalized, according to people in contact with the department. The officials expressed concerns yesterday that premature disclosure of the plan could prompt Americans to put off buying homes and hold out for a better rate, sources added.

Treasury spokeswoman Brookly McLaughlin said she would not comment on the matter.

Treasury Secretary Henry M. Paulson Jr. has said that a recovery in the housing market is key to solving the financial crisis. Such a rebound would restore confidence in the banking system and support the value of troubled assets backed by mortgages.

Though he has said a mortgage modification plan proposed by Federal Deposit Insurance Corp. Chairman Sheila C. Bair could help the housing market, Paulson has expressed concerns about whether it would reward borrowers who bought houses they couldn't afford. Bair's plan would use tens of billions in federal funds to modify adjustable-rate mortgages for several million financially troubled homeowners.

The initiative under review at the Treasury would be an alternative. Borrowers would have to meet standards set by Fannie Mae, Freddie Mac or the Federal Housing Administrations that include documenting their income, sources said. Fannie and Freddie were put under government control in September. The Treasury plan would not apply to refinances.

Any efforts by the Treasury to lower rates on new mortgages would work in concert with a Federal Reserve plan announced last week to buy $500 billion worth of existing mortgage-backed securities issued by Fannie Mae and Freddie Mac, and $100 billion worth of those companies' debt.

The Fed was pleasantly surprised that 30-year fixed mortgage rates fell by as much as three-quarters of a percentage point in anticipation of their program. Homeowners rushed to refinance. Cheaper monthly payments may bolster consumer spending, the most important component of U.S. economic activity.

News of the Treasury plan spread quickly through the markets. Shares of home builders rose. At Long & Foster, the Washington area's largest real estate brokerage, top brass informed agents that they should gear up for increased demand from potential buyers.

"This is going to be a short-term windfall that everybody needs to jump on," said Dave Stevens, the firm's president and chief operating officer and a former Freddie Mac official. The move by the Treasury certainly would mean "interest rates will drop," he added.

But it is unclear whether lower mortgage rates will spark home buying, which is a weightier decision for ordinary people than refinancing a loan.

There are also questions about how much the Treasury would spend to buy down the mortgage rate. One industry source said another idea being pushed by trade groups calls for the Treasury to spend $50 billion of its $700 billion financial rescue package to reduce the fees, or points, that home buyers pay when they want a lower rate for a mortgage.

Yesterday, the average rate on a 30-year fixed-rate mortgage increased slightly to 5.75 percent yesterday, up from 5.54 the previous day, said Keith Gumbinger, a vice president at research firm HSH Associates.

"What's not known is the timing of the purchasing of the mortgage-backed securities and how quickly money will be pumped into the marketplace and that matters as to how low the mortgage rates will go," Gumbinger said.

Staff writer Neil Irwin contributed to this report.

[rhs648]

correction

I know a fellow who refinanced his home with and adjustable interest loan and bought a second home with an interest only loan. He has defaulted on both loans. He told the banks that he would pay the loans if they convert them to 1% fixed interest loans knowing the banks would refuse his offers. This fellow has no qualms about what he did. The fact that he speculated and lost doesn''''t stop him from putting the screws to the banks and the neighborhoods the houses are located in forcing the neighborborhood house values to go down. How many other people have done something similar?

[rhs648]

I know a fellow who refinanced his home with and adjustable interest loan and bought a second home with an interest only loan. He has defaulted on both loans. He told the banks that he would pay the loans if they convert them to 1% fixed interest loans knowing the banks would refuse his offers. This fellow has no qualms about what he did. The fact that he speculated and lost doesn''t stop him from putting the screws to the banks and the neighborhoods the houses are located in forcing the neighborborhood house values go down. How many other people have done something similar?

[rhs648]

This is fantastic news. Finally some action, now those that have been hammered by others excesses are finally thrown a bone. The rate should be lowered to 3% for those with good credit and on a sliding scale for the remainder. I''''ll be buying one or more of the foreclosed properties in my area if this happens. I''''ll rent it back to the deadbeats who created this mess in the first place. It will be my own litle piece of the Community reinvestment act, done RIGHT this time.

Posted by Variant_530

It sounds like the loan subsidies may only be available for those living in the home and would not include second mortgages. You may not be able to benefit by buying up forclosed homes and renting them out. Another bummer!

[rhs648]

Many of these loans were taken out by responsible people with great credit. Many of these people lost their jobs and have to take lower (much) lower salaries. The availability of skilled workers in other countries who will work for pennies per hour has had a huge effect.
Don''''t blame all of this on people who bought houses that they could not afford. I''''d be willing to bet that bad loans are a much smaller percentage of this than you might think.

Posted by azure11

Then why allow adjustable interest loans, interest only loans, and subprime loans if these people had such great credit histories and incomes. The fact is that many peoplen bought more home than they could afford. Some people want immediate gratification even when it requires making poor decisions.

[clathrate]

the bailout is going primarily to shore up the wealthy and to concentrate in ever fewer hands even more wealth.


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Posted by kassandras1

That is PRECISELY THE POINT. Inflation will wipe away the sins of the rich and foolish; the middle class and poor will struggle under it for a decade or more to right the wrongs of their greedy overlords.

[boatdocster]

"Paulson has expressed concerns about whether it would reward borrowers who bought houses they couldn''t afford"...

What a double standard. Paulson shovels BILLIONS out the door to his banking and investment buddies who bought off on bad loans, stocks, bonds, etc, etc that they COUND NOT AFFORD without blinking an eye.

But to help a tax payer, the persons providing those billions of dollars, NO WAY.

I hope Obama shows Paulson the door, and very soon!

[redbds]

It''''s about time they have got around to us. The homeowners will be the catalyst to turn this econimy around. We don''''t need lower rates, what we need is a longer time to payback our loans. I propose a goverment backed "100 year Motgage Program" for all people currently owning homes. The longer time will reduce the payment significantly and will free up money to stimulate and upgrade the economy in the least amount of time. Stop bailing out the institutions that got us into this situation and bail out the people who will be footing this bill.

Ron Cornwell
508-533-8211
yahoo@e-sourcerc
ornwell.com

Posted by rcornwell48 at 02:14 PM : Dec 04, 2008

Anyone who entered into a loan that they could not afford put themselves in that position. Stop blaming the lending institutions and the government.

[redbds]

This won''t solve anything. The only way to solve anything is to make loans only to those that can afford them. We need to return to the days when you had to have good credit to get a mortgate or at least a job and the ability to pay. More government intervention for new loans is a waste.

[rcornwell48]

It''s about time they have got around to us. The homeowners will be the catalyst to turn this econimy around. We don''t need lower rates, what we need is a longer time to payback our loans. I propose a goverment backed "100 year Motgage Program" for all people currently owning homes. The longer time will reduce the payment significantly and will free up money to stimulate and upgrade the economy in the least amount of time. Stop bailing out the institutions that got us into this situation and bail out the people who will be footing this bill.

Ron Cornwell
508-533-8211
[e-mail]

[dan_da_ban3]

facinating

[prometheus41]

Keep in mind if the federal government stopped lending money to private industry at 1% and instead started lending it to you directly at 1% plus whatever costs it would need to manage those loans in a HIGHLY SELF-REGULATED BY LAW environment, NOT A SINGLE PENNEY OF THE proposed $7 TRILLION of your children''s children''s future would be added to $10 TRILLION debt they already are being given.

So, it''s a CHOICE for the purpose of propping up capitalism, social status... that kind of thing that makes American''s value their children like yesterday''s trash.

Surely a country and retirement community they''ll want to stay around and bankroll... er... I mean inherit. Let''s not have any misconceptions about that.

[variant_530]

This is fantastic news. Finally some action, now those that have been hammered by others excesses are finally thrown a bone. The rate should be lowered to 3% for those with good credit and on a sliding scale for the remainder. I''ll be buying one or more of the foreclosed properties in my area if this happens. I''ll rent it back to the deadbeats who created this mess in the first place. It will be my own litle piece of the Community reinvestment act, done RIGHT this time.

[mtngurl8]

It is about time that the govt. offers some kind of token to people who are responsible and live within thier means but who are suffering from the excesses of others. I have a fixed rate mortgage of 6.5% but i would love to refinance at 4.5% to save an extra 200 or 300 a month on my mortgage-maybe then i could buy a new American car.

[omega40]

BTW, wasn''t it cheap credit that fueled the housing bubble to begin with?

[omega40]

Whatever became of the freeeeeeeeeeee market? Oh yeah, once the wealthy started losing their azzes socialism wasn''t taboo anymore. The prices of these homes have to drop to parity with the wages of the jobs that our economy mostly creates such as Walmart greeter and McDonald''s workers. To prop up the prices artificially to keep banks from losing the value of their assets is wrong.

[legacyabq]

Houses these days are very cheaply built and crammed together into ugly subdivisions that have no character, and they all look alike..
Who would want to commit THIRTY YEARS to buying some crappy life like that??
Mortage + Insurance maintenance..
Too expensive..
I rent a three bedroom house with a big yard and wood floors etc etc for 800 bucks a month even money.
If I want to move, bam, 30 days notice..
Easy as pie..

[minminmin-2009]

I think it''s a good idea, but if you are about to lose your house, you have to qualify for a low interest loan...as in really qualify. A steady job, payments are an acceptable percentage of your household income, decent credit, etc....no hand outs. if you can''t afford a low interest loan, you need to go rent somewhere.

[walt1944-2009]

Pressure is being put on "Old Baldy" Paulson and the Treasury Dept to do something about lowering rates on home mortgages since the banks are refusing to do it!

It is expected that the Great Emperor Bush II will NOT have his people become involved in the mortgage issue, the Great Emperor being content to have banks handle (or more likely, NOT handle) the mess.

The Great Emperor supports banks making as high a profit as they can at the expense of their customers (which in most other countries is called EXTORTION), and besides, the Great Emperor has no feelings for the plight of the "underprivileged" anyway; just so long as it doesn''t affect him personally!

And, since the Great Emperor Bush II''s successor appears to be following obediently in his footsteps (as well as his thought processess!), it is expected that Barack Obama will have the same outlook as Bush does, despite whatever promises he made to get elected!

SIG HEIL, THE "UNDERPRIVILEGED" ARE STILL STUPID!!!, BUSH!!!
SIG HEIL, I''M GOING TO "CHANGE" THINGS, BUT USE THE SAME BATTING ORDER!!!, BUSH!!!