There are indications that Treasury Dept is considering a plan that, if true, would use Freddie Mac and Fannie Mae to "force banks" to make mortgages available at 4.5% for home buyers. The low interest rate would be available only to those who are purchasing a home, and not for refinancing.
To encourage banks to issue new mortgage loans at lower rates, the Feds are offering to Mortgage Backed Securities (MBSs) at a price equivalent to the 4.5% rate. The details of the Fed's MBS purchase plan are not known at this time. However, one possibility is for the Treasury to raise money by issuing bonds at 3% interest. This would allow the government to turn a profit because it would be buying MBSs that pay 4.5%.
Senior Treasury officials said they were optimistic that subsidizing lower mortgage rates with taxpayer dollars would help revive the housing market. In a meeting with the National Association of Realtors last month, Treasury officials said that the plan will be a more effective way to help homeowners than focusing efforts solely on borrowers who are struggling to meet their monthly payments.
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Lew Corcoran |
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Historically, interesting things happen when the gov tries to create artifical floors and ceilings (ceilings in the case)...we'll see how it works out, but I'm telling my clients that 5.25 is a great historical rate...if you get greedy and look for 4.75%, you are passing up a sure deal at 5.25.