While it's certainly true that the offer of a fixed-rate, 30-year mortgage at 4.5% seems tantalizing to many people, whether or not it would truly spark a housing sales rebound is unknown. For one thing, to get people to act now, it would have to be some type of limited offer. From a CNNMoney.com story:
Lobbyists are pushing the Treasury Department to consider a plan to purchase mortgage-backed securities in the hopes of driving mortgage rates to as low as 4.5%, an industry source said.Similar to an effort unveiled last week by the Federal Reserve, the proposal calls for Treasury to buy securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac...
The increased demand for mortgage-backed securities would prompt mortgage rates to drop. That, in turn, would enable homeowners to refinance into lower-cost loans and make it cheaper for potential homebuyers to get into the market...
Industry groups have been pressuring President-elect Barack Obama and lawmakers to lend a helping hand to the housing market. The National Association of Realtors, for instance, has called for Treasury to buy mortgage-backed securities.
Meanwhile, a coalition of industry groups have banded together under the "Fix Housing First" banner to call for measures including tax credits of up to $22,000 and the creation of a 30-year mortgage, carrying rates as low as 2.99%...
Experts, however, had mixed views on how much a new Treasury initiative would help homeowners and the economy. Some felt lower rates would help stabilize the housing market by bringing in new buyers and would give those who refinance more money to spend...
But others questioned whether rates would remain low and, even if they did, only a narrow slice of credit-worthy borrowers would benefit...
Also, the proposal would do little to help troubled borrowers who have fallen behind on their payments, have no equity in their homes or have lost their jobs. With credit standards still high, these homeowners would not be able to refinance and take advantage of the lower rates, he said.
Finally, super-low rates could keep private investors out of the mortgage-backed securities market, forcing the government to remain the primary buyer of such investments.
3 comments:
The damage is already done in the sub-prime market. Now we must make sure that the real estate market can be re-started for the ordinary folks who qualify for prime mortgages. And this could be a good start.
We're seeing the mere rumor of lower rates keeping people away from buying right now.
I'm not sure if this will work or not. Hopefully. I do know that something needs to happen with mortgage rates.
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