Here’s some good news that our mortgage company shared with us today. There is a very likely chance that rates could be as low as 4.5% for purchases (not refinances) in the near future. This is all speculation at this point but we’ve been hearing this for a while from reputable sources. If rates go as low as 4.5% this will definitely be a positive force in our market.
The Treasury Department is strongly considering a plan to intervene directly in the mortgage industry to dramatically force down rates and stimulate the housing market. Under the initiative, the Treasury would offer to buy securities that finance newly issued loans for home purchases. 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.
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.
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.
Coldwell Banker/HPW
Raleigh, NC
eMail - FreemanR@hpw.com
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