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Treasury may try mortgage rate cut
A sign hangs outside a home for sale in Las Vegas, Nev.
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Kai Ryssdal: The Treasury Department's the other big story of the day. There are reports Secretary Paulson's decided to do something about the housing market. That's an area he's been reluctant to get too involved with. So far it's mostly informed speculation, but the details go something like this:
Use Fannie Mae and Freddie Mac to push down mortgage rates for new home purchases -- down as low as 4.5 percent.
Marketplace's Steve Henn reports.
Steve Henn: So here's the deal. A couple of weeks ago the interest rate on a 30-year fixed-rate mortgage was about 6.5 percent.
But then last week the Fed said it planned to inject more than a half trillion dollars into the mortgage market. The promise of a huge cash infusion pushed mortgage rates down almost a full percentage point.
So if you were in the market for a sunny little three bedroom, all of a sudden your monthly payments are looking much smaller.
And now someone inside the Treasury Department say rates should go even lower -- the rumor is they want homebuyers to pay just 4.5 percent.
Tom LaMalfa: It would stimulate demand for sure.
Tom LaMalfa is a mortgage industry economist at Wholesale Access.
LaMalfa: An interest rate like that is lower than we have ever seen in the history of American mortgage finance.
But there's a catch. Keith Gumbinger at HSH Associates says it looks like these low rates would be available only for qualified buyers and not families trying to refinance.
Keith Gumbinger: How many good-credit-quality borrowers, with a down payment, with good credit scores, are actually interested in buying a house? I mean, how many people would actually be helped by this program?
And Gumbinger says rates could only stay this low for a limited time. Which means in a few years, if you want to sell that cute three bedroom, you'd need a buyer who was willing to pay more each month than you are to borrow the same amount of money and live in the very same home.
Or you could sell it for a loss.
In Washington, I'm Steve Henn for Marketplace.
i'm interested in building an addition to my house, so my aging father can live with me. it seems construction loans are generally a higher interest rate loan than a traditional mortgage. the rate on my first mortgage is 5.375%. if construction loans were included in the stimulus plans, my dad and i would certainly contribute to stimulating the economy in many ways. who can i contact to push for including new mortgages and construction loans in the package? i would love to write to someone with a vote!
Why limit the mortgage rate cuts to new mortgages only? Extending the rate cuts to the refinancing of existing mortgages would have a much broader impact on the housing market and the economy.
In the short term, homowners like me would be spending money on the fees related to the refinancing, benefitting mortgage bankers, appraisers, home inspectors and title insurers. Upon completion of the refinancing, the borrowers could enjoy the savings by depositing it in their savings accounts the banks would sure like those deposits), by spending it and thereby stimulating the economy, or by just enjoying their now more affordable mortgages.
Financial institutions would certainly take a hit on their interest income of their mortgage portfolios, but they would also likely reap the benefit of fewer foreclosers. I view that fair way for banks to share some of the pain of a crisis that they created.
My spouse and I are "good-credit-quality borrowers, with a down payment, with good credit scores" who "are actually interested in buying a house." We would be very happy to get a mortgage rate of 4.5% instead of the 6.25% loan we've been approved for.
If our payments are lower, we can spend more on improvements and upgrades. We can live in a house we own with fixed payments and not be subjected to the whims of a landlord who, for example, decides to remove a shade tree.
I don't understand how, IF we were to sell in a few years, we would need to sell at a loss. For any house we buy now, we'll be paying less than the previous owner, regardless of interest rate, but that owner was probably paying more than the owner before. So what?
