A new proposal to lower mortgage rates

Ashley Milne-Tyte Dec 4, 2008
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A new proposal to lower mortgage rates

Ashley Milne-Tyte Dec 4, 2008
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Scott Jagow: The Treasury just keeps bringing it — new plans for the economy. This one isn’t official, it’s just a proposal right now, but the idea is to lower mortgage rates to entice buyers in the housing market. Ashley Milne-Tyte has more.


Ashley Milne-Tyte: The government is looking at persuading banks to lend at rates of 4.5 percent. That’s about a percentage point lower than the current rate for a typical 30-year mortgage.

The government would buy the mortgage-backed securities that underpinned those home loans. The idea is with Treasury taking that risk off their hands, banks will feel freer to lend at lower business rates.

Chris Mayer of Columbia Business School backs the plan. He says there are millions of unsold houses on the market pulling prices ever downward.

Chris Mayer: And by reducing borrowing rates, the government would be providing really a once-in-a-lifetime opportunity for people to get into the housing market and to purchase a home at low prices and even lower mortgage rates.

Mayer says that would break the cycle of falling house prices that’s helping to keep the economy in the doldrums. But others say the plan won’t help enough people, because only the most credit-worthy borrowers will be able to sign up.

I’m Ashley Milne-Tyte for Marketplace.

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