Fallout: The Financial Crisis

Treasury may try mortgage rate cut

Steve Henn Dec 4, 2008
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Fallout: The Financial Crisis

Treasury may try mortgage rate cut

Steve Henn Dec 4, 2008
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TEXT OF STORY

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.

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