Further Rate Reduction Proposals

December 11, 2008

There are several proposals to reduce mortgage rates to help home buyers.The Treasury Department is listening to proposals from the National Association of Realtors and National Association of Home Builders to have a wide-scale reduction in interest rates to as low as 4.5%.  One of the proposals suggests that a government agency (such as the Treasury Department) could buy up 30 year mortgages below the market’s fixed rate of 4.5%.  Another proposal suggests that the government play a role in lowering interest rates to home buyers by as much as 1% or more by paying loan discount points or fees.  The whole idea behind these proposals is to bring large numbers of people into the marketplace to stimulate construction as well as move large numbers of unsold inventory quickly.  By doing so, this would help create jobs by increasing the demand for building materials, appliances, furniture, paint, etc.

This rate reduction concept isn’t a new idea.  It was used in the 1970’s through the government’s Tandem Plan.  At that time, the Government National Mortgage Association (Ginnie Mae) bought below-market mortgages from Fannie Mae who had aquired mortgages from thousands of lenders across the country.  So, instead of the private lenders and Fannie Mae eating the losses, Ginnie Mae absorbed them.  This was an effort to stimulate homebuying in a stagnate market.

The most recent proposal has been to have the Treasury Department lower mortgage interest rates for home buyers.  The government could then sell debt securities to bond investors at 3% and acquire privately originated mortgages at 4.5%, providing a profitable business model.  For more information on how these proposals can help you in the Hendersonville real estate market, please contact me today.

2 Responses to “Further Rate Reduction Proposals”

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