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Possible plan for new loans at 4.5% interest rate

December 4, 2008

The Treasury Department is considering a plan that would involve its purchase of securities backed by newly issued loans in exchange for mortgage lenders charging low interest rates, such as 4.5 percent on a 30-year fixed-rate loan.

The plan would cover only loans given to borrowers who meet Fannie Mae, Freddie Mac and FHA standards; and some observers believe it would be more effective in stimulating the housing market than efforts targeting delinquent borrowers.

It remains to be seen how much the plan would cost, though the Treasury could fund the initiative and turn a profit by issuing bonds at 3 percent interest.

According to Keith Gumbinger of HSH Associates, “What’s not known is the timing of the purchasing of the mortgage-backed securities and how quickly money will be pumped into the marketplace and that matters as to how low the mortgage rates will go.”

For the entire article, and more information, please click here.

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