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US-backed banks could be mortgage aid tool-sources

December 18, 2008

The Treasury Department could offer below-market financing to the Federal Home Loan Bank systems so that the dozen regional lenders could offer below-market home loans.

Under a plan being mulled by the banks’ regulator, the Treasury might buy a large bond with a yield around 3 percent which would give the Federal Home Loan Banks cheap cash to make home loans at around a 4.5 percent annual rate, the sources said.

The Treasury has for weeks been brainstorming on how it might ease the costs of homeownership and entice potential buyers with lower interest rates. It has been looking at a number of proposals.

Under one plan Treasury officials have been weighing that has previously surfaced publicly, home loan finance companies Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) (FNM.P: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) (FRE.P: Quote, Profile, Research, Stock Buzz) would soak up new mortgages and push interest rates down to a target, like 4.5 percent.

Treasury Secretary Henry Paulson said on Tuesday, however, that officials are not ready with such a proposal.

For the entire article from Reuters, please click here.

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