Government Targets 4.5% Mortgage Rates

by StockJockey

Wednesday, December 03, 2008 - 8:12 pm

The Plunge Protection Team has been working overdrive trying to keep everything propped up, but failed to think ahead and connect the dots as they unleashed a tsunami of unintended consequences.

Their latest plan, which has been spurred on by real estate professionals and homebuilding executives like Robert Toll could help drive mortgage rates to 4.5%, but will no doubt screw something else up, somewhere, based on their track record:

The Treasury Department is considering plans being pushed by trade groups to intervene directly into the mortgage market to dramatically force down rates and stimulate the moribund housing market, according to industry sources familiar with the matter.

One proposal calls for Treasury to buy the securities that finance home loans from Fannie Mae and Freddie Mac, the financing giants that back most mortgages in the United States, according to two industry sources who have spoken to Treasury officials.

Architects of the idea hope the move would drive rates on a 30-year fixed mortgage as low as 4.5 percent, but that figure remained a "soft target," an industry source said.

Treasury has been vetting the potential impact of such a program with various groups that represent housing-related industries, such as the National Association of Realtors, the sources said, who spoke on condition of anonymity because none of the plans have been finalized. Washington Post

Regulators seem to be floating a trial ballon; hopefully people smarter than them help steer this in the right direction.

And while Toll might not be directly involved, be careful what you wish for. Bad shit happens when Robert Toll’s lips move. But he already got an upgrade on his stock from Credit Suisse out of the deal.

This won’t help homeowners who are underwater on their mortgage, and are facing foreclosure. Or help you get a job.

Time might be the cure for what ails us, as old fashioned remedies and antiquated ideas, like free markets, sop up the inventory overhang.

But it might move a few shitty condos in Boca. And spark more buying in consumer discretionary stocks.

But at the moment it sounds like another of Paulson’s half baked, ad hoc ideas. Of course, real estate agents need to eat too....

At Long & Foster, the Washington area’s largest real estate brokerage, the company’s top brass immediately informed agents that they should start gearing up for increased demand from potential buyers.

“This is going to be a short term windfall that everybody needs to jump on,” said Dave Stevens, the company’s president and chief operating officer and a former Freddie Mac official. Such a move by the government certainly would mean “interest rates will drop,” he added.

It would appear Long & Foster is getting bailed out too.

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Update: Tech Ticker put up an interview with Roubini taped early on Thursday:

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Treasury May Lower Mortgage Rates
Washington Post

U.S. Eyes Plan to Lift Home Sales
WSJ
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