I think most readers would agree there is a big difference between talking the talk - and actually walking the walk.  The Wall Street Journal and Reuters News Service really got the rumor mills buzzing yesterday when they claimed their "sources" within the U.S. Treasury Department are whispering insider knowledge that indicates the government is considering reducing residential mortgage rates to 4.5% by upping investment in mortgage-backed securities.  The plan would be for Fannie Mae and Freddie Mac to buy up more mortgage-backed securities to help drive borrowing costs roughly 1.0% lower than last week's U.S. average of 5.53% for a 30-year fixed mortgage.

          I certainly don't want to rain on anybody's parade here - but there are a couple of things I think you ought to consider in order to put this story into perspective.  The Treasury Department already has authority to buy billions of dollars of mortgage-backed securities - it has yet to use that authority to any large degree.  Does additional purchase authority suddenly create a storm of mortgage-backed security purchase activity that didn't exist before?  How much additional buying power is necessary to push 30-year fixed-rate mortgage-backed securities down to 4.5%?  The Federal Reserve announced plans to buy $500 billion of mortgage-backed securities from Fannie and Freddie on Monday - which did cause rates to spike lower - for a couple of hours - before mortgage interest rates finished flat to slightly higher through this morning.  

          As I write, 30-year fixed rate mortgages in most of the country are trading at or near levels last experienced in June 2003 - when they touched 5.25%.  It is unlikely any coordinated effort by the government to push 30-year mortgage interest rates to 4.5% or lower will occur until at least January 20^th - there's probably too much "political hay" to be made by the majority party to make this event happen any earlier.

          Last but not lest, in my 7 years of managing mortgage market risk on a daily basis I've never seen mortgage interest rates sustain a dramatic move to lower levels when Uncle Sam is dumping huge amounts of supply into the credit markets.  Current estimates indicate Uncle Sam has an immediate borrowing need that is multiples of his previous all-time record.

          So in a nutshell, we're talking about a program that doesn't even exist, that has no qualifying parameters, no timeline for implementation if it actually takes form and that will - at best - offer a note rate that is roughly 50 basis-points less than is immediately available in the market today. 

          I hate these "two in the bush versus one in the hand" dilemmas - don't you?           

Today's conforming 30 year fixed is at 5.50%.