Yesterday there was a lot of chatter about a plan by the US Treasury Department to use the influence of Fannie Mae and Freddie Mac to lower mortgage rates to 4.5%. The plan that is in the works is aimed at stimulating the housing market.
Here is an article with details of the plan - http://money.cnn.com/2008/12/03/news/economy/treasury_mortgage_rates/index.htm
So, can you expect 4.5% interest rates? I say don't hold your breath.
Let's review the proposed government plans that have failed so far this year:
-FHA Secure - this program was aimed at helping homeowners faced with foreclosure to save their homes, it bombed and never really got off the ground
-Hope for Homeowners - this plan was supposed to replace FHA Secure, and to date it has bombed, with no lenders participating
-$700 billion bailout - this was supposed to be used to purchase mortgage related assets of banks, but quickly changed to the Federal Government investing in banks to provide them with much needed liquidity; while the final implementation of the plan should be successful, the original intention was abandoned
The only successful government intervention thus far was last weeks announcement by the Federal Reserve that they will purchase $800 billion in mortgage backed securities from Fannie Mae and Freddie Mac; this announcement lead to an immediate decrease in interest rates by .5%
The government realizes that until housing bottoms, the economy overall will lag. Stabilizing housing is the first step in economic recovery, much like housing is usually the first sector of the economy to show signs of struggle when we are headed into a recession.
Jim Cooper of Business Week wrote a great article about it here - http://www.businessweek.com/magazine/content/08_49/b4111014822796.htm
The government is trying to solve the problem, and this program might prove me wrong, but I am not going to count on it.
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