Treasury May Lower Mortgage Rates
By David Cho and Neil Irwin
Washington Post Staff Writers
Wednesday, December 3, 2008; 6:40 PM

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 idustry sources familiar wih 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.

Treasury officials, however, tried to downplay the idea as exploratory and yesterday expressed worries that ordinary Americans would put off home purchases to hold out for a better rate, according to people who have been in contact with the officials. Treasury spokeswoman Brookly McLaughlin declined comment.

Any such efforts by Treasury would work in concert with a plan announced by the Federal Reserve last week to buy $500 billion worth of mortgage-backed securities issued by Fannie Mae and Freddie Mac, and $100 billion in debt issued by those companies. In anticipation of the Fed's purchases, which are to begin next year, mortgage rates for individual homeowners have already fallen by as much as three quarters of a percentage point

News of the Treasury plan spread quickly today through the housing market. Shares of home builders rose on the stock market.
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.

Staff Writers Dina ElBoghdady and Zachary Goldfarb contributed to this report