4.5%: Where Pipe Dreams and Bad Ideas Meet

by Alex Stenback on December 4, 2008

So media outlets are awash in stories about a “plan” being “considered” by Treasury to somehow – there are few details - force mortgage rates down to 4.5%.

As described, this sounds an awful lot like what the Federal Reserve has already pledged to do – buy mortgage backed securities, thereby forcing mortgage rates lower - except this time, it’s Treasury doing the buying.

the proposal calls for Treasury to buy securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac. Details on the plan remain sketchy, but an announcement could come as early as next week, the source said.

Just to be clear, this is not a “plan” that the Treasury hatched, but a poposal being pushed by the Real Estate and Home Building lobbyists.  

It remains to be seen whether there is any appetite for this at the Treasury, and the mortgage backed securities market (which is what actually determines mortgage rates) has barely budged.  This tells us, at the very least, that those with actual dollars at stake aren’t convinced the Treasury is poised to act.

As we’ve mentioned many times before, low interest rates in and of themselves are not going to re-inflate home prices, re-ignite demand for another 40 acres of tract homes in every suburb, or put underwater homeowners on dry land.

There is such a thing as too much intervention in these markets, and we’d prefer to see the laundry list of initiatives already enacted given time to work (for that matter, we don’t even know whether whats been done so far is effective) before we line for every half baked “save the [insert major industry], save the world” plan put forth by lobbyists.

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