The HSH Blog

Mortgage & Housing Market News from
December 4th, 2008

More Isn’t Always Better



Late Wednesday evening, the Wall Street Journal published an article about a leaked discussion from financial industry lobbyists who were said to be urging the Treasury Department to take action in order to push down mortgage rates. As the story was picked up by various media outlets, the hype has grown into consideration that could potentially change the dynamic of the mortgage marketplace.

The plan would urge banks to issue 30-year mortgages at 4.5%. At this writing there are very few details, but on the surface the plan seems nearly identical to the Fed’s announcement last week that they plan to purchase $600 billion worth of debt and mortgage-backed securities (MBS) from Fannie Mae and Freddie Mac. As you may recall, the Fed’s announcement pushed 30-year conforming fixed rates to levels not seen since February, triggering a refi boom. According to the Journal, the reduced interest rate under discussion would only applies to purchases, not refis.

In our opinion, the Federal Reserve and the Treasury Department need to allow their already-announced programs and initiatives time to blossom to gauge their effectiveness before they potentially introduce another similar incentive. By setting a standard of 4.5%, the program could devalue existing mortgage investments that are held at prior rates. In short, this program has the potential to decimate private investors’ portfolios.

Here’s one of our concerns: Why 4.5% — why not 3%, or 2%? Last week’s plans spurred a huge spike in mortgage activity; if there are potentially lower rates coming, potential purchasers will go back to the sidelines — much like the anticipation for falling home prices has kept homebuyers on the sidelines waiting for even better deals.

If this initiative under the Treasury, which may potentially utilize the second $350 billion from the $700 billion rescue plan, is enacted, the government will completely take over a once-efficient marketplace.

Just because the Fed’s action’s last week served to lower rates doesn’t necessarily mean there should be similar actions. More isn’t always better. (HSH VP Keith Gumbinger contributed to this article)

Readers: Is this a good thing or a bad thing? And why?

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About the HSH Blog's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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