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.

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It has already been a busy morning for the Fed, and a happy one for Americans who have been wondering when their government would create a plan to prop up Main Street. We posted a story earlier that detailed the Fed’s implementation of the TALF, a facility designed to increase consumer lending through easier access to credit. Today the Federal Reserve has also announced plans to purchase $600 billion worth of obligations and mortgage-backed securities (MBS) from mortgage giants Fannie Mae and Freddie Mac.

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” said the Federal Reserve in this morning’s press release.

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Dare I say it’s not the bank’s fault? According to RealtyTrac.com, lenders are taking over delinquent properties at double the normal rate. The point is, banks are becoming flooded with more loan modifications than they can effectively handle. In most cases, banks no longer “own” the loan having sold it the investor; the investor owns the mortgage, while the bank or other entity merely services the loan — collecting monthly payments, communicating with the investor, etc.

The non-profit organization HOPE NOW says they have helped prevent nearly 2.5 million foreclosures since July 2007; but critics say that isn’t enough to keep up with the problem. So why are banks struggling at an even slower pace to combat the mass rise in foreclosures?

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Manish Jain of Zacks Investment Management breaks down the essentials of the financial market, “making sense of the current crisis of confidence,” explaining many terms and phrases, and answering some fundamental questions:

What exactly happened when “the markets froze” that caused the fear of a market meltdown and the need for a $700 billion bailout by the Fed?

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