Mortgage rate set for light relief?

12.04.08
By Nicholas Storie

If you are looking to take out a new mortgage, good news may be around the corner in these increasingly tight times.

The Treasury Department is reportedly considering a request from lobbyists to buy mortgage securities from the country's two largest housing finance organizations - Fannie Mae and Freddie Mac.

What has that got to do with the price of your new home loan? Well, the thinking goes that taking the mortgage securities into federal hands will free up liquidity for Fannie and Freddie and eventually translate into lower mortgages rates - possibly 4.5 percent on a 30-year mortgage - for people looking to take out a new home loan.

In turn, this will help stimulate the housing market, which remains frozen in many parts of the country - at least, so the thinking goes.

"If it gets people buying homes and spending, it will help reverse the economy and get us out of this recession," Scott Talbot of the Financial Services Roundtable, an organization reportedly driving the measure, told CNN.

Not everyone is happy with the proposal, however. Questions remain over whether the program would apply only to new home loans or also to those looking to refinance as well.

The potential unfairness of "rewarding" first-time buyers while offering nothing for those who bought responsibly in the first place but are now suffering at the hands of the recessionary squeeze has caused some homeowners to cry foul.

Other critics warn the measure may serve to sustain already over-inflated prices and thwart the current market correction carrying through to its natural conclusion.

Reports of the proposed initiative come hard on the heels of recent delinquency figures from credit reporting agency TransUnion, which point to a rise of more than 50 percent in mortgage accounts overdue by two months or more.

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Treasury Department considers home loan call