More on Treasury 4.5% Mortgage ‘Plan’

Diana Olick of CNBC wrote a great article about the proposed 4.5% bailout plan which I’ve spent 80% of my day discussing with prospective borrowers.   I’ll have more after the excerpts….

……..Of course I’m talking about the Treasury proposal/possibility/plan to buy mortgage debt at a rate that would allow lenders to offer buyers a 4.5 percent interest rate on the 30-year fixed…….

Now we know the National Association of Realtors was pushing for this plan and members have recentow we know the National Association of Realtors was pushing for this plan and members have recently had conversations about it with Treasury officials. But leaking it to the media just throws another road block up in home sales, as potential buyers say, “Hmm, best wait for that yummy new rate!……”

(Note: I have no idea if someone there leaked it. )…..

So the big Treasury bailout saves the median home buyer $89/month. (Of course, it’s a bigger savings if you buy a bigger home, but I’m just going by the median.) Is $89/month enough to save the housing market?

Diana Olick’s Realty Check: Treasury 4.5% Mortgage ‘Plan’ – Realty Check with Diana Olick – CNBC.com.

Okay, Tom here – read the entire article of Diana’s, but a couple of points that I agree with:

1. The change in rates from 5.5 to 4.5 is not enough to change enough buyers attitudes so that we can really turn the housing market around.

2. Artificially inflating housing prices (which is what would happen if this worked – which it won’t) is counter productive in the long run.   We’re merely delaying the inevitable adjustments.

The only issue that I take with what Diana’s column is the statement that foreclosure mitigation is what the government should be working on.   That only delays the inevitable as well.   The government should focus on one thing which will eventually adjust the rest of them:

Jobs – creating lots of decent paying jobs.

What do you think?

Tom Vanderwell

Treasury Weighs 4.5 Percent Mortgages, But Who Will Buy? : HousingWire || financial news for the mortgage market

Paul Jackson has some additional “input” on what’s happening with the new “plan” that is being floated.   More from me on the bottom….

……Which, of course, leaves plenty of questions unanswered. But it appears that the plan under consideration, if consistent with the lobbying efforts put forth by the NAR and others, would only apply to purchase transactions, not refis. (emphasis added by me)

Analysts at one large trading desk — we can’t say who, given that their note was not a formal research report — guesstimated late Wednesday that the volume of loans eligible for origination under the program could be in the range of $500 billion or so, given estimated purchase volume for next year. (Which is, as astute readers have likely noted, already the size of the announced Fed program.)

But a larger problem here is this: a 4.5 percent primary market rate essentially implies a current coupon of 4 percent, barring some other intervention mechanism. Industry color popping around after market close on Wednesday evening suggested that such a coupon would mean that most of the traditional buyer base for agency MBS would likely head elsewhere — leaving only the Treasury, and possibly the Fed, as the sole buyers of bonds under this sort of program. (emphasis added by me)

Treasury Weighs 4.5 Percent Mortgages, But Who Will Buy? : HousingWire || financial news for the mortgage market.

Okay, Tom here again.   A couple of thoughts:

1. Click on the link and read Paul’s entire article.   There are a lot more questions than answers.
2. If he’s right (and Paul is usually right) and this pushes other investors/buyers elsewhere, where would they go?
3. If the Treasury and the Fed are the only buyers of bonds under this program, how are they going to come up with the money to buy them?
4. If they indeed are the only buyers, then are we effectively nationalizing the mortgage industry?
5. Will a rate drop from 5.5% to 4.5% be enough to persuade people to go out and borrow more money and buy a new home?   My gut feeling is that some of people who are on the “fence” will consider it but not enough to make a substantial difference in home sales.

Stay tuned…..

Tom Vanderwell