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Treasury Considers New Plan to Push Mortgage Rates Lower, Boost Home Sales

In an effort to boost the economy, Treasury Department officials are considering a plan to push mortgage rates lower. Reporters and analysts weigh the pros and cons of such a move.

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  • RAY SUAREZ:

    Now, a second big economy story, new government efforts in the works to help kick-start the housing market. Jeffrey Brown has more.

  • JEFFREY BROWN:

    Since the financial crisis began, there's been near universal acknowledgement that at its heart was a crisis in the housing market and that solving that problem is a key to solving the much larger one.

    Federal Reserve Chairman Ben Bernanke spoke of his concerns at a Fed conference this morning.

  • BEN BERNANKE, Federal Reserve Chairman:

    The housing market remains central to the economic and financial challenges that we face. Because housing and mortgage markets are tightly interlinked with the rest of the economy, actions to strengthen financial markets and the broader economy are also important ways to address housing issues.

    By the same token, steps that stabilize the housing market will help to stabilize the economy, as well.

  • JEFFREY BROWN:

    Bernanke's talk came amid published reports that the Treasury Department is now studying a new plan to push mortgage rates dramatically lower, to 4.5 percent, to stimulate the housing market.

    Deborah Solomon co-wrote one of those reports in the Wall Street Journal" and joins us now. Also with us is Susan Wachter, professor of real estate and finance at the Wharton School at the University of Pennsylvania.

    Deborah Solomon, tell us more about how this would work. The Treasury can't command mortgage rates to fall, so how would it try to push them in that direction?

  • DEBORAH SOLOMON, Wall Street Journal:

    Right, they can't do anything but try to encourage banks to make loans at lower rates. And the way they would do that is essentially guaranteeing that they would buy the securities that underlie the loans at a price that's equal to about 4.5 percent.

    So, in other words, they would give the banks the comfort that, if they make loans at 4.5 percent, the Treasury is going to be there to buy those securities that underlie those loans.

  • JEFFREY BROWN:

    And this would be through Fannie and Freddie Mac, right?

  • DEBORAH SOLOMON:

    Well, actually, no. Treasury is probably going to buy these securities themselves. The way Fannie and Freddie come into this is that they're only going to buy securities that back loans that are guaranteed by either Fannie, Freddie, or the Federal Housing Administration.

    And that's important, because those loans basically are made to borrowers who can document their income, who can show that they can afford to pay their monthly payments, so that the government isn't backing risky loans.

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