{"id":5913,"date":"2008-12-03T20:30:45","date_gmt":"2008-12-04T03:30:45","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=5913"},"modified":"2008-12-07T10:47:44","modified_gmt":"2008-12-07T17:47:44","slug":"treasury-may-lower-mortgage-rates","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/5913\/treasury-may-lower-mortgage-rates\/","title":{"rendered":"Treasury\u00a0may lower mortgage rates?"},"content":{"rendered":"

WASHINGTON (MarketWatch) – The Treasury Department is contemplating a proposal that would cut mortgage rates for new loans for homes, according to the Wall Street Journal.<\/em><\/p>\n

The plan would employ Fannie Mae to offer mortgages with rates as low as 4.5%, roughly 1% lower than current rates.<\/em><\/p>\n

The measure is under consideration as part of the Treasury Department\u2019s continued effort to limit foreclosures, which has been at the core of the financial crisis. The plan would seek to revitalize the financial market without bailing out homeowners and lenders, the Journal reported.<\/em><\/p>\n

As part of the proposal under consideration, Treasury would buy mortgage securities backed by Fannie Mae and Freddie Mac, in addition to those guaranteed by the Federal Housing Administration.<\/em><\/p>\n

Fannie Mae and Freddie Mac guarantee a significant chunk of all new mortgages in the United States.<\/em><\/p>\n

Treasury may set mortgage rates at 4.5% to boost sales – MarketWatch<\/a>.<\/em><\/p>\n

Okay, not to rain on everyone\u2019s parade, but let\u2019s take a logical look at the numbers and the statistics behind it.<\/p>\n

    \n
  1. What\u2019s the only way possible that I\u2019m aware of to lower mortgage rates?\u00a0 By raising the price of mortgage backed securities which lowers the rates on them.\u00a0\u00a0 Lower rates on mortgage backed securities equals lower mortgage rates.<\/li>\n
  2. How do you increase the price of mortgage backed securities?\u00a0 The only way that happens is by increasing the demand for them.<\/li>\n
  3. How do you increase the demand for them?\u00a0 Have the government step in and buy a HUGE (I\u2019m talking many many many zeroes!) amount of mortgage backed securities off of Fannie and Freddie.<\/li>\n
  4. How is the US government going to come up with that money?\u00a0\u00a0 All joking about printing presses aside, in reality, they are going to have to borrow the money.<\/li>\n
  5. How do they borrow the money?\u00a0\u00a0 By issuing a LOT of US Treasury bonds to finance their purchase of mortgage backed securities.<\/li>\n<\/ol>\n

    So, what happens with the price of US Treasuries if suddenly there\u2019s another $1 Trillion on the market?<\/p>\n