The Treasury Department is considering a plan to revitalize the U.S. home market that would push down mortgage rates for home loans, according to people familiar with the matter.
The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full percentage point lower than prevailing rates for a standard 30-year fixed-rate mortgage.
Government officials are under pressure to address falling housing prices and mounting foreclosures, which underpin the current financial crisis. Treasury has struggled for months to come up with a plan that would ease the strains on borrowers without appearing to bail out homeowners and lenders.
Why did they arbitrarily choose to make rates a full percentage point lower? As long as we are printing money, why don’t we drop rates all the way down to 1%? After all, its not like using low rates to encourage people to buy houses has ever caused problems in the entire history of the America. And housing prices always go up.