Industry NewsMortgage

Treasury eyeing 4.5% mortgages?

Economists question propping up home prices

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News that the Treasury Department may use Fannie Mae and Freddie Mac's influence on mortgage markets to push interest rates on home loans down to 4.5 percent has raised hopes for a boost in home sales but sparked debate on whether it's wise to prop up housing prices. The Wall Street Journal reports that the Treasury is considering using Fannie, Freddie and other government-sponsored entities to purchase securities backed by mortgages at a price equivalent to a rate of 4.5 percent. Treasury officials have not commented, but the Federal Reserve announced a similar program on Nov. 25, saying it would spend $600 billion to buy mortgage-backed securities and debt issued by Fannie Mae, Freddie Mac and Ginnie Mae. The announcement brought down interest rates on conforming loans by about 1 percent and sent mortgage applications soaring (see story). Each 1 percent reduction in mortgage interest rate gives home buyers about 10 percent more purchasing power. That can not only get bu...