4.875 interest rates -- now available 12-12-08

The Treasury Department is strongly considering a plan to intervene directly in the mortgage industry to
dramatically force down rates and stimulate the moribund housing market, according to sources familiar with
the proposal.
Under the initiative, the Treasury would offer to buy securities that finance newly issued loans for home
purchases, according to the sources. But to participate in the government's program, mortgage lenders would
have to set exceptionally low interest rates, for instance, no more than 4.5 percent for traditional, 30-year
fixed-rate loans.
These securities would be purchased primarily from Fannie Mae and Freddie Mac, the financing giants that buy
most mortgages from U.S. lenders, according to sources who spoke on condition of anonymity because the
plan has not been finalized.
The cost of the plan and source of funding remain unclear. One possibility is for the Treasury to raise money
by issuing bonds to the public at 3 percent interest. This could allow the government to turn a profit because
it would be buying securities that pay 4.5 percent.
At a meeting attended by the Treasury's Interim Assistant Secretary for Financial Stability Neel Kashkari and
the National Association of Realtors in mid-November, senior Treasury officials said they were optimistic that
subsidizing lower mortgage rates with taxpayer dollars would help revive the housing market, sources said.
Treasury officials told the Realtors that the plan could be a more effective way to help homeowners than
focusing efforts solely on borrowers who are struggling to meet their monthly payments, the sources said.
Democratic lawmakers have been advocating a proposal to modify the mortgages of distressed homeowners.
A source said Treasury officials suggested at the meeting that the Realtors start a grass-roots campaign to
press the mortgage rate plan with lawmakers.
Treasury officials described the situation as fluid and said the plan was still being finalized, according to people
in contact with the department. The officials expressed concerns yesterday that premature disclosure of the
plan could prompt Americans to put off buying homes and hold out for a better rate, sources added.
Treasury spokeswoman Brookly McLaughlin said she would not comment on the matter.
Key to solving financial crisis
Treasury Secretary Henry M. Paulson Jr. has said that a recovery in the housing market is key to solving the
financial crisis. Such a rebound would restore confidence in the banking system and support the value of
troubled assets backed by mortgages.
Though he has said a mortgage modification plan proposed by Federal Deposit Insurance Corp. Chairman
Sheila C. Bair could help the housing market, Paulson has expressed concerns about whether it would reward
borrowers who bought houses they couldn't afford. Bair's plan would use tens of billions in federal funds to
modify adjustable-rate mortgages for several million financially troubled homeowners.
The initiative under review at the Treasury would be an alternative. Borrowers would have to meet standards
set by Fannie Mae, Freddie Mac or the Federal Housing Administrations that include documenting their income,
sources said. Fannie and Freddie were put under government control in September. The Treasury plan would
not apply to refinances.
MSNBC.com