There has been talk in the news recently about 4% interest rates on mortgages. The problem is that so far none of the plans that would lead to such rates have gained much traction in Washington. The Republicans were pushing to have the economic stimulus plan reduce interest rates for all to spur refinances and home purchases. The problem with that is that the Republicans don’t have much juice in Washington these days and the plans supported by the Democrats which is focused on other strategies.
Now it is possible that rates could be artificially compressed further in coming months, but there is no telling. The new Governor of the Fed, Elizabeth Duke, gave a speech recently and said that compressing rates by buying up mortgage backed securities is one of the ideas the Fed is still kicking around. Here are some excerpts from a recent post over at the WSJ blog:
While Congress and the Treasury debate numerous options, Ms. Duke largely steers clear of specific proposals.
…
Ms. Duke says the government also might consider reducing the interest rate for borrowers, through a subsidy or Treasury purchases of illiquid Ginnie Mae securities to which the borrowers’ interest rate is tied. The government also could purchase delinquent or at-risk mortgages in bulk and refinance them into the existing programs, she says.
The problem is that while we all wait to figure out what the Fed might do, interest rates are higher than they should be and banks are almost discouraging people to get loans now one fears that rates will drop and people will just refinance again in a couple of months.
We think the Fed needs to tweet or get off these things. Teasing the market with “mights” is making things worse, not better.