Wednesday, August 4, 2010

Steroids for the Government's Housing Intervention?

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There's a new rumor that the U.S. government might be cooking up a new plan to use the mortgage market to stimulate the ailing economy. The Financial Times writes this week that a new proposal is being whispered about in Washington. It would reportedly offer homeowners the ability to refinance at ultra low rates, even below the market. Could it really work -- and should this tactic be used by the government?

FT Reports:

The US Treasury is planning a conference this month to discuss the mortgage market, including reform of state-backed mortgage financiers Fannie Mae and Freddie Mac, which are now financing nearly all new mortgages.

"The mortgage summit planned later this month has begun to attract a lot of attention among mortgage investors and has led to growing speculation of a massive [refinancing] wave," said Steven Ricchiuto at Mizuho.

First, think about the current U.S. economy. With the home buyer credit gone, demand in the housing market has plummeted. Add onto that the fact that the HAMP foreclosure prevention program continues to struggle. Finally, consider the government's desire for more fiscal stimulus, but its inability to get a bill through the political process. Combine all those factors, and imagine potential a solution: ultra-low mortgage loans offered by the government-sponsored entities.

Steroids for the Government's Housing Intervention?

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