Financial Institutions Urging the Treasury to Reduce Mortgage Rates to Stop the Surge of Foreclosure

The financial industry has proposed to the U.S. Department of Treasury to reduce mortgage rates as a way to prevent the increase in the number of foreclosed homes in the country.

Under the industry’s proposal, the department would lower the 30-year mortgage rate to as low as 4.5 percent. The proposed 30-year mortgage rate is a percent lower than the current 5.6 percent mortgage rate.

Financial Services Roundtable Vice President Scott Talbott said that this could be accomplished if the Treasury would acquire mortgage-backed securities offered by the Federal Home Loan Mortgage Corp. or Freddie Mac and Federal National Mortgage Association or Fannie Mae.

Details of the industry’s proposal have been sketchy, but Talbott expects that the plan designed to address foreclosure problem is similar to the program announced by the U.S. Federal Reserve to acquire mortgage-backed securities for as much as $500 billion from Freddie Mac and Fannie Mae.
The Federal Reserve’s announcement has caused mortgage rates to drop drastically. It is expected that additional buying of mortgage-backed securities could further push the mortgage rates down. It will also allow both Freddie Mac and Fannie Mae to buy or back additional home loans that will eventually led to eliminating the foreclosure problem.

Both government –sponsored enterprises, which were taken over by federal regulators last September, guarantee or own nearly 50 percent of the country’s $11.5 trillion home loan debt.
Meanwhile, the Treasury is considering the proposal as a way to reduce the number of foreclosed properties. It could incorporate the proposal on the second financial rescue fund request of $350 billion.

However, Treasury’s Brooklyn McLaughlin refuses to comment on speculations about possible actions the agency may undertake to address the foreclosure problem.

Some members of Congress has criticized Treasury Secretary Henry Paulson for using the almost $700 billion bailout fund to support the banking industry, and doing nothing to help homeowners who are facing foreclosure.

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