Did Someone Leak Treasury 4.5% Mortgage 'Plan'?


It’s truly amazing to me that a lobbyist who really needs something from the government would leak just the possibility of that something to the media, when that leakage would only harm their industry. I’ve lived in Washington nearly a decade now, and I still don’t get this place.

Of course I’m talking about the Treasury proposal/possibility/plan to buy mortgage debt at a rate that would allow lenders to offer buyers a 4.5 percent interest rate on the 30-year fixed.

It started with a blurb in The Wall Street Journal late yesterday afternoon, and by prime time it was the talk of the nation. Who gets the 4.5 percent? When would it happen? What do I have to do to qualify? Is this really the boost the housing market needs? Is it refis or just new purchases?

Not a lot of details, but a whole lot of talk. And what was the result? FEAR in the mortgage industry.

A broker bud I always check in with told me he got a slew of calls this morning from clients asking about refis. We believe refis would not be a part of this. Others are asking their brokers if they should hold off and wait for the program, which is still very much in the conversation stages.

Now we know the National Association of Realtors was pushing for this plan and members have recently had conversations about it with Treasury officials. But leaking it to the media just throws another road block up in home sales, as potential buyers say, “Hmm, best wait for that yummy new rate!” (Note: I have no idea if someone there leaked it. )

But now everyone wants to know if it’s going to fix anything. Well, here’s my two cents: If you take the median priced home in the U.S. which is $183,3000, put 20 percent down (as most lenders now require) and take out a loan for 146,700, your monthly payment at 5.5 percent is $832. Your monthly payment at 4.5 percent is $743.

So the big Treasury bailout saves the median home buyer $89/month. (Of course, it’s a bigger savings if you buy a bigger home, but I’m just going by the median.) Is $89/month enough to save the housing market?

And then there’s my issue about price controls. If the Treasury is doing this to put a bottom on house prices, then it’s not allowing the housing market to correct the way it needs to. Granted, it’s corrected pretty painfully already in many of the former boom markets, but as a result those markets are already seeing more brisk sales — see California!

While the lower interest rate will certainly get some fence sitters in some not-so-crazy markets off the fence, I just don’t think it’s enough.

As much as I hate to say it (because it’s SO unfair to those of us who act responsibly with our finances) foreclosure mitigation is the ONLY issue the Treasury or any other government entity should be focused on right now. Their plans so far are not helping as much as they predicted, and most experts I talk to say the foreclosure problem will only get worse with the deepening recession and more job cuts.

Ok, maybe that was not two cents. Take a dollar.

Questions? Comments? RealtyCheck@cnbc.com