Lobbyist are pressuring the Treasury Department to prepare a plan to purchase current portfolios of mortgages from banks in hopes of lowering mortgages to as low as 4.5%.
Last week, the Federal Reserve announced it would buy $500 billion in mortgage backed securities from Fannie Mae, Freddie Mac a Ginnie Mae. Response was immediate as mortgage rates dropped.
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If there is an increase demand to buy mortgage backed securities, this would prompt mortgage rates to go lower and it would allow homeowners to refinance immediately and take advantage of lower payments.
Last week’s Fed announcement drove mortgage rates down to 5.5% from 6.06%. Mortgage applications more than doubled as of result and more homeowners are still looking to refinance as of now.
However, Fed current aim is to exclude homeowners who want to simply refinance, but provide this plan only to new homebuyers. Criticism sparked quickly over this plan and Fed is currently considering more options.
For one, only borrowers with good credit would be able to take advantage of this programs and lenders qualification guidelines has changed and credit score of at least 720 is needed to get a loan and thus refinance.
Borrowers whose credit score is bad would not be able to take advantage of this program and that is where Fed is stuck. As long as banks loan qualifications remain frozen, Fed only choice is to allow such program made available anyone who can qualify.
Primary buyer of new program for mortgage rates would be government and with low interest rates Fed is able to allow bring more homebuyers into market, thus slowly let housing market correct itself as more buyers’ means higher demand and slowly real estate prices would increase.
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