Federal Reserve Acts to Send Mortgage Rates Lower
This morning, the Federal Reserve announced a plan specifically designed to send mortgage loan interest rates lower. Right now, mortgage rates are higher than they should be, and that is discouraging some buyers. The new program initiated by the Fed will include directly buying housing-related and mortgage-related obligations from Freddie Mac and Fannie Mae, as well as mortgage backed securities. Included in this mortgage-backed securities purchase is Ginnie Mae. Behind the Mortgage reports on the point of the Fed’s action:
This action is aimed directly at, and intended to narrow, the interest rate “spreads” between Mortgage related securities and treasury securities, which have been leaking wider ever since the Fed stopped short of affirming a “full faith and credit guarantee” for Fannie and Freddie’s obligations.
It is clear that all of the efforts being made by the government so far to increase liquidity have not been working. And, even though a lot of play as been given to the $700 billion bailout, another zero needs to be added in order to get the scope of what has actually been promised in terms of bailouts and rescues: $7 trillion.
New phase in Fed liquidity plan: target consumer loans
Today’s announcement of a plan for easing mortgage loan interest rates was not the only new loan program offered by the Fed. TARP will also soon be including consumer loans in its 4th incarnation. In order to encourage investment in consumer debt-backed securities, loans are being offered to those who invest in such things as credit card debt, car loans and student loans.
The idea behind this particular plan is to encourage lenders to loosen their tightened credit requirements so that borrowers can get more credit. The hope is that lenders will give more loans, and that consumers will then go on a debt-fueled spending spree to help the economy. The Big Hope is that this will come in time for consumers to get the credit lines they need to “save” the holiday shopping season.
November 26th, 2008 at 11:39 am
[…] this front, there is a great deal of hope that mortgage rates will fall even further after yesterday’s announced efforts from the government to force rates lower. By buying up mortgage obligations from Freddie Mac, Fannie Mae and Ginnie Mae, the government […]