Mortgage Plan Prompts More Bailout Politics

The Treasury Department’s tentative plan to salvage the housing market by pushing down mortgage interest rates to entice homebuyers already is drawing a lot of reaction. The Wall Street Journal reported that Treasury was weighing the idea, in response to pressure on the government to do something about declining home prices and sales.

From the Journal:

The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages.

But the thing is – it’s not clear whether the new low rates would be just for first-time buyers, or for refinancings as well. That could make a huge difference in how the plan goes over. If people can’t refinance at the lower rates, they’re not going to be too happy to see first-time homebuyers get the break. More bailout politics, anyone?

As Housing Wire notes, there’s more concern right now, than enthusiasm, about the proposal:

The core problem with such a plan, according to a few secondary market experts HW spoke with, is that mortgage rates have little to do with the problems facing both borrowers in the primary markets and traders in the secondary market. “Leave it to the NAR (National Association of Realtors) to think that if we somehow lower mortgage rates, we’re on the road to recovery,” said one analyst, on condition of anonymity. “It’s like our government is trying a see-what-sticks philosophy to this mess.”

“It’s like more of the same poison,” said another MBS/ABS analyst, via email. “I was reading some Bernanke blather with a sentence [regarding] mortgage credit drying up for borrowers with weaker credit, and I wanted to scream AS WELL IT SHOULD!! THEY HAVE PROVEN BEYOND A DOUBT THAT THEY DON’T DESERVE MORTGAGES!

And banks that sold those mortgages, and profited from them, don’t deserve to be bailed out, either. But that’s another story.

It’s not unusual to turn on your computer in the morning and find yet another government plan to save the housing market. Or to streamline more loan modifications. Or something. It’s certainly an encouraging sign that the government is trying to act. But some of these ideas don’t seem like they’ve been fully vetted. They just get thrown out there, for a reaction, and they often raise more questions than they answer.

In a crisis this severe, it’s clear we’re in uncharted territory. But that doesn’t mean throwing around ideas that haven’t been fully thought out helps the situation get any better. Instead, it just stirs up the already strong emotions surrounding who gets help from the government, and who doesn’t.