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Obama Team Interest Encourages Paulson Treasury Mortgage Plan
Posted By admin On December 13, 2008 @ 4:20 am In Money Watch | Comments Disabled
Robert Schmidt and Craig Torres
Saturday, Dec 13, 2008
President-elect Barack Obama’s economic team is expressing interest in a U.S. Treasury plan to spur homebuying through new securities aimed at driving down mortgage rates.
Incoming White House economic chief Lawrence Summers is seeking details of the proposal from Columbia Business School Dean Glenn Hubbard, who put together the plan’s foundation with Columbia’s Christopher Mayer. Mayer has briefed Federal Reserve Bank of New York staff. Timothy Geithner, head of the New York Fed, is Obama’s Treasury-secretary designate.
Obama’s encouragement is important for the program to proceed because the Treasury doesn’t want to start projects that could be abandoned after January, a Bush administration official said. The proposal, now on a fast track at the Treasury, would be the most comprehensive government effort yet to stimulate the housing market. It would accelerate the decline in mortgage rates already sparked by a Fed commitment to buy $600 billion of debt linked to home loans.
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“This proposal is all about putting out the fire,” said Mayer, real-estate professor at Columbia in New York who is a visiting scholar at the New York Fed. “There is nothing else on the table that even has the possibility of preventing a large, further decline in house prices.”
The program Treasury Secretary Henry Paulson and his aides are considering would use Fannie Mae and Freddie Mac, the federally chartered mortgage financers seized by the government in September, to reduce 30-year fixed home-loan rates to around 4.5 percent, from an average of about 5.54 percent currently.
Fannie and Freddie, already the biggest sources of funding for U.S. housing, would buy mortgages at the lower rate from lenders. The government would then purchase securities issued by Fannie and Freddie that were backed by the loans.
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