Reported today in The Wall Street Journal:
The Treasury Department is considering a plan to boost home purchases by pushing down interest rates on new mortgages. The plan, which is in the development stage, would encourage banks to lend at rates as low as 4.5%, more than a full percentage point lower than current 30-year fixed-rate mortgages. Treasury officials believe the plan will halt the slide in home prices as cheaper borrowing allows consumers to take out bigger loans, thereby increasing demand and pushing up home values. The lower interest rates would be available to new buyers only, not to individuals looking to refinance an existing mortgage. The plan would also require the buyers to qualify for a mortgage guaranteed by Fannie Mae (FNM), Freddie Mac (FRE) or the Federal Housing Administration. To do so, borrowers have to document their income and be able to afford monthly payments, which should help keep the government away from riskier loans.