Treasury Plan Gets Mixed Reaction from Housing Pros: State Perspective

RISMEDIA, Dec. 9, 2008-(MCT)-There’s nothing like record-low mortgage rates to excite potential home buyers. At least that’s what the Treasury Department hopes. The government is reportedly considering a proposal to force 30-year fixed-rate mortgages to 4.5 percent in an attempt to draw more home buyers into the languishing market.

Reaction to the proposal from players in the Minnesota housing market was mixed.

Christopher Galler, chief operating officer for the Minnesota Association of Realtors, figures that while the Treasury is pledging hundreds of billions of dollars in an attempt to stabilize the markets, at least some money should be directed toward “what started the whole problem, and that’s falling home values.”

Others are wary of yet another proposal from Washington. “Time is going to solve this thing as much as anything else,” said Alex Stenback, a mortgage banker with Residential Mortgage Group in Minnetonka. He’d like to see the results of other proposals already put in place. “Let’s let that go to work, find out if it’s even effective … before we start piling on with more and more stuff.”

Details about how the proposal would work and how it would be paid for are spotty. A report from Bloomberg News said the Treasury, which already has a program to buy mortgage-backed securities issued by Fannie Mae and Freddie Mac, could step up those purchases to drive down interest rates on some loans.

Galler said the National Association of Realtors, one of the lobbying groups that made the rate cut suggestion, did not include mortgage refinancing because refinancing wouldn’t absorb the oversupply of houses on the market.

The proposal is also not directed at stemming foreclosures. On Thursday, Federal Reserve Chairman Ben Bernanke said the government needed to do more to stop foreclosures, and made several suggestions, including the adoption of more lenient terms for mortgage modifications.

Drop the mortgage rate from around 5.5 percent to 4.5 percent and “you can buy 10 percent more house, which means more buyers might be inclined to enter the market,” said Barb Jandric, a general sales manager for Edina Realty. Today, transactions are taking much longer than usual because there’s no urgency to buy and recent history tells prospective home buyers that prices will continue to drop.

But for some potential homeowners, lower mortgage rates aren’t the issue. Tighter lending standards have made it difficult for consumers with troubled credit or variable income to borrow money.

A down payment is required to buy these days, and falling home values have wiped out equity for some trade-up buyers relying on equity for a new down payment.

And then there’s the recession, which has people worried about job security on the sidelines.

Michael Noonan, a division president of Rottlund Homes, is hopeful that lowering rates would actually help “spur some new construction and bring some individuals back into the labor force.”

Bloomberg News contributed to this report.

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