Waiting to lock your loan on an assumption is a really BAD idea. You may end up paying more.

Paulson Denies Rumored 4.5 % Mortgage Rate Plan

By DIANA GOLOBAY
December 17, 2008

The U.S. Treasury Department secretary Henry Paulson spoke out Tuesday denying the rumor that he and the Treasury are contemplating a plan to initiate a 4.5 percent mortgage rate for new home loans issued through Fannie Mae (FNM: 0.66 -4.35%) and Freddie Mac (FRE: 0.65 -5.80%), according to a MarketWatch bulletin. “We didn’t float any plan,” Paulson said. “I am always looking at new ideas and I have said from day one that the key thing to get us through this period is getting housing prices down.”

Paulson was responding to the discussion circling around the rumor that the Treasury Department would soon encourage Fannie and Freddie to issue mortgages with rates as low as 4.5 percent. Instead, Paulson reinforced his support for a Federal Reserve-initiated plan to buy mortgage-backed securities from Fannie and Freddie as a means of driving down mortgage rates.

In mid-November, Paulson announced he would not use TARP funds to purchase troubled housing-related assets and mortgage-backed securities — the original intent of the emergency relief funds — but instead focus on consumer credit and build up capital in non-banks in a revised strategy to boost up the economy.  But apparently it failed to work — or has not worked fast enough — as the Federal Reserve stepped up to the plate earlier on Tuesday and lowered its federal funds and discount rates. The federal funds rate, which has steadily declined through 2008, now stands at a range of zero to 0.25 percent, triggering Wells Fargo & Co. (WFC: 29.36 -0.98%) — along with Wachovia Corp. (WB: 5.69 -1.56%) –  to begin lowering prime rates. Both announced Tuesday afternoon they had lowered the prime rate — a benchmark used to set interest rates on corporate and consumer credit — to 3.25 percent from 4 percent.

Interesting to note is Paulson had not commented on the rumors of a mandated 4.5 percent mortgage rate program in the almost two weeks that they had circulated in major news outlets. Ironically, hours after the Fed announcement on the federal funds rate reduction, Paulson walked out into the spotlight and denied the rumors. The peculiar timing of the announcement suggests Paulson may have been waiting for Fed action in reducing the interest rate charged between banks. Or perhaps there was even a bit of a “trial balloon” situation in effect — in which a regulator deliberately leaked news to the media to gauge the public reaction.

On Dec. 4, rumors began circling that the Treasury was considering directly intervening into secondary mortgage markets to help push primary mortgage rates for first-time buyers down to 4.5 percent, according to a report in the Wall Street Journal. News of the potential plan came on the heels of a Nov. 25 announcement that the Federal Reserve would initiate its own program to purchase up to $100 billion GSE direct obligations and $500 billion MBS backed by Fannie, Freddie and Ginnie Mae.

The National Assoc. of Realtors and National Assoc. of Home Builders had been pushing for government-subsidized interest rates to the 4.5 percent level for months, a HousingWire source near Capitol Hill said; the effort has included prominent companies in each field, including home builder Toll Brothers and real estate sales conglomerate Realogy Inc., the owner of the majority of Coldwell Banker and Century 21 offices, said the source, a lobbyist that asked not to be named.

“Our research indicates that an interest rate deduction of just one percentage point could result in as many as 840,000 additional home sales, which would further reduce the inventory of homes by as much as 20 percent,” Lawrence Yun, NAR’s top economist, said at the group’s recent annual conference in Orlando, according to the Sarasota Herald-Tribune.

This is too funny! I feel really bad for them.

http://www.youtube.com/watch?v=qDC0qcf0kzE

Today’s rates are unbelievable, you better believe it!

HOLLY COW! Rates are at 4.875% this morning on a 30 year fixed.  If you or anyone you know is looking to refinance you won’t find a better time than right now.

Interesting facts for the week. Or at least someone thinks so.

By The Number$

1.        JUST HELPING CLOSE THE DEAL - The Federal Reserve assisted a major Wall Street firm in its 3/16/08 purchase of Bear Stearns by providing up to $29 billion in loans (i.e., a backstop) in the event that the buyer suffered losses on subprime assets acquired in the transaction (source: BusinessWeek).    

2.        HOUSING RELIEF - President George Bush signed a housing bill on 7/30/08 that will insure up to $300 billion in mortgages.  The bill allows up to 400,000 homeowners to refinance their existing mortgages into new 30-year fixed rate mortgages backed by the government.  A qualifying homeowner has to be spending more than 31% of his/her monthly income on the mortgage payment and be currently living in the house (source: USA Today).      

3.        MORE INCENTIVES - The 7/30/08 housing bill had $15 billion in tax cuts, including a first-time home buyer tax credit of up to $7,500 for home purchases between 4/09/08 and 7/01/09.  The bill also contained $4 billion for cities to buy and renovate foreclosed properties in hard-hit neighborhoods (source: AP, Denver Post).      

4.        FANNIE AND FREDDIE - Treasury Secretary Hank Paulson announced a plan on 9/07/08 where the government took control of mortgage giants Fannie Mae and Freddie Mac.  The Treasury Department acquired $1 billion of preferred stock in each company, warrants for 80% of their common stock and pledged up to $200 billion of financial support as a result of potential mortgage defaults (source: Wall Street Journal).     

5.        TARP - The $700 billion “Troubled Assets Relief Program” (TARP) was signed into law by President Bush on 10/03/08.  The $700 billion was divided between $250 billion to be allocated by the Treasury Department into bank purchases, another $100 billion to be directed by President George Bush (as needed) and $350 billion to be allocated by our next president (i.e., Barack Obama) in 2009 and beyond (source: Congress, Lincoln Journal Star).    

6.        SWEETENERS - In order to win Congressional support of the TARP bill, $150 billion of tax incentives were added to the legislation, including changes to the Alternative Minimum Tax law (source: Wall Street Journal).    

7.        BUYING BANKS - Half of the $250 billion TARP money designated for bank purchases went into 9 banks.  This $125 billion bought non-voting preferred bank shares with a 5% dividend.  The Treasury also acquired $18.75 billion in warrants (15% of the $125 billion) to buy common stock of the banks (source: BTN Research).      

8.        MORE BANK PURCHASES - The other $125 billion allocated for bank purchases will be used to take equity positions in smaller US banks, i.e., not the original 9 big banks (source: Financial Times).    

9.        BUYER OF LAST RESORT - The Fed announced on 10/07/08 (“Commercial Paper Funding Facility”) that it will buy short-term commercial paper through 4/30/09.  Eligible issuers of the short-term debt have $1.3 trillion of outstanding commercial paper (source: Federal Reserve).    

10.     GOVERNMENT-BACKED CORPORATE BONDS - The Federal Deposit Insurance Corporation announced on 10/14/08 the “Temporary Liquidity Guarantee Program.”  The plan allows banks and other firms that have been approved to participate and issue up to $1.4 trillion in government-guaranteed bonds with maturities of more than 30 days.  The bonds must be issued by 6/30/09.  The guarantee lasts no longer than 6/30/12 (source: FDIC).    

11.     FED HELP - The Fed announced on 10/21/08 that they would lend $540 billion to corporations, a plan (“Money Market Investor Funding Facility”) designed to unclog the commercial paper market (source: WSJ, Barron’s).    

12.     STRUGGLING INSURER - The original bailout of the nation’s largest insurance company (worked out on 9/16/08) involved an $85 billion loan and warrants that would give the government an 80% ownership in the firm.  On 10/08/08, a $38 billion loan was added to the agreement.  That deal was reworked on 11/10/08 to a $60 billion loan, a $40 billion purchase of the insurance company’s preferred stock (using some of the $700 billion TARP money), and $52.5 billion to buy other mortgage-backed assets of the firm (source: WSJ, AP, Denver Post).     

13.     BUYING TROUBLED ASSETS - The Fed announced on 11/25/08 a program (“Government Sponsored Entities Purchase Program”) to buy $600 billion of mortgage-backed securities and debt from Fannie Mae, Freddie Mac, Ginnie Mae and the Federal Home Loan Banks (source: Investment News).    

14.     CONSUMER CREDIT MARKET - The Fed launched on 11/25/08 a new program (“Term Asset-Backed Securities Loan Facility”) to lend up to $200 billion to private investors who would in turn buy securitized assets that are backed by auto loans, credit card loans, student loans or small business loans (source: USA Today).        

15.     RUNNING ON EMPTY - The 3 largest auto makers in the USA delivered their request to Congress for $34 billion of loans and lines of credit on 12/02/08 (source: USA Today). 

Too Good To Be True?

Treasury Considers Plan to Stem Home-Price Decline

by Deborah Solomon and Damian Paletta

Wednesday, December 3, 2008provided by

Rates Could Be as Low as 4.5% for Newly Issued Loans

WASHINGTON -- The Treasury Department is considering a plan to revitalize the U.S. housing market by reducing mortgage rates for new home loans, according to people familiar with the matter.

The plan, which is in the development stages, would use mortgage giants Fannie Mae and Freddie Mac to bring loan rates down as low as 4.5%, a full percentage point lower than the prevailing rates for 30-year fixed mortgages.

Government officials are under pressure to stem foreclosures, which underpin much of the current financial crisis. Treasury has struggled for months to come up with a plan that would ease the market without appearing to bail out homeowners and lenders.

Under the plan, Treasury would buy securities underpinning loans guaranteed by the two mortgage giants, which are temporarily under the control of the government, as well as those guaranteed by the Federal Housing Administration. Fannie and Freddie guarantee a large proportion of all new home loans made in the U.S.