They want to do what?

A few chuckles are provided from John Carney at Clusterstock on the government trying to lower fixed-rate mortgages to 4.5 percent. Here’s his teaser:

Here's the deal. We'll get mortgages down really low so people can buy expensive homes, drive up prices, take out huge mortgages. Why didn't anyone think of this before? What could possibly go wrong?

Actually, the post itself is pretty good too:

So, after all we've been through for the past two years, the plan is actually to convince people they should have bigger mortgages? What happened to all those warnings about predatory lenders getting people to buy homes they couldn't afford? Apparently, the government believes the solution to this problem of bad debt is more credit.

In case you've lost track (there are only a few dozen government plans bouncing around), borrowers would have to qualify for a mortgage guaranteed by Fannie, Freddie or the Federal Housing Administration. Those guarantees apply to loans where borrowers can document their income and afford their monthly payments - requirements that were considered pretty outrageous a few years back. Like so many other ideas, this one is still in its “development” stage. From the WSJ:

The plan the Treasury is considering would encourage banks to issue new mortgages at lower rates by offering to purchase securities underpinning the loans at a price equivalent to the 4.5% rate. The Treasury would fund the purchases by issuing Treasury debt at 3%, suggesting the government could make a profit on the difference.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
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