Mortgage Rates Drop On Stimulus News

The federal government announced new programs Tuesday that would provide up to $800 billion to stimulate mortgage lending, business and auto loans and use of credit cards. The move had a dramatic effect on mortgage rates.

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STEVE INSKEEP, host:

There was some good economic news yesterday as mortgage rates tumbled, in some cases by more than half a percent. That was in reaction to the government's latest financial stimulus plan. Many interest rates are now below six percent. As NPR's Wendy Kaufman's explains, the lower rates were engineered by the Federal Reserve.

WENDY KAUFMAN: For months, the federal government has been trying to make more money available for home mortgages, but it hasn't worked very well. So yesterday, the Federal Reserve said it would buy as much as $600 billion of debt, including mortgage-backed securities issued by Fannie Mae and Freddie Mac. The goal is to increase the availability of credit for home mortgages, decrease the cost, and help stimulate the overall economy.

The impact on mortgage rates was immediate and stunning. At Seattle-based HomeStreet Bank, for example, rates fell to five and a quarter percent. Susan Greenwald, a senior vice-president at HomeStreet, said the payment on a 30-year fixed $400,000 loan would be about $125 a month less than it had been. More people would be able to buy homes, and those who refinance would have more money in their pocket.

Ms. SUSAN GREENWALD (Senior Vice-president of Single-Family Lending, HomeStreet Bank): I think the other thing that this can do is it can provide an increase in confidence to consumers. If consumers can come in and refinance and lower their payment, they're seeing something positive happen.

KAUFMAN: Greenwald said they had a record number of new loan applications yesterday, some $30 million worth. Wendy Kaufman, NPR News, Seattle.

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Fed To Give Credit Markets $800 Billion Jump-Start

Treasury Secretary Henry Paulson briefs reporters at the Treasury Department in Washington, D.C. i i

Treasury Secretary Henry Paulson briefs reporters Tuesday on the implementation of the Emergency Economic Stabilization Act at the Treasury Department in Washington, D.C. Mark Wilson/Getty Images hide caption

itoggle caption Mark Wilson/Getty Images
Treasury Secretary Henry Paulson briefs reporters at the Treasury Department in Washington, D.C.

Treasury Secretary Henry Paulson briefs reporters Tuesday on the implementation of the Emergency Economic Stabilization Act at the Treasury Department in Washington, D.C.

Mark Wilson/Getty Images

Treasury Secretary Henry Paulson said Tuesday that new programs totaling $800 billion are designed to help stabilize the nation's financial system and support vital consumer spending.

Paulson said key markets for consumer debt, such as credit cards, auto loans and student loans, essentially came to a halt in October and that the new programs are aimed at getting lending back on track.

Paulson said he and his regulatory colleagues are "committed to using all the tools at our disposal to preserve the strength of our financial institutions and stabilize our financial markets to minimize the spillover into the rest of the economy."

The Federal Reserve announced the massive deal to buy $600 billion worth of mortgage-backed assets and $200 billion in consumer debt securities Tuesday, as the government struggles to stabilize the economy amid an unprecedented financial crisis.

The central bank said it would buy up to $100 billion in direct obligations from Fannie Mae, Freddie Mac and the Federal Home Loan Banks, the government-sponsored mortgage finance enterprises. It said it would also purchase up to $500 billion in mortgage-backed securities — pools of mortgages that are bundled together and sold to investors.

"This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally," the central bank said in a statement.

"Purchases of up to $500 billion in [mortgage-backed securities] will be conducted by asset managers selected via a competitive process, with a goal of beginning these purchases before year-end," the Fed stated.

The central bank also launched a $200 billion facility to back consumer loans, including student, auto and credit card loans and loans backed by the federal Small Business Administration.

Paulson said the program is just a starting point: "It is going to take a while to get this program up and going, and then it can be increased over time."

From wire service reports

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