Treasury's 4.5 Percent Mortgage Plan Analyzed

The Treasury Department is considering reducing mortgage rates to 4.5 percent in an attempt to revive the housing market.

Christopher J. Mayer, senior vice dean and Paul Milstein professor of real estate at Columbia Business School, first proposed the plan with his colleague Glen Hubbard. He says if such a program were in place, up to 1.5 million people would come into the housing market.

"That kind of an influx of new homebuyers pulls a lot of inventory off the market," he says. "That then stops the decline in house prices and eventually leads house prices to turn the other direction."

Although the Treasury's plan would apply only to homebuyers, Mayer says it should be extended to all groups, including those looking to refinance and people facing foreclosures.

Mayer also says the program is not about re-inflating housing prices.

"This program is about really about preventing what would be an even larger economic catastrophe from happening," he says.

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