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MADELEINE BRAND, host:

This is Day to Day. I'm Madeleine Brand.

ALEX COHEN, host:

And I'm Alex Cohen. The government must do much more to slow housing foreclosures. That's what Federal Reserve Chairman Ben Bernanke said today following this news.

BRAND: The Treasury Department is considering a plan to lower mortgage rates for home buyers to as low as 4.5 percent. The rates would apply to 30-year fixed loans. Deborah Solomon of the Wall Street Journal broke that story yesterday.

And, Deborah, the plan is still in the development stage. I don't think Treasury is actually commenting on whether or not they are going to go ahead with that. How real is it, then?

Ms. DEBORAH SOLOMON (Reporter, Wall Street Journal): I think it's pretty real. Secretary Paulson has made it clear that he thinks bringing down mortgage rates is the key to ending sort of the rot in the housing market. With prices falling, people are continuing to be foreclosed on, and he sees bringing down mortgage rates as a way to not only end foreclosures, but get more people back into the housing market, which will bring up the prices of homes and maybe stabilize the housing market a bit.

BRAND: Some people are quoted as saying that this could get rid of half of the housing inventory out there?

Ms. SOLOMON: Well, I'm not sure if we know how much inventory it might get rid of, but obviously, it's going to - if you can get a cheaper loan, you can afford a bigger mortgage, and you can afford a more expensive house. That will bring up, you know, the prices of houses, but that's also going to make people more willing to get into the market if they can get a mortgage rate of 4.5 percent versus something like 6 percent.

BRAND: So, this would only be for Fannie and Freddie loans, right?

Ms. SOLOMON: It would be for loans that are backed by Fannie, Freddie, and the Federal Housing Administration. And that's a pretty significant chunk of loans. I mean, right - most of the new loans being made right now are backed by Fannie and Freddie.

BRAND: So, basically, this would apply to almost any bank?

Ms. SOLOMON: It's basically - the Treasury can't bring down the rates itself. What's it's going to do is encourage banks to bring down the rate to as low as 4.5 percent by offering to buy the securities underlying those loans at a price that's equal to 4.5 percent.

So, in other words, they're basically telling the the banks, hey, if you make a loan, we're going to pay you at a rate 4.5 percent, so you're guaranteed that yield. And so, that's going to make banks more willing to decrease their loans to that amount.

BRAND: So, how would that affect the credit crunch, though, because I think the problem now is that banks are just unwilling to provide credit to possible home buyers.

Ms. SOLOMON: That's true. I mean, the government is trying to attack it on several fronts. They're trying to, you know, loosen credit in a number of ways. This particular plan they think would help loosen credit by essentially guaranteeing that they would buy these loans - the securities underline loans from the banks, so that might make the banks more willing to lend.

BRAND: Now, this would only apply to new home loans, right? Not refinancing?

Ms. SOLOMON: Exactly. Doesn't apply to refinancing, and I think some people are going to find that, you know, a sticking point, considering there a lot of folks out there who are going to lose their homes if they can't refinance into a better situation.

Treasury sees this is a way to stabilize home prices, so that, if your home is worth $150,000 today, it will potentially increase, but it won't decrease if they can stabilize things, so you won't be at risk - as much at risk of losing your home. Some people don't agree that this is a good strategy, but this is what Treasury thinks is going to help.

BRAND: But it would take awhile for that to - for any of the stabilization to take effect after this?

Ms. SOLOMON: Yes, yeah. I don't think this is a quick fix. Although, you know, I guess if people already were starting to cancel their home loans and wait for this program to start. So, I think you may some, you know, immediate impact in terms of more people wanting to get into the market to buy loans, but you obviously have to have banks willing to make the loans, and I don't think this is going to be a quick process. And also, we don't know for sure that Treasury is going to do it. They're still just talking about it.

BRAND: Deborah Solomon is a writer for the Wall Street Journal. Thank you.

Ms. SOLOMON: Thank you.

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