Maine Democrat Gets Fresh View Of Congress
MICHELE NORRIS, Host:
Mortgage rates are falling because of the government's announcement yesterday that it would use billions of dollars to encourage lending. Just hours after the plan was announced, 30-year, fixed-rate mortgages fell to around 5.5 percent. As NPR's Chris Arnold reports, all this refinancing could be a big help to the economy.
CHRIS ARNOLD: Paul Van Wart is a bit bleary-eyed today.
(SOUNDBITE OF TELEPHONE CONVERSATION)
PAUL VAN WART: All right, I'm going to jump on this lock here, OK?
ARNOLD: He's a broker with Allied Home Mortgage in Westwood, Massachusetts, and he's been working around the clock to refinance as many customers as he can. He talked to us in his office this afternoon while continuing to lock in interest rates for customers on his computer.
VAN WART: Actually, I locked them on at midnight last night. Now, in hindsight, I wish I hadn't because rates came out better even today, so. But it's crazy. It is absolutely crazy. Everyone is buzzing. It couldn't come at a better time.
ARNOLD: Van Wart says just a few days ago, people with good credit and some home equity could get a rate of around six and a quarter percent on a 30-year, fixed-rate loan. Today he can offer them five and three-eighths, almost a full percentage point lower.
VAN WART: This is fantastic.
ARNOLD: Some economists are pretty excited about it too.
CHRIS MAYER: Well, I think this is a great shot at a Christmas gift for homeowners and for the economy.
ARNOLD: Chris Mayer is a real estate professor and dean at Columbia University Business School.
MAYER: My calculations suggest that if mortgage rates continue falling down a little further, at about five and a quarter, there could be as many as 20 million Americans who could refinance their mortgages, saving about an average of $350 a month. So, that's pretty substantial. And these are permanent savings for homeowners.
ARNOLD: That means an extra $4,000 a year in millions of Americans' pockets. That's a big deal since consumer spending is the most powerful driver of the economy. But the question is will rates stay down long enough for that many people to take advantage of them? Rates started falling yesterday after the government announced that it was going to buy up $600 billion of debt issued or backed by Fannie Mae and Freddie Mac.
HOLDEN LEWIS: The Fed's goal was to lower mortgage rates, and it definitely worked.
ARNOLD: Holden Lewis follows the mortgage industry for Bankrate.com.
LEWIS: The Fed has a $600 billion hammer, and they're going to pound those mortgage rates into the ground.
ARNOLD: It's important to understand that the Fed's not losing all that money. Here's what's happening. Investors around the world are still shying away from buying U.S. mortgages. That's been pushing up interest rates. So the government's saying, look, the industry is being much more careful now. People are only getting loans that they can afford. So we'll buy up a whole pile of these loans as an investment, and later we can sell them and get our money back. Chris Mayer.
MAYER: That's exactly right. This is not spending $600 billion. This is taking $600 billion and buying mortgage-backed securities that are backed by generally well-underwritten mortgages.
ARNOLD: But as has been the case with all these rescue efforts involving huge amounts of money, Mayer wonders whether it's going to be enough.
MAYER: We need a more permanent solution than this. But the good news is they may - this will probably give us time until January when President-elect Obama comes in and we have a new Congress.
ARNOLD: At that point, Mayer says, the government will have to take further steps to prop up Fannie Mae and Freddie Mac, the giant mortgage companies at the heart of the U.S. housing market. He also thinks more needs to be done about the foreclosure problem and the millions of people who owe more than their house is worth. Falling interest rates won't help those people because nobody will refinance them. Chris Arnolds, NPR News.