About the article in the San Jose Mercury News - interest rates dropping to 4.5%

The Treasury Department is reportedly considering several plans, including one proposed by the Financial Services Roundtable, a lending industry trade group, that could drop mortgage rates on 30-year loans by about 1 percentage point. Under that group's plan, the Treasury Department would buy mortgage-backed securities from the government-sponsored entities Fannie Mae and Freddie Mac, which own or guarantee almost half of U.S. home mortgages. 

  Shannon Spangler from Bank of America sent me some talking points

1. San Jose Mercury News is short on specifics and may be extremely misleading.  A better article was in the Oakland Berkeley Journal, which indicates that this program will be limited to home purchases only – not available for refinances.
2. The Wall Street Journal reports that the plan is in the discussion stage only, and may not be final before the Bush administration ends in January.
3. The program would be through Fannie and Freddie, and borrowers would have to qualify under their loan guidelines and will be limited to the conforming loan amount – but may allow the high cost area limit to apply for areas like the Bay Area.  (i.e. $625,500 versus $417,000)
4. We have already seen a drop in the interest rates for the conforming limits because of a current Treasury plan, where they are purchasing up to $600 billion in debt issued/backed by Fannie and Freddie.
5. Usually we see significant modification to the design of these programs from the initial idea to implementation.  The biggest danger is that consumers could end up waiting for something that never materializes.
6. The danger in the Mercury article, is that it can solidify the action of potential home buyers to continue to wait for better rates, and cause current homeowners to halt refinancing in the hope of lower rates – and those lower rates may not materialize, AND, there’s no guarantee rates will not rise in the interim!