The US Treasury Department is considering a plan designed to push down interest rates for home loans in a bid to revive the country's troubled housing sector, newspapers reported Thursday.
Both the Wall Street Journal and the Washington Post reported that the proposal would have the Treasury buy securities to finance new loans for home purchases.
Mortgage lenders would have to set extremely low interest rates -- as low as 4.5 percent for a standard 30-year fixed-rate mortgage.
According to the tentative plan, the Treasury would buy the securities from Fannie Mae and Freddie Mac, the housing giants that buy most mortgages from lenders, unnamed sources told the papers.
Treasury officials say the proposal might just stem the plunge in home prices by allowing borrowers to secure larger loans, which would then bolster demand and drive up moribund home prices.
Under the plan, the lower interest rates would be offered only to borrowers buying a home, not to those refinancing a mortgage.
The cost of the initiative remained unclear, thought funding might come from issuing bonds to the public at a rate of three percent interest, the Post wrote. That would permit the government to come out ahead as it would be buying securities that pay out at 4.5 percent.
The plan, however, might not be ready before President George W. Bush's term ends in January, the Wall Street Journal said, leaving the final decision on it to president-elect Barack Obama.
Officials are concerned that disclosing the Treasury plan before it is finalized could encourage consumers to postpone buying a house and wait for a better interest rate, sources told the Post.
Reports of the plan come as declining home prices and rising foreclosures continue to feed a grave financial crisis that has spread around the world.
Democrats in Congress meanwhile have been pushing for measures to ease the terms of mortgages for homeowners in distress.
US officials last week announced other efforts to bring mortgage rates down, with the Federal Reserve due to buy hundreds of billions of dollars of debt issued or backed by Fannie Mae and Freddie Mac.
In September the US government took over the two mortgage giants, to save them from collapsing under the weight of huge losses incurred from the housing crisis and in a bid to avert a financial system meltdown.
