Government Mulls More Mortgage-Rate Intervention

Has the government hit on a bailout method that works? At least partly? Fed intervention to lower mortgage rates might allow some homeowners (those with good credit) to refinance their way out of high post-teaser rates. “After Federal Reserve actions to increase liquidity in the mortgage market, interest rates for fixed-rate mortgages took a dive,” said Frank Nothaft, Freddie Mac vice president & chief economist, in a statement this morning. That move led to a rush to refinance last week among mortgage-holders, as reported by CPN yesterday. Now there are indications that the federal government wants to apply more of the same medicine. According to the New York Times, the Treasury Department has been talking with Fannie Mae and Freddie Mac about driving mortgage rates down even more, as much as 100 basis points, to as low as 4.5 percent. That would let some borrowers off the hook, but do little for other problems in the housing market, such as the estimated 20 percent of mortgage holders who are underwater–that is, holding mortgages totaling more than a house is worth. Fed Chairman Ben Bernanke (pictured) addressed the problem of housing foreclosures in comments at a Fed housing conference this morning, estimating a total of 2.25 million foreclosures  this year, and millions more next year, unless something is done. “Reducing the number of preventable foreclosures would not only help families stay in their homes, it would confer much wider benefits,” the chairman said. Presumably, those benefits might, in the mid- to long-term, accrue to the retail industry and retail real estate deals, which have been hard hit by the downturn in consumer spending. But for now, retailers and owners of retail properties have to face baleful numbers. According to Thomson Reuters, November same-store sales declined by an average 2.1 percent for the 35 retailers that it tracks. Wall Street analysts had predicted a 2.4 percent decline, which would have happened–or even worse–without relatively strong sales at Wal-Mart. As expected, the panjandrums of GM, Chrysler and Ford, hopefully rested after their road trips from Detroit to D.C., were on Capitol Hill today sporting ashes and sackcloth and trying to sell Congress on a combined $34 billion bailout. It isn’t clear yet whether the auto execs will be able to close the deal with Congress, which seems inclined to kick the bailout’s tires some more.