There has been a lot of talk in the last 36 hours about a supposed plan by the Treasury Department to create a market for 4.50% 30 year fixed rate mortgages.  They need to either come out with details this morning or say that no such plan will be forthcoming.  Having a rumor out there like this is adversely affecting the market for loans and homes.  I eagerly awaited details yesterday, but none were made public.  It seems like a kooky idea on so many levels.  

Artificially pushing more money into residential real estate comes at a great cost and only prolongs our problems and brings uncertainty to the market.  No one will know the true bottom for a while longer; which needs to be found so people will start investing again.  Left on its own, the market will bottom and start to build a base.  This is the only healthy sustainable course to take.

Underwriting is very tight these days, so new loans are only going to people with good credit and stable employment.  These aren’t the people that are going to need help in the coming year.  These people can get loans at 5.00% right now to buy homes.  And they will buy them when there is a few months stability in home prices that would suggest a bottom. 

If the plan allows for refinancing, there would be lines around the block to lock in these rates for the next 30 years.  But the only people in line would be the ones that aren’t in trouble right now and whose houses aren’t at risk of foreclosure.  And people would get as high of a loan as they possibly could.

The Treasury is in complete control of our financial services system at this point.  Price controls on interest rates would be disastrous.  These rates necessarily and continually fluctuate.  When I was a kid, you had to wait in line for price controlled gasoline.  Price controls on mortgage rates would create similar shortages.  Another government induced money shortage is not what we need.

By the way, I think mortgage rates will come down to 4.50% all on their own.  If they do, it will be a very good thing.  If they don’t go that low, it’s going to better for all of us if the Treasury focuses on facilitating a better mortgage market instead of controlling a lousy one.