Up to now Washington has come up with quite a few different remedies to lift the reeling real estate market out of the jaws of defeat. Most of them have focused on helping the battered mortgage industry and it surely looks like the right road to take. Yet, the results have been less than satisfactory. The carnage goes on as foreclosure filings keep piling up and empty houses dot the landscape.
With that in mind, still another idea has been tossed out there for public discourse. What if the government, more specifically the U.S. Treasury, would subsidize mortgage interest rates so that they would go down to 4.5%? As of now the initiative would apply only to homebuyers and would exclude refinance candidates.
It would provide some relief to the situation, mainly on the demand side. The action would likely spur first-time buyers and fence-sitters into action but that might be about it. Those who would like to move up find it difficult to sell the existing home first in this depressed environment and they make up a large chunk of the marketplace. The overall effect would appear be minimal, again.
Another thing is that despite the home loan rate going down today's tough underwriting standards will still keep many borrowers from qualifying. How many of them can put down 20%? Or even 10%? Inadequate FICO score is another potential impediment for loan approval. Lack of verifiable income causes many applications to be turned down, especially in a place like Las Vegas. And the weak economy predictably curbs many from spending any money on a major purchase like a home.
One solution would be to provide lenders financial and regulatory support so that they can ease up on strict loan standards. Fannie Mae and Freddie Mac are already established in the business that makes them natural choices to be the conduits between the Treasury and the finance community. Lenders have to be assured that they can take a bit more risk with borrowers and once that is accomplished demand in housing would accelerate. This track has more upside potential than cutting mortgage rates.