On the other side of the equation from my previous post on preventing foreclosures to reduce supply, the Treasury is considering a plan to spur demand by lowering interest rates for buyers to 4.5%. Last week the Federal Reserve drove rates down to about 5.5% by buying mortgage backed securities from Freddie Mac and Fannie Mae, now the Treasury could do the same to drive rates to 4.5%. Basically the government.
...the proposal calls for Treasury to buy securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac. Details on the plan remain sketchy, but an announcement could come as early as next week, the source said.
The increased demand for mortgage-backed securities would prompt mortgage rates to drop. That, in turn, would enable homeowners to refinance into lower-cost loans and make it cheaper for potential homebuyers to get into the market.
Where is the government getting the money to buy all these securities. Well, from US of course. Our tax dollars, or borrowing it by issuing T-Bills.