The Treasury, which already has a program to buy mortgage-backed securities issued by Fannie Mae and Freddie Mac, could step up those purchases to drive down interest rates on some loans to 4.5 percent, the official said on condition of anonymity. The plan is preliminary and could change.
Exactly how MBS purchases will drive down home loan rates isn't obvious. Are MBS holders supposed to call the issuing banks and force them to renegotiate loans, one homeowner at a time? Using MBS pools' leverage over banks as a transmission mechanism for forcing loan workouts isn't nearly as efficient as good old fashioned foreclosures. The Treasury folks wisely left themselves an out in case they don't get the ginormous amounts of money they'll need to continue these buyouts:
Senate Banking Committee Chairman Christopher Dodd said he opposes giving the Bush administration the second half of the $700 billion financial rescue plan, joining Republicans upset with how it is being managed.
Is it the lack of auditable transparency that could hold back the money? Or is it that the TARP purchases of bank equity haven't spurred short-term corporate lending? Or that TARP purchases of some MBSs haven't been effective in reflating housing prices? Or that automakers are now competing for TARP-related cash? Congressional anger over lack of foreclosure relief (mentioned in second article) may have prompted the trial balloon in the first article.
TARP is about as effective at reviving the housing market as a paramedic performing CPR on a deceased patient. This is all kabuki theatre by now.
