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Mortgage Rates May Dip Below 4%, Official Says

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The Associated Press

Published: December 11, 2008

WASHINGTON - Government efforts to provide easier credit to consumers and help housing finance companies could push mortgage rates "well below 4 percent," a federal regulator said Wednesday.

James Lockhart, whose agency oversees government-controlled mortgage giants Fannie Mae and Freddie Mac, made the comments at a meeting of Women in Housing & Finance. He did not say how long such a drop would take and declined to provide a firm target for mortgage rates.

Rates fell sharply after the Federal Reserve announced plans Nov. 25 to buy up to $600 billion of mortgage-related securities and other debt issued by Fannie, Freddie and the Federal Home Loan Banks. Days after the announcement, the national average rate on a 30-year fixed-rate mortgage dropped .28 percent, to 5.5 percent, according to financial publisher HSH Associates.

Neel Kashkari, who heads the Treasury office overseeing the $700 billion bailout of the financial system, told a congressional panel last week that the agency was reviewing a proposal to push mortgage rates down to 4.5 percent.

The government's efforts to trim mortgage rates are one part of the attempt to reduce foreclosures and loan delinquencies. Other plans include a simplified loan modification program, and interest rate cuts by the Federal Reserve.

Lower mortgage rates could encourage buyers and prevent housing prices from dropping as much as they otherwise would. That would mute their effect on the overall economy.

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