Government Plans To Drive Down Mortgage Rates

Washington, DC, Feb. 12, 2009--The Obama administration’s housing plan will reportedly use government funds to help reduce interest rates, while asking lawmakers to approve more ways to modify mortgages, according to a knowledgeable source.

U.S. Treasury Secretary Timothy Geithner intends to make the plan public possibly within a week. Some elements can begin immediately, and others must be considered by Congress.

Foreclosure filings in the U.S. surged 81 percent last year to 2.3 million, the highest on record, as home prices fell and tighter mortgage standards made it harder for homeowners to sell or refinance, according to RealtyTrac Inc. of Irvine, California, a provider of real estate data. The administration has pledged to use $50 billion to $100 billion for housing relief, taken from the $700 billion bank rescue package enacted last year.

“Our focus will begin on using the full resources of the government to help bring down mortgage payments and help reduce mortgage interest rates,” Geithner told the Senate Banking Committee yesterday.

The government will subsidize interest-rate reductions by working with the servicers that handle mortgages. That way, servicers can lower monthly payments for households without shortchanging investors.

The new plan, which isn’t final and could change, would be voluntary for lenders and investors, the person said.

Borrowers won’t need to be in foreclosure proceedings to take advantage of the program, the person said. The new program also will create a common standard for loan modifications, to replace the range of standards used in currently available programs.