Low Rates Are Just a Start

Attractive lending terms help, but the government must do more to revive housing.

February 1, 2009

The Federal Reserve in late December took the unprecedented step of lowering its short-term target interest rate essentially to zero. But more important, it made a firm commitment to provide additional support, as needed, to the housing market by continuing to purchase mortgage-backed securities.

Thanks to the Fed's actions, 30-year fixed mortgage rates dropped to below 5 percent to stand at their lowest level in more than 50 years.

If rates stay near 5 percent or drop even lower, home sales could rise nationally by 10 percent to 15 percent this year and bring sorely needed price stabilization to many parts of the country.

But even with this improved picture, major challenges confront housing. Business is clogged with short sales that take frustratingly long to clear. Although lax underwriting standards should never return, credit score requirements have become overly stringent.

What's more, we're seeing no relief in the jumbo loan market and commercial real estate mortgage market because those loans don't qualify for purchase by Fannie Mae and Freddie Mac.

To address these problems, NAR is asking the federal government to help expedite short sales and make nonconforming mortgage markets more liquid.

On short sales, the government can provide processing guidelines and give lenders an incentive to address short sales in a timely manner by rewarding good performance with federal rescue funds.

To spur nonconforming mortgage lending, the Fed can set up a credit program to purchase low-risk jumbo and commercial loans—which would lower interest rates on these loans.

REALTORS® must continue to urge policy makers to push forward on these actions. The nation's economy depends on it.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.