HARD TO HOLD DOWN

Mortgage rates are rising despite government efforts to hold them down, because it’s impossible to control all the variables. Mortgage interest rates have climbed recently, for example, because more borrowers refinanced when rates fell, which boosted the supply of mortgage bonds. Experts also attribute rising rates to expanded borrowing by the government to pay for stimulus packages, worries about Fannie Mae and Freddie Mac, and concerns about whether the central bank will continue to purchase mortgage bonds after June. One suggestion would have the government solve the problem by creating an entity that offers 30-year mortgages at preset rates of 4 percent or 4.5 percent, but that has drawn criticism. “Not a lot of (investors) are likely to want to buy a 3.5 percent mortgage-backed security, so the government may end up being a significant holder of these loans,” says Nicholas Strand, a mortgage strategist with Barclays Capital. “And that number could run up to trillions of dollars.”

Source: The Wall Street Journal, Prabha Nataraian (02/03/2009)
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