Treasury Might Actual Do Something for the Rest of Us

Billions and billions of dollars later the Treasury Department is thinking about maybe doing something for people who don't work for banks. The story in the Post talks about:

The Treasury Department is strongly considering a plan to intervene directly in the mortgage industry to dramatically force down rates and stimulate the moribund housing market, according to sources familiar with the proposal.

The idea would be to use Freddie and Fannie to offer mortgages to home buyers at the very low 4.5% interest rate. It would be hoped that people would jump at these rates and enter the housing market. On the news tonight they said there are something like 4.6 million houses on the market. If and when or until these houses start selling, housing prices will continue to decline. But I guess the question is why would people rush in right now. Wouldn't waiting mean prices would go even lower?

The other area that has to be address is what to do with those people close to going into default on their loans. The Fed announced a program last week to help address that problem:

The Fed was pleasantly surprised that 30-year fixed mortgage rates fell by as much as three-quarters of a percentage point in anticipation of their program. Homeowners rushed to refinance. Cheaper monthly payments may bolster consumer spending, the most important component of U.S. economic activity.

It seems to me that this area needs to be furthered explored. Why not try and apply the same rates to refinancing as to buying a home? Why not make banks pursue this route if they are to receive any bailout money? If you could drop people's mortgages by a percentage points that would be a huge savings to people. It means more people would be able to stay in their homes. It would mean more money available for consumers to spend.

Instead banks that are getting bailout money are using it to buy other banks. Chevy Chase Bank the bank I have my mortgage with is being bought by Capitol One.

The deal is another sign of how the financial crisis is fueling consolidation in the banking industry. Capital One, which would pay $520 million in cash and stock, has received a $3.56 billion investment from the Treasury Department as part of the government's effort to stabilize the banking industry.

Glad to know where at least part of my tax dollars are going. However, I do have to say I'm not exactly sure how this helps free up the credit market and start banks lending to people. Maybe I'm missing something.