In the wake of the Fed’s $600 billion plan to reduce mortgage rates, there is now talk that the Treasury is developing another plan to get rates even lower.  Last week’s mortgage rate decrease was met with an almost 40% increase in mortgage applications of homebuyers.

Rumor is that the Treasury’s new plan could reduce the mortgage rates to 4.5%, although this rate could be limited to only purchases not loan refinances.

Although this is a last ditch attempt to revive the falling prices in the housing market, will the lower interest rates solve the credit crunch problem?  Potential buyers still can’t find loan products that they can qualify for OR they simply cannot afford the down payment.  And what about all of the people who are losing homes and assets because they don’t meet the stiff qualifications to refinance at a lower rate?

Quoted from CNNMoney.com in an article by Tami Luhby:

Kenneth Rosen, Chair of the Fisher Center for Real Estate at University of California, Berkeley says, “The problem is not interest rates, it’s the availability of credit.”

So even with the good news of falling mortgage rates, because the availability of credit is so limited, private money is becoming even more important than ever.

Posted by Blake Reese on December 7, 2008