Treasury Eyes New Plan to Drive Down Mortgage Rates

The U.S. Treasury Department is considering a plan to purchase mortgage-backed securities to drive mortgage rates down to as low as 4. 5 percent, which mirrors plans the Federal Reserve announced last week to buy securities backed by 30-year fixed-rate mortgages from Fannie Mae, Freddie Mac and Ginnie Mae.

The feds believe the increased call for mortgage-backed securities would push mortgage rates to drop. In a cycle of lowered interest rates, homeowners would be able to refinance to lower-interest loans, and the rates would entice those on the sidelines to buy a home.

The Fed pushed mortgage rates down to 5.5 percent last week, and announced that it would buy up to $500 billion in mortgage-backed securities from the three government sponsored enterprises (GSEs), along with another $100 billion in direct debt.

Mortgage applications have doubled since then, says the Mortgage Bankers Association, with many current homeowners seeking to refinance. Only those with good credit will qualify for a refinance or new mortgage, and these moves will do little for troubled borrowers who have bad credit or no job, say experts. A coalition of industry groups have come together under "Fix Housing First" and say that measures such as tax credits of up to $22,000 and the creation of a special 30-year mortgage offering rates as low as 2.99% will help homeowners.

Jobless Claims Drop
First time unemployment filings fell more than expected to 509,000, but are above the half-million mark according to the Labor Department's report. A key economic indicator is unemployment, and the 500,000 level is symbolic of a weak economy. The report says first time filings for state jobless benefits decreased by 21,000 to 509,000, down from a revised 530,000 claims the previous week. Economists had expected 540,000 initial claims.

Big Three Testimony on $34Billion Bailout Plans
The Big Three automakers were in Washington again Thursday to testify on their $34 billion in requested bailouts.

General Motors, Chrysler and Ford are asking for a combined $34 billion loan package. The auto industry's major union, the United Auto Workers, says it will work with the Big Three to bring down costs, improving their chances of getting a government bailout

The automakers have previously warned that should they fail, the country will slip into a depression, citing that in many areas where their factories operate that 9 out of 10 jobs in the area depend on the automakers.

Retail Sales Report Expected, More Job Cuts
Major retailers, including Wal-Mart, will report their November same-store sales today. Same-store sales are a key indicator of strong performance in the retail industry. Already expectations are extremely low for the holiday shopping season.

The recession's conga line of layoffs was joined by AT&T Inc. on Thursday, as it says it will cut 12,000 jobs, or about 4 percent of its work force through 2009. AT & T is the nation's largest telecom company. It says it will also reduce capital spending next year to reduce losses.

Chemical giant DuPont also says it will cut 2,500 jobs, and another 4,000 contractors will be laid off before the end of the year. The company says it will not make a profit in the fourth quarter, as severe slowdowns in the auto and construction markets have cut chemical sales. Additional job cuts, including more contractor layoffs, are to happen in 2009. These reductions are along with the 4,600 positions the company said it would eliminate last April. European Central Banks Cut Key Rates

The European Central Bank slashed it benchmark interest rate by 3/4th of a percentage point and joined other central banks across Europe in a bid to lower borrowing costs to ease the impact of the financial crisis in Europe. The ECB's rate is now 2.50 percent.

The Bank of England earlier on Thursday reduced its key rate by 1 full percentage point to 2 percent, as it tries to push up its domestic economy that is reeling under a severe recession. Its most current cut comes after a large unexpected rate reduction in November.

Stockholm's Riksbank also cut its main lending rate by 1.75 percent to 2 percent, which is its largest reduction in history. The bank moved its rate cut forward by two weeks to stop the deterioration of the country's unemployment numbers.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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