Interest rates on Conforming 30 year fixed-rate mortgages rose to 6.71% on Tuesday, up from 6.44% last Friday according to HSH Associates. For 35 year from 1967 to 2002, 6.5% was the lowest the rates had been. Rates reached 18.8% during the 1982 recession. Rates jumped because of concern about the financial health of Fannie Mae and Freddie Mac.
The government is actively firming up plans to make the implicit government backing of Fannie Mae and Freddie Mac explicit. The federal government has already proposed a rescue plan and Congress has reached agreement on the plan on Tuesday per a report on Bloomberg:
Under a modified version of proposals made by the Bush administration, the Treasury Department would gain authority to inject capital into the two largest U.S. mortgage finance companies, through loans and equity investments.
The Treasury would be barred from providing aid that would cause a breach in the federal debt ceiling under the agreement, a constraint aimed at limiting any taxpayer losses. The debt limit would be raised to $10.6 trillion from the current $9.815 trillion.
The legislation would also raise the limit on the size of the mortgages the companies may purchase. The new cap would be $625,000, or the median home price plus 15 percent, whichever is lower, Frank said.
A Congressional Budget Office estimate released today put the cost of Paulson's plan at $25 billion, a figure below the total that some lawmakers had expressed concern about.
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