Regulator sees mortgage rates below 4 percent

updated 7:14 p.m. ET Dec. 10, 2008

WASHINGTON - Government efforts to provide easier credit to consumers and jump-start flagging home sales could push mortgage rates "well below 4 percent," a federal regulator said Wednesday.

James Lockhart, whose agency oversees government-controlled mortgage giants Fannie Mae and Freddie Mac, made the comments at a meeting of Women in Housing & Finance, an industry group. He did not say how long it would take to achieve such a drop and has declined to provide a firm target for mortgage rates.

Treasury Department officials have been considering a program to lower mortgage rates, which would not apply to refinanced loans. Real estate agents and builders have been lobbying intensely in Washington for government efforts to spur home sales amid a severe decline in the U.S. housing market.

Rates fell sharply after the Federal Reserve announced plans late last month to buy up to $600 billion of mortgage-related securities and other debt issued by Fannie, Freddie and the Federal Home Loan Banks. Fannie and Freddie own or guarantee about half of the $11.5 trillion in U.S. outstanding home loan debt.

On Wednesday, the national average rate on a 30-year fixed-rate mortgage fell to 5.49 percent, down slightly from 5.54 percent on Tuesday, according to financial publisher HSH Associates. Rates, which plunged immediately after the Fed's move on Nov. 25, have been hovering around 5.5 percent since then.

Also Wednesday, the Mortgage Bankers Association said mortgage application volume dipped about 7 percent last week after soaring a week earlier.

Weiss Research Inc. analyst Mike Larson said this week that government attempts to drive down mortgage rates already are having some success. "Lower prices in some of the hardest hit markets, and almost irresistible bargains on distressed properties, are also bringing some buyers out of the woodwork," Larson said.

But lower mortgage rates also could prevent housing prices from dropping as much as they otherwise would. That would mute their effect on the overall economy.

Meanwhile, demand for new housing has plummeted as the financial crisis intensified this fall. Total sales in 20 major U.S. markets analyzed in a Deutsche Bank report plunged 65 percent in October from the same month last year.

Cancellations of new home purchases in those markets rose to 29 percent in October, the highest since the credit crisis started in August 2007, Deutsche Bank analyst Nishu Sood wrote in the report published Wednesday.

Nearly half of all new home transactions were canceled in Las Vegas in October, while more than 40 percent were canceled in Phoenix, San Diego and Denver, according to the report.

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