WASHINGTON, Feb 2 (Reuters) - Republican lawmakers want a fiscal stimulus bill of nearly $900 billion to include a provision that would drive down mortgage rates to as low as 4 percent in an effort to jumpstart the moribund housing market.
The plan would shave more than a percentage point off the current 5.1 percent rate on a 30-year mortgage, which could lower monthly payments by $237 on a $400,000 home loan.
“You ought to go right at housing first,” Sen. Mitch McConnell, the Republican minority leader, told reporters on Monday. “We have already indicated that we think this 4 percent mortgage proposal... is something that can work and make a difference.”
Fannie Mae and Freddie Mac, the two largest U.S. mortgage-finance companies, would soak up the new loans and the program would be capped at $300 billion, according to a Republican outline of the plan.
Proponents of the rate-lowering plan argue that it will both entice prospective buyers into the market and lower homeowners’ borrowing costs, leaving them with more cash to spend.
President Barack Obama’s economic team is considering the idea and so are Senate Democrats, Sen. Charles Schumer said on Sunday.
“Getting mortgages down ... that’s a good idea,” the New York Democrat said in an interview on CBS’s Face the Nation. “The administration is exploring it.”
The National Association of Realtors, a proponent of the plan, estimates that every percentage point drop in mortgage rates sparks half a million home sales.
“This will help reduce inventory, which, in turn, will help to stabilize home values and begin an economic recovery,” Mary Trupo, a spokeswoman for the trade group, said.
Economists agree that reducing the oversupply of homes would help halt the decline in home values, which is helping fuel a record number of foreclosures.
“The twin problems of the housing downturn are overstock and foreclosures,” said Howard Glaser, a former housing official during the Clinton administration. “Demand has ground to a halt, so anything that policymakers can do to lower those costs will be a help.”
The Senate began debate on the stimulus package on Monday, and Democrats, who control Congress, hope that it can come to a vote by Friday.
Democrats and Republicans agree that the economy needs a transfusion of federal cash but have argued about the scope of the stimulus and the right mix of spending and tax breaks.
While Democrats hold a majority in the Senate, the chamber’s rules mean that Republicans may be able to extract some concessions in negotiations over issues like the mortgage rate plan. (Reporting by Patrick Rucker and Susan Cornwell; Editing by Kenneth Barry)
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