"For more than a year, the government pulled out the stops to revive home buying by driving down mortgage rates. Now, whether the housing market is ready or not, the government is pulling out."
So writes David Cho in the Washington Post. As Cho puts it, the wind-down of federal support for mortgage rates, set to end in two months, is a momentous test of whether the Obama administration and the Federal Reserve have succeeded in jump-starting the housing market and ensuring it can hold its own.
"The stakes for the economy are massive: If the market again falls into a tailspin, homeowners could face another wave of trouble, and it would deal a body blow to President Obama's efforts to get the economy on track."
Keeping the mortgage rates at historic lows, he writes, which required a commitment of more than $1 trillion, was viewed within the administration as a central plank of the economic strategy last year, senior officials said. Though the policy did not attract as much attention as rescue efforts to bail out banks, it helped revitalize home buying in some parts of the country and put money in the pockets of millions of homeowners who were able to refinance into lower monthly payments, the officials added.
"We did what we thought was necessary to stabilize the market, but we don't think the government should continue special efforts forever," he reports Michael S. Barr, an assistant secretary at the Treasury Department, as saying. "As you bring stability, private participants come back in. We do expect this now that the market has stabilized. I'm not going to say there will be no effect on rates, but we do think you are seeing market signs and market signals that there should be an orderly transition."
But Cho notes that a few federal officials and many industry advocates disagree, saying the government is exiting too soon.
"They offer dire warnings of higher rates and a slowdown in home sales. Fed leaders say they will end a marquee program supporting the mortgage markets in March. Obama's economic team, led by Treasury Secretary Timothy F. Geithner, has decided not to replace it and has been shutting down its own related initiatives."