As I look at my Bloomberg screen, with just under 1 hour to the FOMC interest rate announcement, the 30 year Treasury bond is selling at a yield to maturity of 2.93%. Why don’t we use the 30 year Treasury to finance the mortgage market?
It would be very simple to construct. The US Treasury offers loans to banks at 50 basis points above the 30 year at issuance to those who are willing to make mortgage loans. That would now be 3.43%. Then the banks would lend to qualified – that is, qualified in the traditional sense and not by the 2005, 2006 or 2007 definition – borrowers at 100 basis points over the fixed rate loan from the Treasury. The banks would then pledge the mortgages back to the Treasury as collateral for the loans. To top it off, let the mortgages be portable and allow homeowners to roll it from one property to another as long as they sell the first property and the second property is worth at least what the initial property was worth. No need for mortgage brokers or mortgage backed securities.
By doing this we would be getting mortgage money to those who need and qualify for it at record low rates. This would help to clear out existing unsold homes and spur new home construction.