Rates for most mortgage and car loans continued their modest decline last week, and much praise was heaped on the new help offered by the U.S. Treasury Department and the Federal Reserve. But the wounded banking sector is mending slowly, and both banks and consumers seem wary. The Fed generously announced that it will purchase up to $100 billion of GSE debt from primary dealers via competitive auction starting this week, and it will purchase up to $500 billion of mortgage-backed securities held by Fannie Mae, Freddie Mac and Ginnie Mae through asset managers before the end of this year. But wait, there’s more: the Fed is creating a $200-billion Term Asset–Backed Securities Loan Facility—TALF—to issue and sell securitized auto loans, backed by $20 billion in credit protection from Treasury.

“This is great news for home buyers and sellers and we applaud the Fed for taking this historic step,” stated National Association of Realtors president Charles McMillan. NAR chief economist Lawrence Yun expects a significant decline in long-term interest rates. Each 1-percent decline in interest rates on 30-year fixed mortgages would spur homes sales by 500,000 units, says Yun. “That should help to draw inventory down and stabilize prices.”

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