Mortgage Mania 26 - …And Henry Giveth Again

November 25, 2008

You would have to be living under a rock to have missed this today, so here is a newsflash for all you subterranian dwellers. Henry Paulson’s latest bailout plan now consists of borrowing $800 Billion from The Fed to buy up mortgage assets, consumer credit card debt and car loans.

In his article, “Fed bets $800 billion on consumers“ on CNNMoney today, writer Chris Isidore shares Uncle Henry’s latest plans:

“The Federal Reserve and Treasury Department on Tuesday unveiled a plan to pump $800 billion into the struggling U.S. economy in an attempt to jumpstart lending by banks to consumers and small businesses.

The government hopes that these initiatives will enable more money to flow to consumers in the form of loans than has occurred so far in previous bailout plans.

One program will make $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, such as credit cards, car loans and student loans.

The Treasury Department will allocate $20 billion to back that lending in order to cover any losses that the New York Fed might suffer.

In addition, the Federal Reserve, announced it will purchase up to $500 billion in mortgage backed securities that have been backed by Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and Ginnie Mae, the three government-sponsored mortgage finance firms set up to promote home ownership. It will also buy another $100 billion in direct debt issued by those firms.”

Hmmm, buying mortgage backed securities . . . wasn’t that how TARP was sold to Congress in the first place? The idea of the US Government buying up toxic mortgage assets in an attempt to get the three remaining solvent banks to start underwriting mortgages is enough to get any red-blooded Realtor’s blood pumping again. If this restarts the housing market, let’s all be sure to thank the lobbyists working for NAR, and remember them on our Christmas lists.

The Fed goes the original plan one better by setting aside $200 Billion to buy securities backed by auto loan and credit card debt. Hmmm, let me see if I get this straight . . .

The idea behind mortgage backed securities was that they were safe because they were backed by the houses those mortgages were written against, and the logic was that those were APPRECIATING assets. This worked great until housing prices started falling, and the underlying assets were worth LESS than the loans on them.

A car drops 20% in value the minute you drive it off the lot, so you are already upside down on the loan if you put down less than 20%. The car ads are all touting $0 down, so let’s assume that most buyers today are putting down less than 20%. So . . . is this Groundhog Day?

Don’t get me started on buying credit card debt . . .

This is another reason I don’t work in the Treasury Department. That, and that pesky question about blog articles that would embarrass the President.

You can read the full text of the article HERE.

Thanks for reading . . .

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Written by Chris Iverson, Realtor · Filed Under * Type of Content, Consumer 

Comments

7 Responses to “Mortgage Mania 26 - …And Henry Giveth Again”

  1. Adam Johnson on November 29th, 2008 6:14 pm

    Have you heard of this firm: TRP

  2. Christian Rousset on December 5th, 2008 10:05 am

    Excellent article. Let’s keep in mind that the bail out is not in place yet for the home owners but only for the financial institutions.

  3. Глинка on December 7th, 2008 2:27 pm

    Истина глаголет сначала устами младенца, потом – старца, автор - вы в какой категории?

  4. Richard Duck on December 13th, 2008 11:52 am

    “My wife and I have made ZERO from our real estate business this year” a friend told me as we crossed paths in the locker room at a local gym. My friend manages a large Sonoma county office with more than 30 agents. Watching the current economic storm we speculate about what the New Year in real estate will bring. Most of my peers in the business are still looking for a bottom. Are we in the quite eye of the hurricane or has it passed through? Is it time to face the devastation and clean up? The winds of change have caused us to question the fair market value of real estate.

    Unemployment is heading up. People are anxious. I know that the confidence of the consumer will have a big effect on what happens down the road. The individual is the principal operating unit of economic activity but individuals make up the pack and herd mentality is the norm. We don’t want them spooked. Consumer confidence and the ability to produce are what will shape this next year.

    Two things have to happen in my opinion. Incomes will have to rise and prices will have to fall. Mortgage rates remain low and prices are falling back in line with affordability. Real estate values are uncertain as we start this New Year. The “sub-prime” mess happened because we made loans ignoring this reality; i.e. people did not have the income needed to sustain their obligations. Over exuberance from rising home prices created easy to get real estate loans and flattened under qualified borrowers. Prices have to align with income. We’ll be stuck until they do.

  5. Стеклянный on December 17th, 2008 1:15 am

    Вы написали новый пост! Спасибо, что не перестаете на радывать

  6. SEO on December 21st, 2008 3:24 am

    Конкурс для блоггеров от DRUGREVENUE с призовым фондом в 3000 долларов, спешите

  7. World Hot Zone on December 21st, 2008 3:31 pm

    Хорошая статься, очень понравилась!

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