Geithner Announces Bank Rescue Plan
Markets were in a tizzy today as newly appointed Treasury Secretary Tim Geithner laid out a broad agenda to stabilize the country's financial system.
“We have to both jumpstart job creation and private investment, and we must get credit flowing again to businesses and families,” stated Geithner.
While the details are still unclear, the plan focused on four main areas to improve the nation's financial health. Relevant to homeowners and home buyers, two of the points address consumer credit availability and the housing crisis. (The other two points were testing the viability of big banks, and establishing a private-public investment fund to relieve banks of bad assets.)
Consumer Credit
In the rescue plan, the Treasury will work together with the Federal Reserve to provide up to a trillion dollars to expand the Term Asset-Backed Securities Loan Facility. This will enable investors to swap credit card-backed bonds (and bonds backed by other loans) for Treasury securities. The measure aims to jump start the economy by giving more financing to consumers and businesses.
The Housing Crisis
Homeowners facing foreclosure will be happy to learn that the Fed and Treasury plan to devote $50 billion to reduce mortgage payments and establish loan modification guidelines. Any firm receiving federal aid will be required to participate in foreclosure mitigation.
However, just how the administration plans to drive down mortgage rates has yet to be revealed. In Geithner's statement, he mentions that the President's economic team is working hard on a comprehensive housing plan that will be announced “in the next few weeks.” It's widely speculated that the plan will rely in part on the Fed buying mortgage-backed securities issued by government-sponsored mortgage companies Fannie Mae and Freddie Mac.
What Does This Mean To You?
So far, from the few details that have been revealed, homeowners facing foreclosure stand to benefit the most. Interest rates, which are organically reacting to the news, are remaining low. That's good news for anyone looking to refinance or purchase now. Unlike speculation from past months, no mention has been made for helping those who are looking to buy homes. But there is no doubt that creating more favorable conditions for lending will be good for all consumers.
We'll be following all mortgage-related news from Washington closely, and will keep you up-to-date as details are clarified. Stay tuned!
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