The Stimulus Package
The $790 billion stimulus package passed Congress and President Obama announced his plan today to use part of those funds, $75 billion to be exact, to match costs to lenders in reducing interest rates on modified mortgages. This provides an incentive to lenders to modify troubled loans rather than to foreclose. Bankruptcy law will change also, allowing judges to modify both mortgage balances and interest rates on principle residences in the future.
Timothy Geithner, our new Treasury Secretary, spoke last week outlining the ways he is approaching the problem of getting the real estate and credit markets back on track. He pledges new transparency on the way treasury money will be used and announced a new web site, www.financialstability.com, that will post all of the terms of agreements with banks who receive federal aid. The US Treasury and Federal Reserve will purchase toxic MBS from lenders, eventually reselling the assets to private investors again once the crisis clears.
The terms of further bank aid were outlined broadly last week as well; 1) banks must pass a financial “stress test” before they will be given any further liquid injections 2) an investment fund of $500 billion to start will be created to buy toxic assets (MBS), but which will also have a plan to attract investors to buy those assets from the fund so that there is no great loss to taxpayers and, 3) up to $1 trillion will be advanced to shore up consumer credit (auto loans, school loans, etc.) and to possibly supplement interest rates on these debts to enable modifications, lowering both interest rates and principle balances for consumers.
How will this affect you? We’re already seeing an increase in sales volume throughout the Bay Area as foreclosure inventory is snapped up. This helps to clear the excess inventory to stabilize the market. As this inventory gets cleared, prices should stabilize. Job losses will influence the speed of a housing recovery since property value trends follow availability of well paying jobs. The passing of the stimulus package, which gives money to states to fund infrastructure projects, schools, and other programs will be important to stem greater job losses locally. Low mortgage rates and the $8000 First Time Home Buyer tax credit, will help the real estate market rebound. Here in the Bay Area we are well positioned to make the most of a 2009 recovery.
Excellent! I agree that things look cautiously optimistic for Marin. The stimulus plan is identifying and targeting the big problems better than previously. With focus and good planning this will allow us to see and move toward the ‘light at the end of the tunnel’.