Bailout Impacts!

The federal government's multi-billion-dollar bailout of bad mortgage debt could be a game-changer for home buyers, sellers and real estate professionals. But how much may not be clear for months, maybe even a year.

In the short term, according to Jay Brinkmann, chief economist for the Mortgage Bankers Association, the government's plan to greatly expand purchases of mortgage backed securities by the Treasury, Fannie Mae and Freddie Mac, should "provide a signal to the market that there's going to be an underlying floor on (interest) rates."

That's because when the Treasury buys mortgage securities -- and it's pledging $10 billion for this month alone, plus lots more to come - it has the effect of pumping fresh capital into the mortgage market, allowing more home loans to be made at more favorable rates.

Now, although rates should remain low, currently they're close to 6 percent for 30-year fixed rate loans on average -- that doesn't mean it'll be easier to qualify for a home purchase if you've got damaged credit or an income too low to pay for what you want to buy.

Those days are over for years to come.

What about the larger economic impacts of the bailout plan? Again, we're at the earliest stages of this whole process, but if the plan brings a sense of stability to the financial markets, then, absolutely, the net effect should be to restore confidence.

And consumer confidence is an essential ingredient for a home buying recovery. People who are worried about the safety of their money market investments and bank deposits aren't good candidates for purchasing houses -- even at rock bottom prices.

But the reverse is true as well: Greater consumer confidence in the financial marketplace -- along with modest interest rates and attractive prices -- could kick the whole cycle into gear and get housing moving again.

There's another factor here too: Without the big bailout plan, hundreds of thousands of financially distressed homeowners were on a non-stop conveyor belt to foreclosure. But when the government takes over mortgage portfolios, it's likely there'll be at least temporary halts to foreclosures and massive efforts to "work out" the terms of delinquent loans to enable owners to make payments at levels they can afford.

For neighborhoods hard hit by foreclosures -- and the distressed owners themselves --that will definitely be a game changer.

President Signs $700 Billion Rescue Bill!

President George W. Bush signed a historic economic rescue bill on Friday, which sets out to revive the U.S. financial system by allowing the federal government to buy up to $700 billion in failed mortgaged from banks and other financial institutions.

The president signed the bill shortly after the U.S. House of Representatives voted 263-171 today to pass the far-reaching legislation.

"This legislation is critical to stopping the economic turmoil that millions of Americans are facing," NAR President Dick Gaylord said in a statement. "Today's action will go a long way toward ending the current economic crisis crippling the housing and financial markets."

The legislation will help restore liquidity to the mortgage market, which will stabilize the housing market and protect home owners, Gaylord said.

President George Bush, along with congressional members, had lobbied throughout the week for the support of spending billions of dollars to buy bad mortgage-related securities from troubled financial institutions, as a way to ease the credit crisis.

The bill was tossed a setback earlier in the week after the House voted it down, which sent stocks plunging 777 points, the biggest single-day drop in U.S. history.

The Senate revived the bill on Wednesday by making changes to the $700 billion measure, which was aimed at garnering more bipartisan support. The revised bill extended bank deposit insurance and expired tax breaks. The Senate passed its version of the bill in a 74-25 vote on Oct. 1.

Earlier in the week, NAR had called on its members to contact Congress to support the bill. NAR also teamed up with eight other business organizations to run an ad in major newspapers across the country that urged Congress to pass the recovery plan.

Source: REALTOR Magazine Online (10/3/08)

Greater Oversight Likely to Accompany Rescue Plan

Once a financial rescue plan is executed, legal and political observers expect Capitol Hill legislators to turn their attention to tightening the regulation of mortgage lending—an especially obvious target due to the fact that so much of the troubled debt handcuffing the nation's banks originated with the lax practices of mortgage brokers and lenders.

In addition, lawmakers may try to overhaul the patchwork of government authority over the nation's banks, which are currently regulated by four agencies with overlapping jurisdictions: the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision, and the Federal Reserve.

Finally, legislators may try to bring unregulated markets, such as those for credit default swaps, under control. The market for credit default swaps alone has mushroomed to $44 trillion in face value, so vast that a problem at any one of the major participants poses a global risk.

Source: Los Angeles Times, Michael A. Hiltzik (09/25/08)

Cities With Most Exposure to Financial Crisis

Wall Street's woes are going to have an impact on communities all over the country.

Not only because the $700 billion bailout will most likely result in higher taxes for most Americans, but because people who work in industries related to the financial sector will be vulnerable as companies make cutbacks.

The financial, insurance, and real estate sectors employ approximately 9.8 million people in the U.S., or nearly 7 percent of the entire American work force.

New York may be the center of the financial market, but people in small cities could feel the downturn even more.

BusinessWeek identified the top-10 communities across the country that are most likely to be most affected by the financial crisis, based on how many people are employed in finance, real estate, and insurance, and leasing.

• Darien, Conn.: 27.23 percent employed in finance and real estate
• Bloomington, Ill.: 26.31 percent
• Hoboken, N.J.: 23.33 percent
• West Des Moines, Iowa: 22.15 percent
• Garden City, N.Y.: 20.22 percent
• Summit, N.J.: 19.74
• Westport, Conn.: 19.39 percent
• University Park, Texas: 18.83 percent
• Wethersfield, Conn.: 18.73 percent
• Mountain Brook, Ala.: 18.66 percent

Source:Business Week (9/25/08)