I’ve copied the announcement from the Treasury that sent the markets on a moonrocket today and thought that I would “walk you through it” so that we can get a better feel for whether this is a relief rally or something sustainable (and therefore what it means for mortgage rates). So, here goes. As usual, my comments are in bold and italics…..
The Financial Stability Plan – Progress So Far:
Over the past six weeks, the Treasury Department has implemented a series of initiatives as part of its Financial Stability Plan that – alongside the American Recovery and Reinvestment Act – lay the foundations for economic recovery: and spend about how many trillions? I’ve lost count.
* Efforts to Improve Affordability for Responsible Homeowners: Treasury has implemented programs to allow families to save on their mortgage payments by refinancing I’m glad that they didn’t characterize Fannie and Freddie’s 105% plan as a foreclosure prevention step because only one of the borrowers I’m doing that type of a refi for is anywhere near close to “at risk”, assist responsible homeowners in avoiding foreclosure through a loan modification plan, and, alongside the Federal Reserve, help bring mortgage interest rates down to near historic lows. This past month, the 30% increase in mortgage refinancing demonstrated that working families are benefiting from the savings due to these lower rates.
* Consumer and Business Lending Initiative to Unlock Frozen Credit Markets: Treasury and the Federal Reserve are expanding the TALF in conjunction with the Federal Reserve to jumpstart the secondary markets that support consumer and business lending. Last week, Treasury announced its plans to purchase up to $15 billion in securities backed by Small Business Administration loans. The fact that the Fed and the Treasury are buying these “packages” of consumer and business loans doesn’t mean that 1) Consumers and businesses are going to start, en masse, living on borrowed money again and 2) That the banks are going to find consumers and businesses who are credit worthy enough to write loans to.
* Capital Assistance Program: Read more