Bankruptcy & Foreclosures

Just when you thought the economic stimulus package couldn’t possibly be sweetened any further, the Senate has proposed an additional perk to individuals living off Social Security. While ineligible under the House’s earlier proposed plan, the Senate’s package would reduce the size of the rebate to $500 for individuals and $1,000 for couples (rather than $600-$1,200 as the original plan had aimed) so as to include social security recipients.

Even if the rebate amount is lowered for working individuals, couples, and businesses, the plan comes in at a whopping $156 billion spread across the original 117 million families included in the House’s plan plus an additional 20 million senior citizens.

The Senate is truly on a mission with their plans, going on to propose extensions of unemployment benefits (13 weeks/ 26-weeks in states with high unemployment rates), additions and extensions to unemployment benefits, putting emphasis on home heating subsidies and grants, increasing food stamp benefits and approving funds for additional public works projects.

So we’ve been discussing tax rebates of late as a means of economic stimulation but believe it or not, Congress has been kicking around more direct ideas to stimulate the slumping mortgage market as well. Their plan, if approved, would raise the cap of GSEs- Government Sponsored Enterprise for a 12-month period.

Up until now the story for trying to spark life into the mortgage industry has been one of slashed interest rates to make borrowing more appealing. This new stimulus plan would differ by actually (temporarily) lifting the dollar amount of loans that are eligible for purchase by Fannie Mae and Freddie Mac which are insured by FHA (Federal Housing Administration).

The package would actually be confronting the economic recession on two major fronts by putting more cash in the hands of the individual and by increasing the number of loans that will qualify for FHA backing (hence lower interest on fixed rate mortgages).

Many annalists feel that the government’s quick acting measures to compensate for the weak areas of the crumbling economy may be the measure that separates this slump from earlier (full blown) recessions. Will it work? Only time will tell.

Amidst all of the economic turbulence of late, Uncle Sam has decided that it can spare a few bucks in the form of tax rebates to offset the recent slump. Just how much dough are we talking about? 150 billion dollars spread across some 116 million individuals. I don’t know about you but I’m betting the Treasury Department accountants have a few cases of Pepto Bismol on standby.

Here’s the sinker- Economists fear that the rebates will not show up as an economic impact until spending starts cranking up again: Next Christmas! Why the delay? Well for starters the IRS is already preparing for the inevitable truth that getting the rebate checks out to taxpayers before June will be quite a challenge. Add to this the fact that many early surveys conducted point to individuals hoping to save their rebate money or pay existing debts with it and the idea of pumping the money back into the economy starts to crumble.

As I’ve been discussing in recent posts, a recession kicks into high gear when people stop spending. The fact is that an $800 bonus, while by no means a permanent solution, could indeed get the wheels turning on consumer spending. Estimates say that back in 2001, some two thirds of the tax rebate cash issued was spent within 6 months hence proving a success. While I’m often the advocate of establishing a strong savings and managing personal finances very carefully, this may be the time to encourage some individuals to splurge a little; to put at least some of the tax rebate back into the laundry-mat of society. I know I for one am long overdue in the department of a flat screen TV.