Mortgage Rate News

One of the issues that has been contributing to a lack of liquidity in the financial markets is the fact that banks have been rather reluctant to lend to each other. Without banks lending to each other (and businesses and individuals, for that matter), the flow of capital has been rather slow. Credit has been all but unattainable, and businesses and individuals have been unable to get the funding they need to keep their own operations — and the economy — going.

With the latest bank recapitalization plan, though, United States officials are hoping that changes. In a press conference that ended not too long ago, Treasury Secretary Henry Paulson pointed out that now is not the time for banks and other institutions to hoard cash. MarketWatch reports on some of what Paulson said:

“Our goal is to see a wide array of healthy institutions sell preferred shares to the Treasury, and raise additional private capital, so that they can make more loans to businesses and consumers across the nation. At a time when events naturally make even the most daring investors more risk-averse, the needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it.”

The whole point of the capitalization plan, he explained, is to get the money flowing. The point, he emphasized, is that businesses (and to a lesser extent individuals) need credit in order to keep up their necessary operations. As part of efforts to kickstart the credit market, Paulson said that $250 billion would be used to make preferred stock purchases in certain banks in order to increase capital.

$125 billion of that money is aimed at nine big banks that have already agreed to the terms of using the bailout money. Smaller banks will also be able to take advantage of the program if they wish. Bloomberg reports on some of the conditions of the program:

Participating banks will need to accept limits on executive pay and so-called golden parachute payments. They also will need to give the Treasury warrants for an amount equal to 15 percent of the senior preferred investment, with a strike price determined by the bank’s share price at the time of issuance.

Personally, as someone who is just looking at it from the standpoint of an ordinary person, this plan seems much better than others proposed. It follows along the lines of plans unveiled in Europe earlier. Instead of focusing on buying assets that are next to worthless, the government will instead have equity in companies that are likely to recover in the long run. This means that the government could actually make money on the deal. I also like that some of the excesses that have been enjoyed by company bigwigs, despite poor decision-making, will be curbed.

Fed chair Ben Bernanke and FDIC head Shiela Bair also spoke at the press conference.

Tags: Henry Paulson, Sheila Bair, home mortgage loan, Ben Bernanke,
bank plan, bank bailout, mortgage loan blog

This morning marked an historic coordinated effort by central banks around the world to ease the credit crisis. As the flow of capital has been reduced across the globe, banks have been stepping in to do what they can to alleviate the crisis and get credit moving. Unthawing the credit markets is seen as vital because it affects economies around the world in various ways:

• Consumer spending with credit and debt.
• The ability of businesses to get loans.
• Banks’ willingness to lend to each other and others.
• Available capital in the money markets.
• Mortgages are harder to come by, keeping housing markets unstable.

The idea behind the coordinated action is to help increase the amount of money that is “out there.”

However, it is generally agreed that the action by the central banks is not going to be enough to solve the problems facing the global economy. In the United States, there is already talk of further rate cuts in the coming months, depending on how things go. That would bring rates even below the already low 1.5% reached today. The move should have some effect on mortgage interest rates, provided the credit market really does ease. And it offers a good opportunity for those struggling with consumer debt — especially credit cards — to more efficiently pay it off.

Britain buys equity in top banks

One of the more interesting moves made in recent hours is the decision by the Bank of England to buy preferred stocks in some of the top banks. This is an interesting move that allows the banks capital, while providing the British government with assets that are likely to increase in value. (Perhaps this is something more along the lines of what the U.S. should have done.)

At any rate, no one thing is likely to fix the economic problems plaguing the globe, and a series of actions, taken in the countries with the economic lead, will be needed to halt the crisis.

Tags: Fed rate cut, mortgage interest rates, home mortgage loan, mortgage loan blog,
economy, interest rates, credit cards

Last night, the Senate passed its version of the $700 billion bailout package. Bible Money Matters conveniently summarizes the three main changes the Senate added to the bill:

1. FDIC limits raised to $250,000 from $100,000.
2. Business tax breaks extended, and middle-class gets protection from alternative minimum tax.
3. Health insurance companies have to provide coverage for mental health issues.

Obviously, with Main Street in an uproar over the bailout package (and the House left with no choice but to defeat it), the Senate is trying to provide a sop. But, unfortunately, none of these things does anything to address the ways in which Main Street is affected by Wall Street.

Well, I take it back. The bailout package may save some jobs, since some companies may not fail and have to cut back. The other two issues, retirement and mortgage loans, remain untouched.

Really helping Main Street

While the items included in the new version of the bailout package are nice, I suppose, they don’t address underlying issues: unaffordable mortgage loans and diminishing returns in retirement portfolios (unless the package really does boost share values).

• Dave Ramsey thinks that companies that take advantage of government help, they should refinance mortgages that are delinquent at a 6% fixed rate. This would help many of those whose mortgages have reset to higher rates, and make payments affordable by offering a lower rate — and by refinancing the amount owed out over 30 years. This could save many (but not all — some people still won’t be able to afford the mortgage) from foreclosure.
• I would like to see limits to contributions to tax-advantaged retirements accounts lifted. If I could put $10,000 into my Roth IRA each year instead of $4,000, that would be great. It would help my long term future AND is would encourage increased investment.

I would also like to see our leaders begin emphasizing good financial behaviors, rather than telling us how important it is for us to be able to borrow more money that we can then spend on things we don’t really need.

CNN Money offers a PDF of the full text of the Senate bailout package.

Tags: mortgage loans, Senate bailout package, home mortgage loan, Roth IRA,
Dave Ramsey, FDIC, retirement accounts