Finally, some good news for the consumer. The federal government announced several new programs that will unfreeze the consumer debt market. These programs will also allow mortgages to be more easily accessible and cheaper.
The Federal Reserve and the Treasury Department recently announced the new plans to help consumers. These programs will provide billions of dollars in government support in order to stabilize the U.S. financial system.
The program will lend up to $200 billion to people who hold securities that are backed by auto loans, credit cards and student loans. The Feds hope that this program will provide greater demand for each of these securities. As the demand for these securities increases, interest rates should go down and the amount of loans available will increase.
The $700 billion bailout plan will support this $20 billion in credit protection. Officials also announced that the government will also buy $600 billion in mortgage-backed assets. The purchase of these assets will be a completely separate attempt to deal with the financial crisis. Over $100 billion direct mortgage obligations will be purchased from mortgage giants like Fannie Mae and Freddie Mac. Another $500 billion will be bought in mortgage-backed securities. These securities consist of several pools of mortgages that are sold to investors as a bundled package.
The housing crisis has bled into the credit card arena. There have been an increased amount of defaults on sub-prime mortgages because money was handed to borrowers with weak credit histories. Banks around the country have lost billions of dollars because of these losses. These losses have caused these financial institutions to stop lending, almost altogether.
The new Federal program has been established to encourage financial institutions to start lending again. Government aid will help banks and credit card companies get started again. The credit thaw for consumers is about to begin.
With the Treasury Secretary on his spending spree he surely isn’t trying to get a good return on the tax payers’ investment. The bailout was to buy up bad mortgage debt but it never did. What is the purpose of the fund? Paulson’s has warrants on many banks and they average 1 – 3 percent when enacted. Yet the cash investment is about 20 percent of the market cap. Maybe the next Treasury Secretary will be less erratic.