So while mortgage rates fell by at least a quarter of a percentage point on Tuesday, the day of the government announcement, and stayed there Wednesday, it could take months for the piece that affects credit card and small-business loans to kick in.
“It’s not going to be like flipping a light switch,” said Joe Belew, president of the Consumer Bankers Association. “You’re not going to see an avalanche of new loans. But the system is under a lot of stress, and anything that can lubricate the markets is a good thing.”
The federal government made two big moves on Tuesday. The first, already known as TALF, for Term Asset-Backed Securities Loan Facility, is a $200 billion program that will lend money to private investors who buy securities backed by student and auto loans, credit card debt and small-business loans guaranteed by the Small Business Administration.
What's this? The government hasn't quite got the message that those "securities" based on debt was part and parcel of the current problem and so they want to encourage more of it? Hasn't there been enough writen about those SIV's to perhaps not encourage that kind of stuff?The goal of the plan is to fix the mechanism that keeps credit flowing freely from lenders to borrowers. Lenders often package consumer loans into securities and sell them to investors. Then the lenders use the proceeds to issue more loans to consumers. But over the last two months, those investors have stopped buying.
And why did they stop buying? Because the joints were worthless because, as determined, the original lenders did not care about the ability of the borrower to pay these debts because the original lenders no longer had a financial stake in those loans. That was the problem. Why encourage more of this? Why support these inflated assets?To qualify for the best rates, borrowers will need to have a credit score of at least 720 and a down payment of at least 10 percent and probably closer to 20 percent. Borrowers seeking to refinance will need to have the same amounts in home equity.
So in these inflated times a house that ought to be say $200,000 is upwards of a $6-700,000 and people need to come in with 100,000 down? Really? $50,000? Perhaps they need to work another job for about 3 years and then continue working that job while they pay for that house for probably the rest of their lives, since, unless you're already rich or have really high income in your 20's, you're not saving that kind of money before your mid 30's unless you live at home or you're married and with singleness rates the way they are in the states, good luck on that.
Thursday, November 27, 2008
Same ol Same Ol
This bailout business is simply bizarre. First we seem to be back to the trickle down theory of Reaganomics with the NY Times giving us a nice headline like: U.S. Consumer Loan Aid Will Trickle Only So Far :