With the sharp decline in home prices and the rising mortgage delinquencies and foreclosures, the federal government through key branches and agencies, such as but not limited to the Department of Treasury, Federal Reserve, Congress and Federal Deposit Insurance Corporation have taken significant steps to address these problems. The end of the housing boom in summer of 2007, caused a severe strain to financial institutions and consequently to the entire United States economy.
Unless we get housing back on track, we won’t see financial stability and a sustainable economic recovery. These steps were instituted to support the housing market.
First, the Treasury Department placed under conservatorship the two mortgage giants, Fannie Mae and Freddie Mac, to be overseen by the Federal Housing Agency until they are on stronger footing.
Secondly, the Federal Reserve under the Federal Open Market Committee (FOMC) altered the federal funds target rate to range between 0.00% and 0.25%.
Third, through the Capital Purchase Program and Capital Assistance Program under the Emergency Economic Stabilization Act, financial institutions have readily available capital to continue private lending.
Fourth, to encourage additional sources of mortgage finance and strengthen financial institutions, the Department of Treasury introduced the development of covered bonds in the US market.
Fifth, through the American Recovery & Reinvestment Act, first time homebuyers will receive a $8,000 grant in the form of a tax credit.
Lastly, the Homeowner Affordability and Stability Plan intended to make loan modification within reach and refinance affordable to almost 9 million homeowners.
As we are currently experiencing, any further declines in home prices will lead to collateral damage to the economy, as consumer spending will be reduced and further broad credit tightening will continue. In addition, recently modified distressed mortgages will re-default at significantly high rate if prices continue to fall. Thus, it is crucial to gain buyers’ confidence back in the market, reduce the inventory and stabilize home prices. Until this happens we will not see a sustainable economic recovery.
*If you would like a full copy of this study (16 pages), please email me at info@chicagoprimeproperties.com*
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