What is Washington, D.C. cooking up in response to the retirement savings crisis? With a new administration in town, there’s a good chance some reforms may take place. Here’s a look at four of the most discussed proposals:
President-elect Barack Obama has proposed temporarily dropping the 10% penalty for hardship withdrawals from an IRA or a 401(k) for amounts up to 15% of your plan or $10,000.
For those age 70
Three big city mayors asked the federal government Friday to use a portion of the $700 billion financial bailout to assist struggling cities.
They sought help with the pension costs, infrastructure investment and cash-flow problems stemming from the global financial crisis.
The mayors - Michael Nutter of Philadelphia, Shirley Franklin of Atlanta and Phil Gordon of Phoenix - made their request in a letter to Treasury Secretary Henry Paulson.
Nutter said cities are facing an economic crisis not seen since the Depression and need help just like financial institutions.
"I want to make sure that cities and metro areas are at the table, that their voices are being heard, that our challenges and problems are well understood, so that we can get relief," Nutter said.
President-elect Barack Obama has also called for some sort of aid to state and local governments so they don’t have to raise taxes or lay off workers while the federal government is trying to revive the economy, but he hasn’t proposed or endorsed a specific aid plan.
On Thursday, groups representing the nation’s mayors and governors asked Congress to jump-start the economy by increasing food stamp payments, extending unemployment insurance and boosting funding for Medicaid.
Chris Hoene, director of policy and research at the National League of Cities, said Friday that revenue is down 4.3% from last year in American cities. He said cities are in what looks like the first wave of a three- to four-year financial decline. He said revenue from property, income and sales taxes are all down at the same time for the first time in a survey taken since 1985, and widespread cuts in services are likely.
"What we’re seeing happening right now in the economy is going to be playing itself out for the next several years," Hoene said.
The three mayors proposed providing loans to help cities pay pension costs creditscores. They also want $50 billion in loans for investment in infrastructure, and additional one-year loans to cities unable to borrow cash because of the tight credit markets.
Nutter said he met with Phillip Swagel, Treasury’s assistant secretary for economic policy. He said Swagel "completely understood that we have major problems, in big and small and medium-size cities all across America and they want to be helpful. It’s just a matter of figuring out what’s the best way to do it and what works best."
Asked about the request, a Treasury spokeswoman referred to Paulson’s statement Wednesday that assistance to local and state governments wasn’t the purpose of the bailout funding.
"The focus … is to stabilize financial institutions and strengthen the financial system, promote lending and so on," Paulson said then.
The Philadelphia pension system lost more than $650 million in the first nine months of the year. Last week, Nutter announced Philadelphia would be laying off city employees, cutting salaries, closing most of its swimming pools and shutting nearly a dozen library branches to cope with a $108 million shortfall this year caused by lower business and real estate tax revenue. The deficit could grow to a total of $1 billion over five years.
Phoenix’s budget deficit is at least $200 million and could reach $250 million by June if tax revenues keep sliding. The figure represents up to 22% of the city’s $1.2 billion general fund, which pays for most city services.
Franklin said this week that city employees in Atlanta will have their hours and pay cut by 10% each week. The cuts are being made to help the city weather an expected budget shortfall of $50 million to $60 million.
Fewer Americans signed contracts to buy previously owned homes in September, indicating the credit crisis will inflict more damage on the housing market.
The index of signed purchase agreements, or pending home resales, fell 4.6 percent, more than forecast, to 89.2, the National Association of Realtors said today in Washington.
The housing slump may extend well into a fourth year as banks turn away borrowers, foreclosures worsen the glut of unsold homes and job losses climb. Lower property values will keep eroding home-equity, causing consumers to retrench further and reinforcing the risk of a deeper recession.
“The outlook has deteriorated,'' said David Sloan, a senior economist at 4Cast Inc. in New York, who estimated a 5 percent drop. “The tightening of credit conditions will push pending home sales lower. We're in quite a sharp recession, and housing is part of it.''
Economists expected pending sales to fall 3.4 percent, according to the median forecast of 30 economists in a Bloomberg News survey. Estimates ranged from a drop of 6 percent to a gain of 1 percent. The jump in August was revised up to 7.5 percent from an originally reported 7.4 percent gain.
A Labor Department report today showed the U.S. unemployment rate rose to 6.5 percent in October, the highest level since 1994, and payrolls plunged by 240,000. Economists said the figures indicate the economy is heading for the steepest decline in decades.
The Realtors' group, whose data on pending sales go back to January 2001, started publishing the index in March 2005.
Northeast Slump
Three of four regions saw a drop, led by a 17 percent slump in the Northeast and a 7.9 percent decline in the South same day cash advance. They rose 3.7 percent in the West.
Compared with September 2007, pending resales increased 1.6 percent.
Pending resales are considered a leading indicator because they track contract signings. Closings, which typically occur a month or two later, are tallied in the existing-home sales report from the Realtors.
An earlier report from Realtors showed purchases of existing homes jumped 5.5 percent in September to a 5.18 million annual pace, the highest level in a year. Foreclosure-related sales accounted for 35 percent to 40 percent of the total, it said.
Sales of new houses also increased in September, according to a Commerce Department report on Oct. 27.
Extended Slump
Today's report signals the improvement in sales may be short-lived. The lending crisis worsened last month and persistent job losses have led consumers to retrench further. Home prices will likely keep falling, extending the housing recession well into 2009, economists predict.
Housing-related companies are bracing for prolonged weakness. Illinois Tool Works Inc., the maker of Duo-Fast nail guns and Wilsonart countertops, predicts home construction won't hit bottom until 2010 because of large inventories and tight lending.
“There are too many issues to be sorted out with both the inventory of existing homes as well as the mortgage market for us to see much change,'' Chief Executive Officer David Speer said in a Webcast yesterday. “We're going to be in a reasonably long period — four to six quarters — before we would see the bottom.''
The Bush administration will invest about $125 billion in nine of the biggest U.S. banks, including Citigroup Inc. and Goldman Sachs Group Inc., in the government's latest attempt to shore up confidence in the financial system.
The proposed cash injections in exchange for preferred shares are part of a $700 billion rescue approved by Congress and follow similar moves by European leaders to unfreeze credit markets by helping beleaguered banks. The other companies are Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp., said people briefed on the plan.
“They've decided they need to do something drastic and this is drastic,'' said Gerard Cassidy, a bank analyst at RBC Capital Markets in Portland, Maine.
The purchases represent a new approach for Treasury Secretary Henry Paulson, who first promoted a bailout targeted at illiquid mortgage-related assets. The urgency for a more immediate infusion has grown as banks struggle to regain the confidence of investors, counterparties and clients after bad loans caused more than $635 billion of writedowns across the industry. Paulson will discuss his plan at a press conference at 8:30 a.m. today in Washington.
The prospect of government support sent stocks higher around the world. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance. Asian stocks also surged, with the Nikkei 225 Stock Average jumping 13.4 percent, the most ever.
`Big Wallop'
“The government has gone to Plan B and it packs a big wallop,'' said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.
The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Wells Fargo is to get at least $20 billion, Goldman and Morgan Stanley will each get $10 billion, and State Street and Bank of New York will get about $3 billion each, people said.
The government will obtain its stakes with a type of security designed not to dilute the value of common shares.
None of the nine banks getting government money was given a choice about it, said people familiar with the plans. All of the banks involved will have to submit to compensation restrictions as mandated by Congress, people said.
`Healthy' Firms
Another $125 billion will be used to recapitalize other financial institutions around the country, the people said. Neel Kashkari, the U.S. Treasury official overseeing the rescue of the financial system, yesterday said the equity purchases will be aimed at “healthy'' firms best payday advance.
Under the plan to be announced today, the government will also guarantee for three years banks' newly issued senior unsecured debt, making it easier for them to refinance their liabilities, the people said.
Paulson, Federal Reserve Chairman Ben S. Bernanke and FDIC Chairman Sheila Bair scheduled a press conference at 8:30 a.m. today in Washington. The U.S. initiative follows an announcement that France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion to guarantee bank loans and take stakes in lenders.
“Steps to restore confidence in our institutions and markets will go far toward resolving the current market stress,'' Bernanke wrote today in a column in the Wall Street Journal. “We will not stand down until we have achieved our goals of repairing and reforming our financial system, and thereby restoring prosperity to our economy.''
Bigger FDIC Role
Another part of the plan to be announced today would let the government expand FDIC coverage of non-interest bearing accounts, which are commonly business deposits.
Yesterday, Paulson summoned chief executive officers of the nine banks to the Treasury's headquarters in Washington to lay out the government's plans. The executives sat across the table with the heads of the Treasury, the Fed and other regulators.
After climbing for weeks, money-market rates in London yesterday fell after policy makers offered banks unlimited dollar funding and European governments pledged to take “all necessary steps'' to shore up confidence among lenders.
The London interbank offered rate, or Libor, for three- month dollar loans dropped 7 basis points to 4.75 percent, tied for the largest drop since March 17, the British Bankers' Association said.
Similar to Buffett
The government plan to buy preferred shares with warrants is similar to investments that Berkshire Hathaway Inc., the company run by billionaire Warren Buffett, made recently in Goldman and General Electric Co. Rather than buying common stock in the companies, which has declined in recent weeks, Buffett bought preferred stock paying a 10 percent dividend and received warrants that allow him to buy common stock at a pre-set price.
John Paulson, the founder of hedge fund Paulson & Co., wrote in a Sept. 26 editorial in the Wall Street Journal that the Treasury should adopt Buffett's approach rather than buying troubled assets.
Scott Talbott, chief lobbyist of the Financial Services Roundtable in Washington, which represents 100 of the biggest firms in the industry, said the group “is very supportive of using all these tools in varying degrees to help restore liquidity to the market.''
Former U.S. Federal Reserve Chairman Alan Greenspan wrote in an article for Emerging Markets newspaper that the U.S. housing market will recover in the first half of 2009.
“The recent slowing in the rate of decline in U.S. home prices is the first positive note in this now yearlong trauma,'' Greenspan wrote in the article for Emerging Markets, a publication issued for this weekend's Group of Seven and International Monetary Fund meetings in Washington.
“More conclusive signs of pending home price stability are likely to become visible in the first half of 2009,'' he wrote.
The credit-market freeze will eventually thaw as “frightened investors take tentative steps towards reengagement with risk,'' the former Fed chairman said, without specifying a time frame instant cash advance. He praised the actions of governments in buying up toxic assets and recapitalizing banks.
Treasury Secretary Henry Paulson is pursuing a Congress- approved $700 billion rescue plan and the government may buy stakes in several banks within weeks. Iceland's government seized the island's top three banks this week after the banking system imploded. The U.K. government agreed to invest 50 billion pounds ($87 billion) Oct. 8 to boost capital in the nation's banks to unlock credit markets.
Washington Mutual Chief Executive Alan Fishman could walk away with more than $18 million in salary, bonuses and severance after less than three weeks on the job, according to the terms of his employment agreement.
But will Fishman follow the lead of another troubled financial firm and turn his severance package down?
JPMorgan Chase (JPM, Fortune 500) grabbed up the banking assets of WaMu on Thursday after federal regulators seized the company, making it the largest bank failure in history.
JPMorgan Chase CEO Jamie Dimon said in a conference call with reporters Friday that no decisions have been made about the fates of WaMu senior executives.
Still, the demise of WaMu is likely to be the end of Fishman’s brief tenure at the helm.
Fishman was hired on Sept. 7, replacing former long-time CEO Kerry Killinger, who was ousted as a result of the company’s many financial woes.
WaMu did not reply to requests for comment about Fishman’s severance package. But some details were outlined in his employment agreement, filed with the Securities and Exchange Commission on Sept. 11.
Fishman had a base annual salary of $1 million, which translates to $19,230 per week. So during his three weeks on the job, he would receive a base pay of about $60,000 before taxes.
His target annual bonus was 365% of his salary, or $3.65 million. In the agreement, it was unclear how much of the annual bonus he would be eligible for, if any.
The agreement said that Fishman could be eligible in 2009 for a long-term incentive award, which would be worth at least $8 million. But the agreement also said this is based on the assumption that would serve as CEO for the "full year" of 2009.
Also, if Fishman has to pay taxes because of any severance he receives as a result of the takeover, then the company would cover those taxes. That would potentially give Fishman millions of dollars more.
Fishman also got a multi-million dollar sign-on bonus. But he may have to pay it back, depending on certain conditions outlined in the agreement.
Fishman’s sign-on cash bonus was $7.5 million as well as 612,500 shares of WaMu, which are now virtually worthless. Shares of WaMu plunged more than 90% to 16 cents a share on Friday.
The agreement says that Fishman would have to pay back part or all of his bonus if he ends his employment for any reason other than "constructive termination," or if the company terminates his employment with "cause."
If Fishman is terminated without "cause" - which could mean the loss of a job due to a takeover of the firm - or if he resigns because of "constructive termination," than he would receive a lump severance payment of $6.15 million http://paydayloans-on.com guaranteed payday loans. This figure is 2.5 times his base salary of $1 million plus the maximum bonus of $3.65 million.
The agreement did not specify constructive termination, but it is generally characterized as an employee voluntarily quitting because of intolerable working conditions.
When you add up his salary, the possible bonuses and the lump sum payment, Fishman could walk away with more than $18 million.
But the CEO of another prominent financial firm in a similar situation recently decided to turn down his severance package after the firm essentially collapsed.
Robert Willumstad, former chief executive officer of insurance giant AIG (AIG, Fortune 500), which the government took an approximately 80% stake in after giving it an emergency $85 billion loan, was dismissed last week after only about three months on the job.
Willumstad has reportedly told his successor that he has decided not to accept his $22 million severance package since AIG shareholders and employees had lost so much money as a result of its meltdown.
Matt McCormick, portfolio manager with Bahl & Gaynor Investment Counsel, said he thinks that Fishman will not be rewarded extravagantly given that the bank failed.
"I will give WaMu the benefit of the doubt that they hired this person to make WaMu work, not to get foreclosed," he said.
But McCormick added that the WaMu failure wasn’t necessarily Fishman’s fault, because "their goose was cooked long ago."
In the future, employment agreements for CEOs might include more details on restricting multi-million dollar bailouts after brief tenures, McCormick said.
European Central Bank Governing Council member Ewald Nowotny said there is no need for the ECB to change borrowing costs any time soon.
“The current level'' of interest rates “is adequate to ensure price stability over the medium-term,'' Nowotny, who is also head of Austria's central bank, said in an interview today in Bratislava, Slovakia. “The ECB follows a steady-hand policy, this has proven itself.''
The ECB earlier this month kept its benchmark lending rate at a seven-year high of 4.25 percent to fight inflation even as the economy cools. While the ECB along with the world's largest central banks has pumped cash into money markets over the past week to ease a credit squeeze, Nowotny said that he doesn't see “any reason'' for Europe to adopt similar measures to the U.S.
The central banks sought to soothe money markets after last week's collapse of Lehman Brothers Holdings Inc. and the U.S us fast cash easy payday loans. government's takeover of American International Group Inc. threatened to derail financial markets. That led to the unveiling of the U.S. government's $700 billion rescue plan to restore confidence.
“Europe can't be compared with the U.S. Our financial system is inherently more stable,'' said Nowotny, who joined the ECB governing council last month. “We have to remain cautious. It is to be hoped that the massive intervention by the U.S. government has a stabilizing effect.''
Nowotny today reiterated that the ECB has “no bias'' when it comes to interest rates. While it is a “realistic goal'' to expect inflation to fall below the ECB's 2 percent limit by 2010, the bank will monitor wage developments “with great alertness and some concern,'' he said.
Stocks rallied Thursday after a report about potential buyers of Lehman Brothers - including Bank of America - gave investors some reassurance at the end of a choppy session.
After the close, the Washington Post reported that the Treasury Dept. and the Federal Reserve are putting together a sale of Lehman through a group of private firms, with a deal expected to be announced this weekend. The government and the Fed also teamed up to orchestrate the rescue of Bear Stearns in March.
Also after the close, Washington Mutual sought to reassure investors that its capital position and credit outlook were stable, amid escalating worries. Following the announcement, ratings agency Fitch downgraded the company’s debt rating. (Full story)
The Dow Jones industrial average (INDU) gained 165 points, or 1.5%. The Standard & Poor’s 500 (SPX) index gained 1.4% and the Nasdaq composite (COMP) added 1.3%.
Whether it’s Bank of America or a different firm or firms that end up purchasing Lehman may not be that important, said Michael Sheldon, chief market strategist at RDM Financial Group.
"I don’t think it matters who purchases them as long as their instability or the rumor of their possible demise is diminished," Sheldon said.
Sheldon noted that the session’s trading volume has been improving of late and that it will be important to see if that continues, as higher volumes can be seen as a sign of greater conviction on the part of investors.
Stocks were mostly lower through the morning as Lehman and other bank stocks tumbled on worries about their solvency. Meanwhile, a steeper-than-expected jump in the U.S. trade deficit and a weak jobless claims report added to recession fears.
While bank shares remained under pressure in the afternoon, the selloff in oil prices gave a lift to companies that benefit directly from lower fuel prices, including transportation stocks. Consumer stocks benefited too, on lower inflation expectations. Meanwhile, the S&P 500 flirted with its 2008 lows and then managed to bounce back.
But the market spiked heading into the close after the Wall Street Journal Web site reported that Lehman Brothers is actively shopping itself to potential acquirers, including Bank of America.
The report boosted a number of bank stocks, but failed to lift Lehman Brothers, which slumped almost 42% on the session.
Partly the day’s advance was a function of short-covering in some of the really beleaguered sectors of the market, said Tom Schrader, managing director at Stifel Nicolaus. Short-covering refers to the process by which traders, who have sold a stock short to take advantage of a falling market, buy the stock back.
Investors were also reacting to oil prices, which settled at a 5 1/2 month low.
For the past few weeks, falling oil prices have been seen as mostly a negative, in that they reflect a slowdown in the global economy. But Thursday, investors also seemed to focus on how lower fuel prices will help transportation and consumer stocks and also impact inflation expectations.
"The commodity crunch over the last few months has been across the board, and now it’s all coming back," Schrader said. "Oil is down over 30% from the highs, natural gas is down over 50% and grain prices are coming down. Inflation expectations have got to come down too."
"That’s the good news," he said. "The bad news is that it also means the global economy is weaker."
Lehman Brothers: Lehman (LEH, Fortune 500) shares plunged 42% Thursday, after having recovered some of those losses at midday.
On Wednesday, the bank reported a nearly $4 billion fiscal third-quarter loss, its biggest quarterly loss since it went public in 1994. Lehman also said it will spin off part of its commercial real estate business, cut its dividend and sell a 55% stake in its investment unit, which includes profitable money manager Neuberger Berman.
Investors initially took a lackluster response to the stock Wednesday, sending it 7% lower after boosting it right after the announcement faxless payday loan overnight payday loans. On Thursday, both Wall Street pros and investors sent the message that the restructuring moves seemed like too little, too late.
Goldman Sachs downgraded the stock to "neutral" from "buy," while Citigroup cut it to "hold" from "buy."
Lehman has struggled this year amid mounting losses related to bad mortgage bets and its inability to raise sufficient capital to continue operating its businesses properly. (Full story)
Investors have been particularly wary of the company in the wake of the government bailout of Fannie Mae and Freddie Mac announced last weekend and the near-failure and ultimate government rescue of Bear Stearns in March.
Banking: A number of other financial firms have sparked worries about their exposure to bad mortgage loans and their ability to raise money. AIG (AIG, Fortune 500) shares - as well as those of Washington Mutual (WM, Fortune 500) and Wachovia (WB, Fortune 500) - have been battered in recent days on such concerns.
AIG initially tumbled to a more than 13-year low on reports that the CEO may consider selling the consumer finance and reinsurance units to raise money. But the stock recovered with the broader financial sector near the close of trade. (Full story).
The hammering that AIG, WaMu and others are suffering is not to be taken lightly, said Joseph Saluzzi, co-head of equity trading at Themis Trading.
"It’s a ‘where there’s smoke, there’s fire’ situation with what’s happening to those stocks," he said.
But the sector bounced back by the close, with WaMu adding 21%, JP Morgan Chase (JPM, Fortune 500) adding 6% and Wells Fargo (WFC, Fortune 500) adding 7% among other gainers. The Philadelphia Bank Sector index gained 2.8%.
Among other movers, airline, railroad and trucker stocks advanced as investors focused on the positive benefits of lower fuel prices. The Dow Jones Transportation (DJTA) average gained 3.4%. Also helping was railroad CSX (CSX, Fortune 500), which boosted its 2008 forecast.
Automakers GM (GM, Fortune 500) and Ford (F, Fortune 500) also gained.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by eight to seven on volume of 1.45 billion shares. On the Nasdaq, decliners topped advancers by a narrow margin on volume of 2.34 billion shares.
Economy: In addition to the banking system woes, investors received two discouraging economic reports Thursday, on the trade deficit and the labor market.
The U.S. trade gap surged to $62.2 billion in July, its widest level in 16 months. Oil prices, which reached record levels in July before sliding the past two months, were the main reason for the increase. The report beat economists’ forecasts for a dip to $58 billion versus a revised $58.8 billion in June.
The number of Americans filing new claims for unemployment fell 6,000 to 445,000 last week, beating forecasts for a bigger drop to 440,000, the government reported.
Fuel prices: Oil prices fell as slumping demand reflected concern about the economic outlook. (Full story).
U.S. light crude oil for October delivery settled down $1.71 at $100.87 a barrel on the New York Mercantile Exchange, the lowest close since March 24.
Oil prices have lost more than $45 a barrel since peaking at $147.27 on July 11.
Gas prices rose overnight, climbing for the second day in a row as Hurricane Ike strengthened, according to a national survey of credit-card activity.
Other markets: In global trade, European and Asian markets ended lower.
In the bond market, Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.64% from 3.63% late Thursday. Prices and yields move in opposite directions.
The dollar fell versus the euro and the yen.
COMEX gold for December delivery fell $17 to $745.50 an ounce.
Research In Motion appears to have dialed up a mainstream hit with the new flip version of its popular BlackBerry Pearl by tapping into cell phone users’ love affair with clamshell mobiles.
Also, analysts expect the flip Pearl will be relatively affordable right from its launch, which, combined with its shape, will make it RIM’s first truly mass market BlackBerry.
“There is a huge percentage of the population — especially North Americans and especially women — that seem to really like flip phones,” said Canaccord Adams analyst Peter Misek. “So now they have a BlackBerry that addresses that.”
RIM says that in the United States about 70 percent of mobile phone users opt for a flip phone. By attacking a market of that size, the Waterloo, Ontario-based company hopes to continue to diversify its customer base beyond its mainstay of executives and professionals.
“This device is a multimillion-unit device per year,” Misek said of the flip Pearl’s prospects.
The size and fashion appeal of a mobile phone are big considerations and consumers sometimes fickle tastes must be appeased if a device is to succeed.
“A lot of consumers don’t like the bulky BlackBerry holstered to a belt and having a small product that fits into a purse or a pant pocket is appealing,” Scott Pope, an analyst at First Analysis Securities Corp., said of RIM’s newest smartphone.
“It’s an excellent addition to the portfolio, which . easy fast cash. payday loan. has been short on consumer products.”
The federal government’s takeover of Fannie Mae and Freddie Mac may save the battered real estate market from a complete meltdown. But financial experts say the bailout won’t lead to a housing recovery just yet.
Instead, some on Wall Street said the housing sector is in as tough shape today as it was before Sunday’s rescue by the Treasury Department.
"This isn’t curing the patient. This is preventing the patient from developing a new problem he can’t survive," said Barry Ritholtz, CEO and director of equity research, Fusion IQ.
Ritholtz and others pointed to a series of problems plaguing housing that the bailout of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) does little, if anything, to address.
In particular, there is still a large supply of unsold homes on the market and an increasing number of foreclosures that threatens to add to the glut.
What’s more rising unemployment and increased job losses should add to the woes for lenders, brokers, builders and others tied to the housing sector.
"Now we have a recession,’" said Dean Baker, co-director of the Center for Economic and Policy Research.
Baker added that even with home prices declining at a rate not seen since the Great Depression, the housing bubble hasn’t completely deflated yet.
In fact, some argue that considering the rise in home prices during 1996 to 2006 when compared to inflation, incomes and rents during the same period, home values need to fall another 50% in order to get back to normal.
Still, the Fannie and Freddie rescue is likely to help bring mortgage rates down.
That’s because it should help lower the gap between mortgage rates and Treasury bills, a spread that had risen in recent months on investor concerns about the firms and the rising mortgage defaults.
Fannie and Freddie also warned last month that they would cut back on the growth of their mortgage loan portfolios as they tried to preserve the capital they would need to cover rising losses payday loans $1500 payday loan.
With the Treasury Department now standing behind the firm, most experts expect additional money will be made available to mortgage lenders.
Those two factors prompt some to believe that the rescue will be a significant help for housing markets, even if it doesn’t solve all the problems.
"You’re going to have to work through all those other issues in order for there to be a meaningful recovery," said Timothy Speiss, head of the wealth management arm of accounting firm Eisner LLP. "But this is a significant step in the right direction: improving credit availability and affordability."
Lawrence Yun, chief economist for the National Association of Realtors, said his group’s members are hoping lower rates will help change the attitude of potential buyers about whether it’s a safe time to re-enter the market.
"Whether it’s a game changer or not, we can’t say. We have to see how far rates fall, or whether or not they continue to lack confidence even with these low rates," he said.
Thus, even if the bailout does have a positive impact on the real estate market, one economist said it will probably be limited and relatively slow to take effect.
"By no means is this a magic wand to rejuvenate the housing recession that has just entered its fourth year," said Rich Yamarone, director of economic research at Argus Research.
Powered by WordPress -- XHTML 1.0