April 5, 2008

Federal Govt Becomes the lender of last Resort

As of Monday, the 12 regional banks will be allowed to increase their mortgage security commitment by 100 billion dollars. Now this may be only 20% of the problem, but it will allow a great deal of liquidity and confidence to return to the markets.

The home-loan banks could not hold mortgage securities more than three times their capital, until Monday. Effective immediately, the regulator is raising that to six times capital for the next two years. This could allow the agencies to increase their ability to buy and own mortgage backed securities to around $150 billion. This will bring significant new money to the secondary market with the kind of oversight that was lacking before this mess.

This is very helpful for markets, allowing Federal agencies more leeway to buy the mortgage backed securities that no on has wanted to take a chance on. The result is banks that have been unable to resell loans will now be able to and that means they will have a little more cash on hand. Now, the banks do not have to loan money but the hope is that they will finance good deals of all kinds and keep the ball rolling.

I wonder how much it will impact home owners in trouble.

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Howard bell
A 450 article driven real estate web site focused primarily on property management
Your Property PathSF
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