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Home » Online Forex Trading Blog » Obama’s Plan for the US Housing Market – $75 billion lifeline

Obama’s Plan for the US Housing Market – $75 billion lifeline

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Focusing closely on the economy, President Barrack Obama presented the $75 billion foreclosure lifeline plan one day after he signed the $787 billion stimulus package to stimulate the economy.Obama's Housing Plan

The president declared the pressing need for action not only in terms of helping Americans keep their homes but to prevent the housing crisis from “wreaking ever greater havoc” on the economy as well. He further noted that everyone might pay a steeper price if the housing crisis is allowed to continue. This foreclosure plan is actually only a part of a broader proposal amounting to $275 billion.

Where does the $275 billion go?

Fannie Mae and Freddie Mac – $200 billion

Fannie MaeThe administration has already pledged to double its support to Fannie Mae and Freddie Mac to $400 billion. In essence, the government has committed to buy $200 billion of preferred stock in each of the two companies. The White House is also raising the imposed limits for Fannie and Freddie to $900 billion from the initial $800 billion. This is aimed at encouraging them to refinance loans that are already “under water” (cases in which the home’s market value have lowered below the amount homeowners still owe).

The plan has its share of criticisms but politicians argue that the money is an investment. The President is expected to say that this lifeline package will ultimately cost the taxpayers nothing. The statement reads, “The estimated cost to taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments”. It will be balanced out by the decreased number of defaults and foreclosures.

Mortgage Lenders – $75 billion Housing Market

Given that falling house prices was at the heart of the financial crisis, it is not surprising that the new president threw a $75 billion bailout to help homeowners facing foreclosure.  The lending plan has provided home owners with the hope of lower mortgage payment to avoid foreclosure. Aimed at helping up to nine million families, the bailout is $25 bigger compared to what the administration has been suggesting.

According to BBC, the lifeline is also expected to provide refinancing to around four to five million “responsible homeowners”. It is estimated that the plan can give a buffer of up to $6,000 against declining home values.

Effects of the $275 billion Plan:

How is the Stock Market Reacting to Obama’s Housing Plan?

Investors took little notice of the government’s plan to revive the housing market. In fact, Wall Street declined on Tuesday before leveling off after the announcement on Wednesday. The Dow Jones industrials rose for 3 points during the day. Market indicators lingered around the lows seen in November.

The market reacted coolly to the $75 billion lifeline that will provide incentive to mortgage lenders to lower their borrowers’ payments. According to Harry Rady, the Chief Executive of Rady Asset Management, “the general consensus is the Fed, the Treasury, the government just can’t seem to get out ahead of this”. In essence, the government’s programs are already expected so market reaction is lukewarm.

Financial Markets Breakdown

  • The Nasdaq composite index fell 0.2 percent to 1,467.97
  • Standard & Poor’s 500 index fell 0.1 percent to 788.42.
  • The Russell 2000 index also fell 1.3 percent to 423.18.
  • New York Stock Exchange, declining issues surpassed the advanced by 5 to 2. Compared to the 5.78 billion shares traded on Tuesday, the consolidated trading volume was only at 5.65 billion shares after the announcement.
  • Dow finished slightly above its November low
  • Blue chips fell 3.8 percent to 7,552.60.
  • Bond prices also fell after the slide in stock prices.
  • The yield on 10-year Treasury notes, which move conversely to its price, rose from 2.65 percent to 2.75 percen
  • Three-month Treasury bill rose from 0.29 percent to 0.30 percent.
  • Germany’s DAX index fell 0.3 percent
  • Britain’s FTSE fell 0.7 percent,
  • France’s CAC-40 fell less than 0.1 percent
  • Japan’s Nikkei fell 1.5 percent.

Follow the market:

Economic Stimulus Plan Word on the Street

It is undeniable that there is a lot of skepticism involved in the government’s lifeline plans. The simple and straight-to-the point statement from David Hefty, chief executive of the Cornerstone Wealth Management sums it all, “There a huge lack of confidence in that stimulus package”. Bert Ely, a banking industry consultant also believes that the plan will not work as well as it should because the obstacles are still there.

John Courson, the chief executive of the Mortgage Bankers Association, expressed concerns over the help the package can actually provide homeowners. He notes that it “offers little help to borrowers whose loan exceeds their property value by more than 5 percent”. Hardest hit areas in the US such as Arizona, California, Florida, Nevada, and certain areas in the East Coast will not benefit because of the requirements.

Speaking in terms of market reaction, Jim Herrick, a director at Baird & Co. believes that the market will experience a lot of gyrations as investors try to sense whether or not the plan is working. Ultimately, the goal of the lifeline project is to limit the homeowners’ payment to 31 percent of their income. The success of this objective can only be reached with the cooperation of wary lenders.

Other ideas about the stimulus package:

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About the Author -

Rebekah started in the Forex industry as an intern in 2001, and worked her way up the ranks to a C-level management position. She enjoys the field of trading as well as MMA fighting, shooting ranges, and action movies.

One Response to “Obama’s Plan for the US Housing Market – $75 billion lifeline”

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