New bank bailout plan could make it easier to get loans, prevent foreclosures
Here's how you could directly benefit from the new bank bailout plan:
The government plans to expand a previously announced -- but not yet implemented -- Federal Reserve program meant to boost lending to consumers and small businesses.
Under the program, the Treasury Department and the Federal Reserve would use up to $1 trillion to buy securities backed by consumer and small-business loans. What this means to you is that it should become easier to get loans for college, cars and credit cards. It may also be extended to include certain mortgages.
Whether this works depends as much on the consumer as it does on the banks. All the credit in the world may be available, but if consumers aren't interested in buying a new car or using their credit cards, it won't help the economy -- or the consumer.
This is what everyone has been waiting for -- and we're going to have to wait a little bit longer.
Treasury Secretary Timothy Geithner said the plan would focus on "using the full resources of the government to help bring down mortgage payments and help reduce mortgage rates." On Friday, the White House said President Obama will announce details on Feb. 18 in Arizona.
The government is expected to commit $50 billion to help reduce interest rates and mortgage payments for struggling homeowners -- the low end of the estimates that had been thrown around previously.
As part of this plan, the government may:
- Expand a Fannie Mae and Freddie Mac program that allows delinquent borrowers to have their payments lowered to 38% of their income, to extend their loans from 30 years to 40 years, or to reduce their interest rates to as low as 3%. This program came under fire because it required homeowners to be at least three months behind in payments. It could be modified in the next few weeks to include those who are as little as one month behind. It also could allow payments to be reduced to even less than 38% of a family's income.
- Set national standards for when a bank can modify a mortgage. It has been difficult to make many loans more affordable because they have been bundled and sold to investors. Right now, lenders can only modify a mortgage if it makes the loan more valuable to investors. A new proposal would give lenders more flexibility.
- Pump more money into buying mortgages -- a Federal Reserve effort that briefly brought rates down to below 5% early last month. Since then, though, rates have shot back up, so there is some skepticism that such a plan will have any long-term impact.
This won't put money in your pocket, but it will tell you whose pockets all of this government cash is ending up in.
The Treasury Department is launching a new Web site, FinancialStability.gov, that should detail where the money is going and whether it is increasing lending.