What does the Treasury bailout mean for mortgages? |
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Paulson added: "We've been working to help homeowners for a long time. ... It sure seems to me that, as we buy these mortgage-backed assets, we'll have more leverage in working on the kinds of programs we need to work on. The key question is we want to help those homeowners who want to stay in their home and have the financial ability to stay in their home."
So far, Paulson said, most foreclosures are from people who don't want to stay in their homes or never could afford their homes "as a result of irresponsible lending practices."
 My house has been falling in value for more than two years. Will this action reverse that decline?
 No, and it's not designed to. In fact, the sooner house prices hit bottom, the quicker the economy will recover from this credit crisis. Some homeowners might not want values to fall more, but lower prices eventually will make houses more affordable for first-time buyers, as well as for some homeowners who want to move up or move down.
What are the limits on the broad power that the Treasury is asking for?
The secretary of the Treasury would be required to submit reports to six congressional committees, twice yearly. The Treasury would have the power to award no-bid contracts without congressional review.
Furthermore, according to the proposal: "Decisions by the Secretary pursuant to the authority of this Act are nonreviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
That means no one could sue the Treasury for causing them economic harm. This ban on lawsuits and administrative actions will affect mortgage investors more directly than it will affect homeowners.
How does the Treasury's proposal differ from the Resolution Trust Corp., which the government set up to sell real estate after the savings-and-loan crisis of the 1980s?
The Resolution Trust Corp., or RTC:
- Sold real estate.
- Sold the real estate from failed financial institutions.
The Treasury:
- Doesn't plan to sell real estate.
- Its ultimate aim is to prevent financial institutions from failing.
The Treasury's plan is an entirely different animal from the RTC. People who refer to the Treasury's proposal as an "RTC-style" bailout are mischaracterizing the plan. You should be skeptical of what they say.
Instead of taking and selling real estate, the Treasury plans to buy and sell mortgage-backed securities and possibly mortgages themselves. The goal is to get bad mortgage-related debt off the books of financial institutions all over the world.
That, in turn, is supposed to increase the confidence that financial institutions have in one another so that they'll lend money among themselves. The result is supposed to be a stronger global financial system that freely lends to consumers and businesses.
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