Monday’s Market Trends Recapby Tim Manni
Some big changes to government programs came along last week. “Treasury Secretary Paulson all but abandoned the original Troubled Asset Relief Program (TARP). The process of culling rotten loans and securities turned out to be more cumbersome and slow than expected, and our guess is that lenders simply failed to show much interest in the program, which would have exposed those assets to some pretty harsh market valuations.”
“Whatever the reason, the focus (and at least some of the remaining cash in the TARP) will be put toward building backstops for AAA-rated markets for auto loans, credit cards, and other kinds of loans. The goverment still hopes to spur this kind of lending, since it came to a crashing halt over the last few weeks with dire consequences for the economy, which continues to struggle considerably.”
“Aside from the sudden shift in the TARP roiling markets, this week was all about new loan modification plans for troubled borrowers. The FHFA announced a plan to identify and modify more Fannie and Freddie-backed or -owned mortgage loans. While admitting that GSE-backed loans represent perhaps only 20% of at-risk mortgages, FHFA Director James Lockhart expressed optimism that by setting a series of standards for “streamlined” modifications, others might follow the lead of the agency and improve the number of mortgages changed.”
“Not to be outdone, the FDIC offered its own plan for loan modifications on Friday, but specifically for non-GSE backed loans, so this program would include jumbo, subprime and other non-conforming loans. How it will all work out wasn’t especially clear, and details on the FDIC website were rather thin, but the program could have an expected ultimate cost of about $24 billion while serving to keep perhaps 1.5 million homes out of foreclosure.”
“These new plans join the ranks of the FHA Secure program and the private initiatives from Citibank, JPMorgan and Bank of America announced in recent weeks.”
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