A new idea by Ben Bernanke and President Bush to help
sluggish economy with new stimulus packaged helped Wall Street
regain some gains. However, so far we will have to see what kind of
package Congress will create.
Bernanke told the House Budget Committee the country's
economic weakness could last. Earlier this year, most individuals
and couples received tax rebate checks of $600-$1,200 through the
$168 billion stimulus package.
"With the economy likely to be weak for several
quarters, and with some risk of a protracted slowdown, consideration
of a fiscal package by the Congress at this juncture seems
appropriate," Bernanke said.
However, by helping housing there will be more returns
for an average American, rather than pumping money into banks that
may lend or may not lend. If they continue to lend, banks guidelines
will be tight. At this moment there are none proposals to jump
start housing sector.
With more activity in banks and letting banks use some
of the bailout package money, banks can lower interest rates such as
on 30 year fixed where rates fluctuate between 5.750% to 6.50%.
The three-month Treasury bill Monday yielded 1.08
percent, up from 0.82 percent late Friday. That's better than the
0.20 percent of last Wednesday, and the first time it surpassed 1
percent in more than a week.
Key point in stimulus plans or any new plans is to
refinance mortgages into fixed rates, where banks need to accept
looses and either refinance the loan into fixed or lower the loan
amount and take the loss, so foreclosure can be avoided. But both
borrower and lender need to contribute. On average borrower would
save $350-$450 a month.
Banking and housing crises are connected and Congress
needs to realize that creating package where government can
guarantee some losses when refinancing mortgages into a fixed rate.
Boston Federal Reserve President Eric Rosengren emphasized the need
to boost home values and market sentiment.
"Individuals shopping for homes need to be confident
that appropriate financing is available. Individuals need to be more
confident in housing transactions proceeding normally," Rosengren
said. "And individuals need to feel that there is potential for
housing prices to rise."
Pumping billions into banking unfreezes certain
credit, but it will not help housing market if banks will make
credit borrowing tighter. However, we are getting there slowly as
every new package from Congress has to bring something to new to
taxpayers.
Home prices will not improve and economists predict
8%-10% decline in prices next year. With higher mortgage rates
and tighter lending guidelines it will leave homeowners stranded.
High credit scores and larger down payments are needed for getting
approved for a mortgage, but not many borrowers can't afford that
leading to drop in housing prices.
Investors are feeling optimistic about $250 billion
package as well as hope are on the horizon for another stimulus
package which may bring another wave of rebate checks. Another
optimistic data showed the economy's health improved for the first
time in five months in September as supplier deliveries and new
orders
strengthened.
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