$700B Bailout Could Be Less When Assets Sold

The 700 Billion Dollar Bail Out
By Scott Martin
Premier Mortgage Group an Affiliated Company of Cherry Creek

As you have probably heard, the U.S. Treasury Department is working on a plan to allow the federal government to buy troubled assets (primarily bad mortgages) from private companies.
Although we don’t yet know all the details of the Treasury Department’s bailout plan, we do know that SOMETHING is being done, and that has brought some calm to the financial markets.

The mortgage backed securities markets have been in a vicious circle of “de-leveraging.” In other words, If a market participate wants to de-leverage their assets, they will begin to sell Mortgage Backed Securities (MBS – or Mortgage Bonds). If too many market players sell at the same time, it will drive down the price. This can sometimes create a panic with other MBS sellers. The more sellers that try to sell drives the price even lower. And the lower the price of the mortgage bond, the HIGHER the interest rate – which translates DIRECTLY to a higher rate for new mortgages.
The Treasury’s plan will break that circle and allow normalcy to return to the mortgage markets. That mean better and more stable interest rates, and more available liquidity. In fact, we’re already seeing a more stable and calm Wall Street.
The Cost;
The final cost can’t be determined for years. But first it’s important to note that the Feds may not spend all $700 billion. Some economist estimate that there may not be that much to be bought.
Some banks won’t want to sell, believing they can do better themselves. Some of the bad debt has already been written off.
ALSO, for every bad mortgage Uncle Sam buts, there is a house that comes with it. Sooner or later the they will SELL that house and recoup some of their costs.

Scott MartinPremier Mortgage Groupan Affiliated Company of Cherry Creek MortgageMortgage Broker License # MB 100019187direct line (303) 302-3901fax (303) 449-4455cell (303) 941-7287