Financial Stability Plan Released To Address Foreclosure Crisis

by Peter Vernon on Foreclosure Crisis, Foreclosure Help

Last Tuesday, a Financial Stability Plan has been outlined by Treasury Secretary Timothy Geithner that aims to distribute as much as $2 trillion of private and public funds to the crippling financial system. The plan will be financed within a complex combination of a balance sheet extension of the Fed, private capital and federal tax dollars. Basically the central bank will produce more money in order to finance business and consumer lending and slow down home foreclosures. The plan has four focal points to strengthen financial markets:

Gauging the strength of banks

The government will assess which of the biggest banks in the country will most likely require more capital and which banks are well enough to lend and even endure a worse downturn than projected. Banks who have more than $100 billion in assets will go through a mandatory stress test to determine their balance sheets’ strength. It would involve a solid look at the strength of earnings, quality of assets, strength of present capital, as well as the strength of the management.

Funding for troubled assets

According to Geithner, the Federal Reserve, together with FDIC will team up with the private sector in order to form a market to purchase bad assets, most of which are complex securities backed up by a collection of mortgages, foreclosures and other different kinds of loans. Offering the financing that private markets cannot currently provide will help open a market for housing-related assets and prevent foreclosures that are at the heart of the crisis.

Lending kick-off

The government pledges as much as $1 trillion to lubricate the market for business and consumer lending, which increases on a $200 billion plan the Federal Reserve is getting ready to launch.

The money would supply financing to private investors to purchase securities funded by auto loans, credit card debt, student loans, and housing and commercial mortgages. New banks can get new money to loan if these can sell their loans to a strong secondary market.

Relief from foreclosure

The Treasury Secretary has also promised to provide assistance to homeowners by decreasing mortgage rates and payments to deal with the foreclosure crisis.

Many believe that the Financial Stability Plan should be assembled quickly as the foreclosure problem deepens. John Taylor of the National Community Reinvestment Coalition believes that the foreclosure crisis is the source of the economic recession and keeps on contributing stress to the economy. The administration should move quickly to put an end to the foreclosure crisis.