The plan calls for the Treasury Department to buy deeply distressed mortgage-backed securities and other bad debts held by banks and other investors. The money should help troubled lenders make new loans and keep credit lines open. The government would later try to sell the discounted loan packages at the best possible price.
Some of the program's $700 billion would be devoted to a program that would encourage holders of distressed mortgage-backed securities to keep them and buy government insurance to cover defaults.
The proposed legislation also calls for the financial sector to help make up the difference if the government does not recoup its investment in five years.
The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies' future profits.
Money for the rescue plan will be phased in. The first $350 billion would be available as soon as the president requested it. Congress could try to block later amounts if it believed the program was not working. The president could veto such a move, however, requiring extra large margins in the House and Senate to override.
The plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.
Despite the changes made during an intense week of negotiations, the heart of the program remains Bush's original idea: To have the government spend billions of dollars to buy mortgage-backed securities whose value has plummeted as hundreds of thousands of Americans have defaulted on their home loans.
The legislation would place "reasonable" limits on severance packages for executives of companies that benefit from the rescue plan, said a senior administration official.
www.MortgageAdvisor.info & www.GregZaccagni.com
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