In anticipation of today's funding and execution of the bail out plan, the LIBOR rates,(LONDON INTERBANK OFFERED RATE.) the price banks lend to each other at, has fall 17 days in a row. This should be a good indicator of confidence is starting to return. Banks must feel comfortable to lend to each other and to clients. Home mortgages rates should start to drop as the spreads on treasuries and corporate paper should narrow also.
The main problem with mortgage paper yet is the inability to assess risk and the valuation of the underlying asset, which are the houses that are the collateral for the loan. Congress and The Senate included in the bailout legislation a provision which allows bankruptcy judges to cramp down the value of the mortgage in their digression. This means a lender doesn't know if the collateral is all theirs to lien. If a judge could change the amount a secured creditor (bank) is owed on the property and not allow the bank to take and sell the property (foreclose), the bank can not value into it rates the chances of this happening. Therefore is it a ½% across the board increase in rates,(about what you got just after the law past) or is it 1% increase.)
Another problem is the declining real estate values. This causes the risk evaluation to be raised to a higher level. It is important to lower rates to see the market start basing. Lastly, Senator Obama's program released a couple of weeks ago include removing the $250,000 per person $500,000 married exemption for people who lived in the house 2 of the last 5 years. He wants to make it 28% capital gains from dollar one. This is a heavy burden held over real estate values again. This was made public around the time rates jumped a few weeks ago.
Richard
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