Will the Housing Rescue Bill and Bank Bailout work ?
It is time to accept the fact that a bailout will not work and we need to let the market work itself out
The question on everyone's mind nationally is "will the plan outlined in the Rescue legislation work" to help the struggling economy and support the ailing real estate market?
I believe that there is no silver bullet that will be a complete quick fix.
However, there is precedent and reason to be optimistic.
New York Times writer, Amy Schoenfeld discussed the role of American Debt and the American Burden that has come since the first consumer loans took form in the 1920's.
Ms. Schoenfeld, walks us through a previous time in history where ....
for the first time, starting in the 1920's banks offered 3-year to 5-year mortgages with lump sum (balloon loans) payments at the end of the loan.
Does this at all sound like short term ARM‘s (Adjustable rate mortgages) of the last 10 years?
Americans then, like Americans now, took on debt during the Great Depression and many leaders called on debt as a key to recovery.
Does this sound like the lowering of interest rates rapidly starting in 2001 after 9/11 to add consumer confidence to a shaken economy?
However, refinancing of theses loans was nearly impossible as home prices dropped.
Does this sound similar to the inability of today's homeowners to re-finance into better loans to ride out the housing downturn?
According to one estimate nearly half of urban mortgages are delinquent in 1934.
Today, we have as many as 3 million Americans who may face foreclosure by several estimates.
The government acted quickly to make long-term loans the industry standard and provided for the refinancing of one million delinquent loans and offered insurance on loans.
Does this sound eerily similar to the Housing Rescue Act that the Senate just passed ?
Next, right after WWII, Americans buy homes with government insured mortgages.
Will the outcome of the Housing Rescue Act of 2008 be the same renewed consumer confidence and economic recovery that we saw in the 1940's?
In 1951, 53% of homeowners have no mortgage debt.
This outcome may be a bit far reaching as we are a now a Country and economy built on debt. (According to the New York Times, Americans carry $2.56 Trillion in consumer debt, up 22 percent since 2000.)
However, the historical parallels are compelling and are difficult to ignore.
We may not reach the levels of 1951. However, if the Housing Rescue bill works we are well on the way of putting words like ‘recession' in our rear-view mirror and are heading towards a recovery.
History tells us we have reason to be optimistic; dare I say ‘confident'?
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