Mary Steinmeyer’s Blog

There are actually two huge plans – the $787B economic stimulus package and yesterday’s details on a plan to help millions of mortgagors re-finance their homes and avoid foreclosure (called “workouts”). Given the reactions from investors neither plan is being met with much outward enthusiasm. Interest rates are unchanged from last week, the stock market is teetering close to its November lows, markets do not believe the plans will make significant impacts to turn the ailing economy anytime soon.

 

On the mortgage rescue plan, James Lockhart, head of the Federal Finance Agency that is responsible for Fannie and Freddie is saying today that he believes 40% of the workouts will within six months end up back in delinquency. Sheila Blair at the FDIC thinks 55% of the workouts will eventually fail. Not very good odds when taxpayers have to pay for it, and the reason the plan is being met with tepid enthusiasm. Even the government doesn’t give it high marks for success. Nevertheless, at the same time the two regulators are firmly behind the plan. It is now almost two years and $2.5T, the credit markets are still not functioning, foreclosures are still increasing, home prices are still falling, and there is still no value being placed on the trillions of dollars of bad assets sitting on banks’ books. Until markets know how deep the losses are at banks there is no shining light out there signaling any end in sight.