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Housing Plan Unveiled

Written by A Forex View From Afar on Friday, February 20, 2009

Equity markets are still trading mixed, even though the U.S. administration unveiled the first plan that aims directly at the rising level of foreclosures.

Up to now, this is the first attempt to help homeowners since the housing market had topped, back in 2006. Some say that, if this plan would have come one year ago, the current situation might have looked much better than it does currently. Falling home prices, together with the rising number of foreclosures were among the key factors that stayed at the base of the credit crunch.

Most likely, investors are luke warm towards the new housing plan because some key points remain unanswered. The biggest question is how exactly these additional funds will reach homeowners outside Freddie and Fannie. The government hopes that the extra funding will determine lenders (the big banks in our case) modify the loan conditions to help homeowners.

However, more likely than not the banks have already made their analysis some time back, before this announcement was made public, and had already taken the decision on which mortgages to foreclose on, and on which to help refinance. The big question is, if some extra cash coming from the government will sway banks to refinance the home loans. It is suggested that, the actual sum per household will not be that big.

Another problem is how exactly the government will work its way in the security market. Many of these mortgages have been repackaged and sold to private investors. To some degree, the government would eventually have to compensate the bondholders too, on top of the originating banks.

Overall, most financial analysts have a good opinion about the housing plan, but its actual implementation is still a question. As additional details become available, or eventually some results, markets might start buying the news, and see some decent trends in the equity markets.

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