Geithner: TARP Extension to Help Mitigate Foreclosures, Stabilize Housing
Below are a few housing/mortgage market related comments made by the Secretary of the Treasury, Tim Geithner, before the Congressional Oversight Panel this morning….
GEITHNER ON THE EXTENSION OF TARP AND MITIGATING FORECLOSURES
“I notified Congress that I extended the temporary authority provided to me under EESA to October 3, 2010. Even with this extension, we expect that TARP will cost taxpayers at least $200 billion less than was projected in the August Mid-Session Review of the President's Budget, including $25 billion in potential costs from TARP commitments in 2010. We expect that the vast majority of these potential costs would come from mitigating foreclosure for responsible American homeowners as we take the steps necessary to stabilize our housing market.
GEITHNER ON CURRENT U.S. ECONOMIC CONDITIONS AND THE HOUSING MARKET
“Housing markets are showing some signs of stabilizing andrnwealth is recovering, which should stimulate consumer spending — vitalrnto American economic growth.”
“Thanks in part to federal governmentrnfinancial policies, mortgage rates remain near historic lows. Homernprices have increased over the past six months, following consistentrndeclines since 2006. For example, the seasonally adjustedrnS&P/Case-Shiller U.S. National Home Price Index rose by 1.8 percentrnand 1.9 percent in the second and third quarters, respectively. SincernMarch, sales of existing single-family homes have increased by 20rnpercent.”
“However, the financial and economic recovery still faces significantrnheadwinds. Unemployment remains very high, along with foreclosure andrndelinquency rates, and housing markets are still overwhelminglyrndependent on government support. Lending standards are tight and bankrnlending continues to contract overall, although the pace of contractionrnhas moderated and residential mortgage lending by banks hasrnstabilized.
“Commercial real estate losses weigh heavily on many smallrnbanks, impairing their ability to extend new loans. Further, althoughrnsecuritization markets have improved, parts of those markets are stillrnimpaired, especially for securities backed by commercial mortgages. rnThese conditions place enormous pressure on American families,rnhomeowners, and small businesses, which rely heavily on bank lending.”
GEITHNER ON BANK LENDING
“Bank lending continues to contractrnoverall, although the pace of contraction has moderated and somerncategories of lending are growing again. For example, commercial andrnindustrial loans contracted at an annual rate of 27 percent in thernthird quarter, but 16 percent since then. Such loans are particularlyrnimportant for small businesses, which generally cannot raise money byrnissuing debt in securities markets. Meanwhile, residential mortgagernloans from banks have increased at an annual rate of two percent sincernthe third quarter”
“The contraction in many categories of bankrnlending reflects a combination of persistent weak demand for credit andrntight lending standards at the banks, amidst mounting bank failures andrncommercial mortgage losses.”
GEITHNER ON MORTGAGE MODIFICATIONS
“Over 2.7 million mortgages have been refinanced since Treasury-OFS announced its Making Home Affordable program, and over 650,000 trial modifications have been initiated under the Home Affordable Modification Program, which is largely funded by TARP. Household net worth increased by $2 trillion in the second quarter, the first increase since the third quarter of 2007.”
“We are using a tremendous amount of force and persuasion to try to make sure we get those conversion rates up to a reasonable level,” he said, referring to borrowers converting from trial loan modifications to permanent modifications.
“We need to get their numbers up, they just need to get them up, they need to do a better job and they have the ability to do that,” he said of mortgage servicers.”
GEITHNER ON THE STIGMA OF WORKING WITH THE GOVERNMENT
“For this to work we have to make it possible for banks to come get capital from the government so they can support more lending…They're concerned if they come they will be stigmatized and they will be subject to the risk of conditions in the future that might make it harder for them to run their businesses. To be effective in dealing with this, we have to mitigate the stigma of coming and the fear of changes in the future rules of the game.”
Here are a few charts which were attached to his written testimony….
Mortgage originations are rebounding. Government guarantees remain crucial to this market. Fannie and Freddie conforming mortgages, and FHA and VA-guaranteed mortgages account for most of the improvement.
Housing prices are increasing for the first time since 2006….
Residential mortgage foreclosure and delinquency rates remain high.
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