The U.S Treasury Department is going to come up with a plan that will save all homeowners who are struggling from the foreclosure syndrome. The Department will work out this plan with the collaboration of mortgage industry leaders. But the analysts have something else to say. They think that this plan cannot help the banks to survive from the pain of home loan.
Sources said that the plan is almost ready and just needs some final brush up. If everything goes right then the details will be announced on Wednesday.
The Philadelphia KBW Bank Index, BKX hiked 3.1 percent on Friday. This rise proves that the Government is aware of the problems of the mortgage and housing market. Chairman of Soifer Consulting, Mr. Ray Soifer also confirmed the previous statement. In this market, foreclosures are increasing and the home prices are falling.
As far as the subprime loans are concerned they are also facing a problem. In this loan, the teaser rates initially stay low. But it goes up after two or three years. The new plan will help to freeze the interest rate of the borrower before the rate becomes higher.
There are some analysts who think that if the terms of the loan are renegotiated then it will just postpone the writing-off process for such loans. But the loans need to be written down because they will not able always be able to return the expected amount.
The Chief strategist of Sandler O’Neil & Partners in New York Mr. Robert Albertson said that, if a bank wanted a higher rate in a longer-term, then it would not get it a teaser rate.
The analysts said that the treasury hoped that bank could prevent the writing down of excessive mortgage related assets in the time of acceleration of the economic growth of other sectors. This will allow the banks to produce profits in a higher level.
Financial Services Analyst of PNC Wealth Management in Philadelphia Mr. Mark Batty said that if the income of the borrower increases, then the borrowers can be in a position where they can fight with the up growing interest rates.
The shares of Wells Fargo & Co rose almost 7% to $32.43. Countrywide Financial Corp shares rose 16.3% to $10.82. These two banks are in a talking term with the treasury.
Some investors consider the above scenario too much optimistic.
Portfolio Manager of Hedge Fund Trident Investment Management Mr. Nandu Narayanan said that postponing the inevitable situation can only drag the pain on for a longer time.
Some other people like Mike Holland, and Albertson think that this new plan of treasury department though promising, can have some bad effects as well. They think that there will be a whole lot of inappropriate proposals before finally settling down with the right one.
But most of the analysts think that this proposal can be a big help towards dealing with the crisis at hand. Mr. Batty thinks that giving the proposal a chance is better than doing nothing.