Let's do some math -
5.3 Trillion = 5,300 Billion
at about 6 % and some pricipal, that means about 8% comming in each year -
Say 400 Billion.
Apply a 1.2% deliquency rate -
Now hold on. Deliquency mean late payment, not necessarily default...
So may 3/4 are in defualt, so 0.9 % and the rest delinquent, and eventually will be two months deliquient per year.
So we have 3.6 Billion (400 B x 0.9%) with no payment, and about a half payment from the 0.3% deliquent, about 0.6 B.
That's a shortage of about 4.2 Billion per year.
Okay, Now Fannie and Freddie have borrowed about 5.3 Trillion at about 4.5 % interest. Throw in some pricipal payments, and they have an out flow of say 7% per year, or 371 Billion.
Add in various administrative cost of around 30 billion, and they are not making money.
Now watch the Fed money magic - Take just 1 Trillion, borrow at 2.50 % from the Fed, and presto- change -o, they are now making
an extra 20 billion a year. Not enough? let's try 2.0 trillion, now they are making an extra 40 Billion a year.
40 Billion a year, on a cash in cash out view, would cover about 8 to 10% of the loans by value.
The homeowners who aren't paying, get notices saying they are expected to pay about say 60% of the interest only charges for the next 3 years. that encourages money to come in. Since the homeowners (acutally borrowers) will be paying much less, the econoomy will pick up strongly - just like having 3 stimulus payments a year !
The 60% interest only will still let much of the fraud and janitors buying million dollar homes get swept out of the system.
With the economy in a boom, salaries will keep going up, as exports soar (Euro at $1.80 !) and imports drop. So most of the people will be able to get back to paying all the interest and a little pricipal before the 3 years are up.
Higher salaries will help push the price of homes back up, or at least stablaize it.
Notice what is NOT happening - the 5.3 trillion in loans is NOT being marked to market.
Similar wonderful things happen at banks and other financial firms.
All thanks to Uncle Ben and his magic printing press.
Okay, test time :
Complete these words -
B_ _ _ol _
Sh_ _ t _ ollar
Hol_ En_ _ gy
Mov_ to Can_ _ _ |
