US senate to rescue mortgage market
The US Senate has approved a $300 billion plan to rescue the country’s beleaguered mortgage market, which has continued to destabilise the US finance industry over the year.
Property prices in the US have already fallen by 16% year on year, and sales are at a record low.
Worse still is that defaults on mortgage payments continue to rise with nearly three-quarters of a million homes have already been repossessed in the US in the first half of the year alone.
The overall result has been the worst housing crisis in the US since the Great Depression, and has completely undermined the finance sector.
A key solution in the bill just passed by the senate is to offer low-interest government backed loans for those struggling with their mortgages, in lieu of high-rate loans from banks. By doing so, the government hopes to address the root problem of defaults on mortgage payments.
While critics point out that the crisis was perpetuated by unscrupulous lenders and irresponsible consumers, without government help the crisis could only have worsened.
Already a string of US banks have gone bankrupt because of the crisis, with the FDIC closing the First National Bank of Nevada, and California’s First Heritage Bank, after trading on Friday.
While it remains to be seen how effective the bill will be in practice, no doubt the US financial services sector will breathe a huge sigh of relief.
Shares in US banks are likely to see some degree of investor confidence return when the Dow Jones opens this Monday.