US Treasury Secretary Timothy Geithner will not announce detailed government plans for helping US homeowners for several weeks.
Private equity real estate players had been eagerly waiting for President Barack Obama’s administration to reveal how it intended to help the beleaguered residential industry, and whether homeowner relief could exacerbate the problems already being experienced.
Outlining plans to help the commercial sector, Geithner said today a “comprehensive plan” to address the US housing crisis – and rising foreclosure rates – would be announced “in the next few weeks”.
The government is expected to provide relief for homeowners fighting foreclosure, with Geithner saying today the administration wanted to “to help bring down mortgage payments and to reduce mortgage interest rates”. He added the government planned “a substantial commitment of resources” to tackle the problems.
However one private equity professional PERE spoke with questioned whether “artificially” supporting the market would help in the long-run.
“The only way we are going to find the bottom of this market is if prices readjust. By providing relief you are delaying the inevitable and trying to maintain an artificial floor,” the residential executive said. “We have to allow product to come to the market at its true value to get things moving again.”
Geithner today announced plans to create a $1 trillion public-private investment fund aimed at ridding financial institutions of their toxic real estate-related assets – as well as expanding help for commercial mortgage lenders.
Geithner said the investment fund – dubbed the “bad bank” – would start with an initial capacity of $500 billion, but would expand up to $1 trillion depending on the success of the programme. He also pledged to commit up to $1 trillion to supply new credit to consumers and businesses in a bid to “kick start” the secondary lending markets.
The lending scheme will expand the Federal Reserve's Term Asset Backed Securities Loan Facility (TALF), announced last November, to include help for small business lending, student loans, consumer and auto finance and commercial mortgages.