Trying to better understand the bailout plan.

1. The plan is to mainly help Wall Street, not homeowners?


The Treasury is going to buy the bad loans. Right now the banks have the bad loans, so they are losing money. There is a rule for the banks that if they lend ten dollars, they have to have one dollar in equity. Getting rid of the bad loans will enable the banks to make fresh new loans based on more restrict requirements. New home buyers will be able to get mortgages again; the mortgages are very hard to get recently. More buyers will help stabilizing the RE market.

2. Treasury may modify interest rate or even principle?

After Treasury get the bad loan, they can lower the interest rate or even the principle. The banks' bad loans need a judge to lower the principle, but once that loan is in the Treasury's hands, no judge is needed any more for lowering the principle. Either lowering the interest rate or the principle or both, the aim is to keep the home owner in the house and keep him paying the mortgage, instead of going to foreclosure. With fewer foreclosures going on the market, the inventory will start to go lower, which helps to stabilize the market.

We will have to wait and see what really happens.