A major piece of legislation was recently passed by Congress and signed into law by the President of the United States. This legislation is referred to as the economic bailout and is one of the most controversial pieces of legislation passed by the United States government in quite a while.
So what is the bailout exactly? The bailout is a piece of legislation where the meat of the legislation is a proposal to purchase up to 700 billion dollars of mortgage backed securities at risk of being defaulted upon. The purpose of this plan is to free up capital for banks and other lending institutions so that they can loan out more money to borrowers.
Currently foreclosures are at an all-time high. Many lending institutions were lax in lending requirements. The reason why is because the large majority of loan originators sold off their loans as soon as they wrote them. As a result, if the loan went into foreclosure, they didn’t care because the loan was off its books already.
What was happening prior to the bailout being passed was banks and financial institutions were hesitant to lend to each other. This was making it extremely difficult for anybody to get a loan. A lack of credit is extremely damaging to the economy and even more damaging to anybody involved in real estate, an industry that is heavily driven by borrowed capital.