Finance

Federal Government Seeks to Prevent Economic Recession

Written by Gaurav Bhola, MSM, Managing Editor & Community Manager on January 4, 2008 2:24 pm EST

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The housing market corrections of 2007 may well continue into 2008. The government is scrambling to forestall any further market adjustments. The government wants to be proactive in avoiding any severe downturn in the economy. There is a feeling that the government needs to be doing more than the Bush mortgage rate freeze plan for certain subprime adjustable rate mortgages.

Recently, the Bush Administration announced that with the partnership of the mortgage home loan industry, some mortgage loans will qualify for a freeze of the low introductory teaser interest rates for five years such as, certain subprime mortgages.

This deal prevents interest rates from readjusting to higher mortgage rates. This modest Bush plan can help prevent thousands of foreclosures. The rate freeze could buy time for the housing market to rebound, making it possible for homeowners to do a mortgage refinance to affordable fixed-rate home loans.

However, out of the 3.5 million homeowners that could be negatively affected with their adjustable rate mortgages in the coming months, only 250,000 homeowners qualify for the freeze.

The lack of inclusiveness of the Bush plan is leading many in government calling for a more expansive and thorough plan of action to prevent a prolonged economic recession this year.

In order to avoid an economic recession comparable to the one 27 years ago, experts and government officials are calling for temporary tax cuts and mass spending on the magnitude of $50 billion or more.

Even Republicans and Alan Greenspan are calling for greater government intervention.

In addition to the mortgage rate freeze, the Bush administration is seeking to increase cap on the size of home loans Fannie Mae and Freddie Mac can handle.

The Bush plans may provide some help on the margins of the mortgage and housing spectrum without addressing the core issues of the credit crunch and rising foreclosures.

The Federal Reserve has cut interest rates by one percentage point since August, providing little impetus for the economy to move north.

Some believe that the Fed will have to cut the funds rate, to provoke banks to provide consumers more accessible low interest rate loans.

The Fed’s monetary policy hopes to influence positively, outcomes like economic growth and inflation this year.

The increasing energy prices will also influence future government proposals in navigating the economy. The mortgage and housing market outcome will greatly depend on the strength of government involvement in tackling the core issues to remedy the mortgage, credit, and housing markets.

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One Response to “Federal Government Seeks to Prevent Economic Recession”

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