Word: billioned
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...crucial feature of any British plan: revenue from the tax would be funneled directly into state coffers - remember that $250 billion deficit - and not into an insurance fund to be tapped in the event of any future catastrophe. Such a pool, the U.K. reckons, could simply encourage banks to behave recklessly, safe in the knowledge they'd be covered for any damage. Germany's proposal is different. Having had to nationalize or buy stakes in a string of beleaguered banks since the crisis began, the German government wants to pass the bill for future bailouts to the banks themselves. Lenders...
...amount such a levy would raise is unclear. If the Germans use the U.S. plan - which calls for a tax of 0.15% on liabilities at about 50 banks and other financial institutions - Germany could raise as much as $12 billion a year. Would that be enough to protect banks in the case of another meltdown? Of course, proper government and regulatory scrutiny can guard against a repeat of the recent crisis. But in the event of a disaster on a similar scale, "you're never going to get a fund big enough to cover all that," says Simon Maughan...
...same time, the industry is bracing for an avalanche of specialized adjustable-rate mortgages, known as option ARMs, as well as certain alt-A mortgages, to reset over the next 12 to 15 months. At least $60 billion in option ARMs will reset in 2010, and an additional $64 billion will do so in 2011, according to First American CoreLogic. Experts say this will likely trigger another round of mortgage defaults and foreclosures in the second half of 2010 and cause home prices to fall another 5% to 10% this year before the market bounces back...
...banks will be asked to lower the principal loan balance for certain homeowners whose mortgages exceed the value of their homes. The loans would be refinanced as mortgages insured by the Federal Housing Administration (FHA), fully backed by the government. In the past, loan modifications under the $50 billion federal Home Modification Program (HAMP) involved primarily reducing interest rates or lengthening the term of the mortgage, and most did not entail a government guarantee. (See high-end homes that won't sell...
Also, up to $14 billion of TARP funds will be used to provide subsidies to lenders and loan servicers who agree to write down at least 10% of a first mortgage; the combined value of first and second mortgages can be no greater than 115% of the current value of the home. The new monthly payment cannot exceed 31% of the homeowner's income. Investors in the loans would clearly take the up-front hit, but the risk of future default on the modified loan would be transferred to the government...