Word: loan
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...government guarantees should insure that interbank loan rates retreat to the point where money is moving again. With the first capital injections a few days away, loans should begin flowing easily in a matter of weeks, says Scott Talbott, chief lobbyist for Financial Services Roundtable, representing major U.S. banks. "This will open up credit immediately, and the benefit will begin to flow to small businesses shortly thereafter," he says. Every $1 of equity creates $10 in lending power. Half of the $250 billion set aside for capitalization is targeted at smaller banks. Some banks are wary of the strings attached...
...coffers need support. Currently the agency has $45 billion in reserves. That may not seem like much next to the $700 billion Paulson just got from Congress, but Bair notes that in the past, the FDIC hasn't needed much. Even at the peak of the savings-and-loan crisis in the late 1980s, when thrifts were closing at the rate of one a day, the FDIC maintained its perfect record of returning every penny of every insured depositor's money, and Bair has preserved that record through 15 bank failures this year. That's partly because the FDIC...
...government's effort to boost bank lending to end the credit crisis is hurting one of the areas critical to the nation's recovery: mortgage rates. In the past week, the average mortgage rate on a 30-year fixed home loan has jumped more than one half a percentage point to 6.74%, according to Bankrate.com. That might not sound like much, but it is the biggest one-week rise in the normally stable lending rate in 21 years. Some economists say mortgage rates could soon top 7%, a level they have not seen in more than six years...
...downward pressure on housing prices, which have already dropped 20% since their peak in July of 2006, according to the S&P/Case-Shiller Home Price index. The increase in mortgage rates means that the average borrower will pay $1,296 a month in mortgage payment for a $200,000 loan. That's $100 more a month, and $1,200 more a year, than the same loan would have cost them a few weeks ago. For buyers on a budget, that means they can afford less house for the same amount of money. Conversely, sellers would have to drop their prices...
...What's more, a new "Adverse Market Fee" recently instituted by lenders for borrowers with less than perfect credit (regardless of the market) could raise the cost of a loan another half a percentage point - or an additional $70 a month on that same $200,000 loan - for nearly 20% of Americans. "For individuals looking to buy a home this is going to be just one more obstacle in their way," says Barry Ziggus, who tracks housing issues for the Consumer Federation of America...