Government Teams Up with Investors to Purchase Toxic Assets
Source: Washington Post, ustreasury.gov
The Treasury Department recently released the Public-Private Investment Program to ensure that lending continues to flow to households and businesses. This program is intended to mend the balance sheets of banks which are filled with toxic assets due to losses incurred during the housing market implosion.
The government will come together with private investors to purchase the loans from the banks at discounted prices. The government and investors will only have to put up a fraction of what the assets sell for and the FDIC will insure
the remainder. Investors and the government will own the assets as an investment in hopes of making money because they believe fear has driven prices below their
If this initiative works, banks will have a greater ability to extend more new loans. Banks could have more flexibility in originating loans that the government typically does not guarantee, including loans greater than $729,000, also referred to as jumbo loans. Banks creating more new loans in the higher price points could ultimately translate into upper price home sales regaining momentum and the eventual return of a healthy housing market.