USLegal Reporter

The Federal Housing Finance Agency and others in government and the mortgage industry announced Tuesday a new program to renegotiate home loans held by Fannie Mae and Freddie Mac. The plan, which will become effective December 15, 2008, will be available to borrowers who are at least three months behind on their mortgage and who owe 90 percent or more than the home’s current value. The program excludes borrowers in bankruptcy and investors who do not live in the homes. Under the plan, borrowers may obtain a reduced interest rate to allow them to pay no more than 38 percent of their income on housing. Other options include loan extensions to 40 years and interest-free deferral of a portion of the prinicipal amount.

In related news, Citigroup announced a moratorium yesterday on foreclosures for certain borrowers (those who live in their homes, have incomes of a certain amount and are likely able to make reduced mortgage payments), an expansion of the program to include mortgages the bank does not own but for which it collects payments, and assistance to borrowers who are close to defaulting (mortgage adustment, principal reduction and decreasing loan term). Also, JPMorgan Chase & Co. recently expanded its mortgage modification program, and Bank of Amercia as part of a legal settlement, agreed to modify loans once held by Countrywide Financial Corp.

Source: http://news.yahoo.com/s/ap/20081111/ap_on_bi_ge/meltdown_mortgages#full

The US Federal Reserve and the Treasury Department announced today that they will provide $40 billion of new financial support to insurance company, American International Group (AIG), which will increase total financial assistance to the company to approximately $150 billion. Specifically, the government plans to exercise its authority under the Emergency Economic Stabilization Act to purchase troubled assets by purchasing $40 billion in AIG preferred stock in an effort to restructure federal assistance to the company.

The $40 billion will be part of the $700 billion financial rescue plan, and will give the government partial ownership of AIG in return. AIG also must comply with executive compensation and corporate governance requirements of the Emergency Economic Stabilization Act.

Source: http://news.findlaw.com/ap/f/1310/11-10-2008/20081110032005_3.html
http://www.ustreas.gov/press/releases/hp1261.htm

President Bush announced today that the federal government is going to invest $250 billion of monies recently authorized by Congress as part of a financial bailout plan to buy equity stakes in some of the nation’s leading banks. It will be the biggest bank investment ever made using taxpayer dollars.

So far nine of the nation’s largest backs have agreed to take the funds in return for giving the government preferred shares. Banks have also agreed to place limits on executive pay.

The latest move is part of an ongoing attempt to relieve the nation’s financial crisis. It is hoped the monies provided to banks will be used to free up lending.

Source: http://www.npr.org/templates/story/story.php?storyId=95691838

The Federal Reserve announced today that it will begin a program to purchase short-term debt to help companies fund their day-to-day operations and to encourage companies to resume lending to each other and their customers. Specifically, the Federal Reserve plans to establish a separate entity, the Commercial Paper Funding Facility, to begin purchasing three-month unsecured and asset-backed commercial paper in an undisclosed amount from eligible issuers. Commercial paper is short-term debt, which is borrowed for brief periods such as overnight and for less than a week. As more companies have stopped buying commercial paper due to the effects of the unstable economy, the rates for long-term debt have increased.

The US Treasury Department is working with the Federal Reserve on the program and has said that it is “necessary to prevent substantial disruptions to the financial markets and the economy.” The Treasury Department will provide the funds to the Federal Reserve Bank of New York in order to support the program, which is entirely separate from the recent $700 billion bailout law. The program will continue until April 30, 2009, unless extended.

Source: http://biz.yahoo.com/ap/081007/financial_meltdown.html?.&.pf=banking-budgeting

The House of Representatives today passed a modified $700 billion bill that would authorize the government to buy mortgage-related and other assets from institutions that have led to economic instability. The vote was 263 (for) - 171 (against). The Senate approved the legislation on Wednesday. President Bush has now signed the measure into law.

The Emergency Economic Stabilization Act of 2008, which has been attached to a bill addressing renewable energy tax incentives, includes several new tax provisions, such as tax extensions for businesses and families, and a limitation on the alternative minimum tax. Other new provisions include an increase in the Federal Deposit Insurance Corp. cap from $100,000 to $250,000, natural disaster relief for individuals in Texas, Louisiana and the Midwest and parity for insurance coverage of mental health treatment.

Sources: http://www.latimes.com/business/la-fi-bailout4-2008oct04,1,889896.story

http://financialservices.house.gov/ESSABill.pdf

http://www.whitehouse.gov/news/releases/2008/10/20081003-11.html

Following rejection by the US House of Representatives of the proposed $700 billion bailout of many of the nation’s leading financial institutions on September 29, the Senate Wednesday night by a vote of 74-25 passed a modified bill that would authorize the government to buy mortgage-related and other assets from institutions that have led to economic instability. The House of Representatives is expected to vote on the Emergency Economic Stabilization Act of 2008 this Friday.

The revised legislation, which has been attached to a bill addressing renewable energy tax incentives, includes several new tax provisions, such as tax extensions for businesses and families, and a limitation on the alternative minimum tax. Other new provisions include an increase in the Federal Deposit Insurance Corp. cap from $100,000 to $250,000, natural disaster relief for individuals in Texas, Louisiana and the Midwest and parity for insurance coverage of mental health treatment.

Source: http://banking.senate.gov/public/index.cfm?Fuseaction=Articles.Detail&Article_id=76b1aea4-39b8-404f-b3cd-f8b6c46e3b14&Month=10&Year=2008

http://finance.senate.gov/press/Bpress/2008press/prb100108a.pdf

http://www.cnn.com/2008/POLITICS/10/02/congress.bailout/index.html

The House of Representatives on Monday defeated a proposed $700 billion bailout of many of the nation’s leading financial institutions. The Emergency Economic Stabilization Act of 2008 (EESA) would have authorized the government to buy mortgage-related and other assets from institutions that have led to economic instability. However, the House rejected the bill by a 228 (against), 205 (for) vote.

The Stock Market plunged 777 points, losing $1.2 trillion after investors learned about the news.

Source: http://www.usatoday.com/money/markets/2008-09-29-stocks-plunge-bailout_N.htm

Members of Congress struck a tentative deal on Sunday on a $700 billion dollar bailout proposal to rescue many of the nation’s leading financial institutions. A major component of the plan would authorize the government to buy mortgage-related and other distressed assets from institutions that have led to economic instability.

The plan would disburse money in stages beginning with an immediate authorization of $250 billion to the Treasury Department to buy up troubled assets.

It will also limit compensation packages and golden parachutes paid to top executives who work for financial institutions involved.

The government will also be able to increase modification programs on loans it acquires to assist distressed homeowners and prevent foreclosures.

If passed, the bill would be the largest government bailout since the Great Depression.

Sources: http://www.house.gov/apps/list/press/financialsvcs_dem/press092808.shtml

http://money.cnn.com/2008/09/28/news/economy/Sunday_talks_bailout/index.htm?postversion=2008092822

Federal regulators on Thursday seized control of Washington Mutual and negotiated a deal to sell the bulk of its assets and operations to JP Morgan Chase and Company. The Federal Insurance Deposit Corporation authorized the sale to JPMorgan for $1.9 billion.

Washington Mutual’s collapse is the largest bank failure in US history.

See Office of Thrift Supervision Press Release for more details:

http://www.ots.treas.gov/?p=PressReleases&ContentRecord_id=9c306c81-1e0b-8562-eb0c-fed5429a3a56

The Federal Reserve Board on Sunday cleared the way for Goldman Sachs and Morgan Stanley, the nation’s last two remaining investment banks, to now operate as bank holding companies. This means that the companies can operate as commercial banks and can now take in deposits and increase their resources. The drastic move is also part of a plan to keep the institutions from collapsing.

Both banks must now abide by stricter rules set in place by the Federal Reserve. Previously, they were regulated by the Securities and Exchange Commission.

After consulting with the Justice Department, the Federal Reserve noted today that the statutory five-day antitrust waiting period will not be neccessary and the change in status will be granted immediately.

Sources:

http://www.federalreserve.gov/newsevents/press/bcreg/20080922a.htm

http://www.federalreserve.gov/newsevents/press/bcreg/20080921a.htm

http://www.npr.org/templates/story/story.php?storyId=94877512