Home Loan Aid Bill: What it means to you...

As many of you know, the Senate passed their version of the Home Loan Aid Bill, a $300 billion mortgage bailout on Friday. This doesn't actually mean anything just yet, even in pure perception, because it still has to be merged with a House version, and finally signed by the President, who has said he will veto it in no uncertain terms.

Notably, this comes on the same day Feds seized control of IndyMac, a bank with $32 billion in assets, due to bad lending practices leading to it's demise.

For the moment though, let's assume this bailout does get signed into law, and look how that may impact real estate investors, and the market as a whole.

Most people are looking at the bill as a way to bailout greedy lenders and irresponsible borrowers, as opposed to fixing financial systems that created the problem.

The reason the banks love this bill is it allows them to wipe the really bad loans off their balance sheet, because the government is guaranteeing them. If someone defaults on the loan, the loss is basically insured (subsidized) by the government (taxpayers or Freddie/Fannie). (See more details: http://article.nationalreview.com/?q=MmEwYzQ1NmY2NDc1ZGIzNTIzZDVkMTRhMzg...)

But in terms of the direct impact on the housing market as a whole, it is hard to say the degree it could help it. Perception plays a large role in markets. Just the perception that this bill is a fix-all could change the dynamics of the market.

Next, the extent of the households that will actually be able to save their homes is unpredictable right now. The key part of the bill is it allows owners to refinance the loan amount at a amount lower than the original, along with the terms. So if you bought your home at the top, for say $300k, you could possibly refi it at $200k, with a traditional loan schedule. The caveat is that the owner must agree to forgo some of the profits when the homes is sold to make up for the reduced rate.

In all, the details sound rather fishy to me. The major perk in the whole thing is for the banks being able to write off all that really nasty paper that is almost guaranteed to default anyways. I haven't had time to read the bill in it's entirety.

Naturally, we would assume if bill is signed in, it will reduce foreclosures. By a lot or a little... who knows. But any reduction in the inventory should have a positive impact on prices, even if it is a tiny impact.

However, with owners being able to refi at lower costs, does this mean houses are worth less? They paid less in reality, even though the Recorder's office doesn't reflect this.

Also, now that they are able to possibly sell their house closer to current market prices without being deep underwater, or even above water in cases, will this create just as much supply through owner originated sales as the foreclosures would have generated?

Or, do owners now have an incentive to stay in their house because they got a smoking deal via the bailout? I guess that depends on how much of a discount the lenders offer.

My initial impression so far is the bill might give new hope to homeowners, and reduce some foreclosures, which we be touted as a indicator it worked and the market is booming again. This will probably make the really really good deals out there dry up, but won't be sending real estate soaring, and it will still be a buyers market. Once I get more data and projections, and read the entire bill, I will have more solid opinion. If nothing else, it is another reason to try to get the really good deals now, because even without this bill I believe the window for them is shrinking with every passing day, not growing.

What are your impressions on it? Has anyone here read the bill yet and have more details to fill in on it?