By Becky Yerak 
February 11, 2009
Illinois bankers look for more details in administration’s bailout plan

Treasury promises to help homeowners, but the potential reality remains a mystery.

The government’s latest bank bailout plan commits $50 billion to
prevent "avoidable" foreclosures, but details on how the money will be
spread around are in short supply, bankers and a consumer group said.

As part of the trillion-dollar-plus program unveiled Tuesday to
stabilize financial markets, the Treasury Department said the funds
would be used to reduce monthly payments of "owner-occupied
middle-class homes."

"It’s a great start," said Tom Feltner, policy director for the
Woodstock Institute, a Chicago-based economic development non-profit.
"But we need details on how it will specifically help those homeowners
as quickly as possible to avoid more foreclosures."

The Woodstock Institute would like to see reductions of interest
rates and principal for homeowners who owe more than their houses are
worth, not just extended loan terms.

Details of the housing program are promised in the next few weeks, the Obama administration said.

The head of the Community Bankers Association of Illinois said it
likes an initiative that would boost small-business and community bank
lending. The Small Business Administration’s flagship 7(a) loans were
down 57 percent in the quarter ended Dec. 31, compared with the same
period a year ago.

"Quite a few of our members historically have used SBA loan programs," said Robert Wingert, the bankers association president.

Peter Cook, chief investment officer for Performance Trust
Investment Advisors, a Chicago-based investment firm, said the plan
largely appeared to be "warmed-over TARP One." The Troubled Asset
Relief Program was the much-criticized first leg of the bank bailout
plan in which capital was injected into banks.

Supply and demand imbalances in the mortgage market are the central problems that must be addressed, said Cook.

Treasury Secretary Timothy Geithner "provided broad guidelines but
did not drill down and give details," Cook said. "[President Barack] Obama said we’re going to do something bold and new, and it was neither
bold nor new."

But Robert Gecht, chief executive of Albany Bank & Trust, said
the plan serves to beef up capital levels of needy banks. While Albany
doesn’t want or need any government money, Gecht said committing up to
$1 trillion for consumer and business lending as well as undertaking
efforts to get distressed assets off of banks’ books should help
financial markets.

Stephen Calk, chairman and CEO of mortgage banking firm Chicago
Bancorp, sees evidence that the government is realizing that to
stabilize the economy it must first stabilize housing prices.

"The only way to stabilize home prices is to increase demand for
the existing inventory of housing stock," Calk said. "To increase
demand, the government believes that lower mortgage rates will motivate
more potential buyers to move into the market."

The Treasury said that it and the Federal Reserve remain committed
to expand as necessary the Fed’s efforts to help drive down mortgage
rates by spending as much as $600 billion on government-sponsored
entities’ mortgage-backed securities and related debt.

"These are good loans given to good borrowers with good credit who
can and will make their mortgage payments," Calk said. "Balance sheets
of the big money-center banks like Citibank, JPMorgan Chase and Wells
Fargo aren’t big enough to fund the demand for mortgage products on
their own and so they will use the [government-sponsored enterprises] Fannie Mae and Freddie Mac."

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