As Reported by the Tuolumne County Association of Realtors:
2008, 3rd Quarter
Homes Sold 111
Median Price $305,000
Total $ Sold $36,137,460
2007 3rd Quarter
Homes Sold 135
Median Price $340,000
Total $ Sold $49,902,204
2008 YTD
Homes Sold 314 (54 REO, 13 Short Sale)
Median Price $299,000
(REO $239,070, Short Sale $255,000, Privately Owned $317,000)
Total $ Sold $101,918,612
2007 YTD
Homes Sold 398
Median Price $333,500
Total $ Sold $147,711,054
Thursday, October 30, 2008
Tuesday, October 28, 2008
Largest Monthly Home Sales % Increase in 5 Years
Good News for Real Estate? Largest Monthly Home Sale Percentage Increase in 5 Years Reported
RISMEDIA, Oct. 27, 2008-Due to falling real estate prices and rising foreclosures on the West Coast, sales of existing homes rose to its highest level in 13 months and highest percentage increase in five years, according to a report issued today by the National Association of Realtors (NAR). The increase resulted from buyers responding to improved housing affordability conditions, the organization stated.
Existing-home sales-including single-family, townhomes, condominiums and co-ops-rose 5.5% to a seasonally adjusted annual rate of 5.18 million units in September from a level of 4.91 million in August, and are 1.4% higher than the 5.11 million-unit pace in September 2007.
Lawrence Yun, NAR chief economist, said more markets are seeing year-over-year gains. “The sales turnaround which began in California several months ago is broadening now to Colorado, Kansas, Minnesota, Missouri and Rhode Island,” he said. “The South was hampered by much lower home sales in Houston in the aftermath of Hurricane Ike.”
NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said low home prices and low interest rates have been attracting buyers. “This is the first time since November 2005 that home sales have been above year-ago levels,” he said. “Credit tightened at the end of September, but the improvement demonstrates that buyers who’ve been on the sidelines want to get into the market to make a long-term investment in their future.”
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.04% in September from 6.48% in August; the rate was 6.38% in September 2007.
Yun said there may be market disruptions. “The credit markets are not settled yet, although the mortgage market stabilized with the government takeover of Fannie Mae and Freddie Mac. Inventory remains high, and price declines are pressuring owners,” he said. “Additional housing stimulus would stabilize prices more quickly, which in turn would bring faster stability to Wall Street. Removing the repayment feature on the first-time buyer tax credit and permanently raising loan limits would bring more buyers into the market and further reduce inventory.”
Total housing inventory at the end of September fell 1.6% to 4.27 million existing homes available for sale, which represents a 9.9-month supply² at the current sales pace, down from a 10.6-month supply in August. This marks two consecutive monthly declines since inventories peaked in July.
The national median existing-home price for all housing types was $191,600 in September, down 9.0% from a year ago when the median was $210,500. “Compared to a fairly small share of foreclosures or short sales a year ago, distressed sales are currently 35 to 40% of transactions. These are pulling the median price down because many are being sold at discounted prices,” Yun explained. “The current market is not being dominated by speculative investors. Rather, 80% of current buyers are purchasing a primary residence, which is a bit higher than historic norms.”
Single-family home sales increased 6.2% to a seasonally adjusted annual rate of 4.62 million in September from a pace of 4.35 million in August, and are 3.8% above the 4.45 million-unit level a year ago. The median existing single-family home price was $190,600 in September, which is 8.6% below September 2007.
Existing condominium and co-op sales were unchanged at a seasonally adjusted annual rate of 560,000 units in September, but are 15.7% below the 664,000-unit pace in September 2007. The median existing condo price4 was $199,400 in September, down 10.2% from a year ago.
Regionally, existing-home sales in the West jumped 16.8% to an annual rate of 1.25 million in September, and are 34.4% higher than September 2007. The median price in the West was $253,600, down 18.5% from a year ago.
In the Midwest, existing-home sales increased 4.4% to an annual pace of 1.19 million in September, but are 2.5% below a year ago. The median price in the Midwest was $152,500, which is 7.9% lower than September 2007.
Existing-home sales in the South rose 2.2% in September to a pace of 1.90 million but remain 7.8% below September 2007. The median price in the South was $167,200, down 4.1% from a year ago.
In the Northeast, existing-home sales slipped 1.2% to an annual pace of 840,000 in September, and are 7.7% lower than a year ago. The median price in the Northeast was $246,800, down 5.4% from September 2007.
Locally, we are still seeing a slight decrease in numbers of listings, slight increase in days on market, but multiple offers are coming in, especially on the lower priced homes. This is a great opportunity for first time homebuyers and investors, to get in on the market before prices shift upward again.
Friday, October 24, 2008
Twain Harte, CA Market Report
Twain Harte is situated at 3,400 feet in elevation, with thick pine forests and spectacular displays of dogwoods in late spring. Visitors flock to this mountain community year-round for a wide range of outdoor activities including: hiking, mountain biking, kayaking, camping, fishing, swimming, rafting, golfing, showshoeing, cross country and downhill skiing. Twain Harte is the gateway to the Dodge Ridge ski area. This quaint Sierra town is home to a variety of local shops, art galleries, antique stores and restaurants. There are many vacation homes and rental cabins available for families and groups to enjoy that special time together, as well as lodges and bed and breakfasts.
The Twain Harte market has shifted into more of a "Buyer's" market, prices have dropped, but are leveling off. There are currently 148 listings on the market in the Twain Harte area, with average sales price of $364,310, median sales price of $329,000, and days on market 169. Prices continue to drop slightly, and the interest rates are excellent now.
Sonora, CA Market Report
Sonora, the County Seat of Tuolumne County, is located just 3 miles from Jamestown on Highway 49. At an elevation of 1,825 feet, Sonora is a colorful, bustling little city and is the market center for a large area. An air of progressive commercialism has been superimposed on this one-time rowdy mining camp.Many relics from its flamboyant past remain,including a large collection of Victorian homes, many of which are now bed and breakfasts. Sonora is also the junction of Highways 49 and 108. The city hosts the Mother Lode Roundup every Mother's Day weekend with one of the largest and oldest parades in California. The St. James Episcopal Church (painted a dark red) was built in 1860 and is said to be the second oldest Episcopal church of frame construction in California. Many of the businesses are housed in buildings over 100 years old.
The Real Estate Market in Sonora and the surrounding area has slowed down in the past year or so, with prices declining, and days on market increasing. We are definitely in a "Buyer's" market. There are currently 287 Residential listings, with an average price of $417,087, median price of $364,900, and average days on market 172. Our inventory has dropped lately, and pricing continues to decline slightly.
Jamestown, CA Market Report
Located in Tuolumne County , Jamestown is a small Gold Rush town situated in the Sierra Nevada foothills of North California at an elevation of 1,477 feet, with an estimated population of 2,178.Main Street shops are full of visitors from around the world shopping for antiques, original art, gifts and souvenirs. In an area surrounded by award-winning wineries, you can enjoy an outdoor paridise - from skiing to hiking, boating and fishing or take a train ride on an historic and famous train. Because we are in the heart of California's historic Gold country, you can even pan for gold!
The Real Estate Market in Jamestown and the surrounding area has been thriving the past few years, setting record-level prices.Prices have dropped in the past year, and we are in a "Buyer's" market. There are currently 61 Residential listings, with an average sales price of $411,963, median sales price of $299,900, and 154 average days on market. Prices continue to drop slightly, and interest rates are very favorable.
Arnold, CA Market Report
Arnold, CA is situated at 4,000 feet in elevation, with thick pine forests and spectacular displays of dogwoods in late spring. Visitors flock to this mountain community year-round for a wide range of outdoor activities including: hiking, mountain biking, kayaking, camping, fishing, swimming, rafting, golfing, showshoeing, cross country and downhill skiing. Arnold is the gateway to the Calaveras Big Trees State Park, the magnificient Stanislaus National Forest and the Ebbetts Pass National Scenic Byway. This quaint Sierra town is home to a variety of local shops, art galleries, antique stores and restaurants. There are many vacation homes and rental cabins available for families and groups to enjoy that special time together, as well as lodges and bed and breakfasts.
The Arnold Real Estate market is thriving. Prices have dropped in the past year, but are beginning to level off now, and we are in a "Buyer's" market. There are currently 211 Residential listings, median price $369,500, and the average Days on Market is 114. The number of active listings has reduced slightly lately, as well as the Days on Market, and the interest rates continue to be very favorable.
Angels Camp, CA Market Report
Angels Camp, CA is located in the beautiful Sierra Foothills, elevation 1800 feet, home of the Mark Twain story "The Celebrated Jumping Frog of Calaveras County". Angels Camp, also known as the real "City of Angels", is the only incorporated city in Calaveras County and is home to numerous attractions including a championship golf course, New Melones Lake, historic monuments, the Angels Camp Museum and Carriage House, and a charming downtown Main Street filled with distinctive shops.
The Angels Camp market is in a "Buyer's" market, with currently 127 Residential listings, and a median price of $397,000. Average Days on Market is currently 127, and is improving. Home prices have dropped in the past year, but are levelling off. The number of active listings has also reduced lately, and interest rates continue to be very favorable.
Tuesday, October 7, 2008
Tuolumne County Market Stats
Tuolumne County Market Stats September, 2008:
Residential homes Sold 29
Average price $375,431
Average days on market 182
Sold per price range
Up to $199,000 2
200-299k 7
300-399k 10
400-499k 7
500-599 2
600-999k 0
one home sold $1,075,000
NO land sales for September
Mobile homes sold 7
Average price 92,485
Average days on market 158
Report submitted by Linda Olson, Realtor, Prudential California Realty. linda@pcr1.com 209.743.8414
Residential homes Sold 29
Average price $375,431
Average days on market 182
Sold per price range
Up to $199,000 2
200-299k 7
300-399k 10
400-499k 7
500-599 2
600-999k 0
one home sold $1,075,000
NO land sales for September
Mobile homes sold 7
Average price 92,485
Average days on market 158
Report submitted by Linda Olson, Realtor, Prudential California Realty. linda@pcr1.com 209.743.8414
Friday, October 3, 2008
Hope for Homeowner's Program
Bush Admin Launches ‘Hope for Homeowners’ Program to Help Struggling Families
RISMEDIA, Oct. 3, 2008-This week, the Bush Administration unveiled additional mortgage assistance for homeowners at risk of foreclosure. The HOPE for Homeowners Program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD’s Federal Housing Administration (FHA).
RISMEDIA, Oct. 3, 2008-This week, the Bush Administration unveiled additional mortgage assistance for homeowners at risk of foreclosure. The HOPE for Homeowners Program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD’s Federal Housing Administration (FHA).
“For families struggling to keep up with their mortgage payments, this program will be another resource to refinance into a loan they can afford,” said HUD Secretary Steve Preston. “FHA remains a safe and affordable alternative to the high-priced mortgage loans that threaten homeowners’ ability to retain their homes. We strongly encourage borrowers to work with their lenders to determine if HOPE for Homeowners is the right program for them.”
The HOPE for Homeowners program was authorized by the Economic and Housing Recovery Act of 2008. Since the President signed this vital legislation into law on July 30, 2008, the HOPE for Homeowners Board of Directors has worked diligently to develop and implement the program as directed by Congress. The Board was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage.
The HOPE for Homeowners program ends September 30, 2011. The program is available only to owner occupants and will offer 30-year fixed rate mortgages - so the borrower’s last payment will be the same as the first payment. In many cases, to avoid what would be an even costlier foreclosure, banks will have to write down the existing mortgage to 90% of the new appraised value of the home.
Borrower Eligibility
Borrowers are encouraged to contact their lender to determine eligibility, but may be eligible if, among other factors:
- The home is their primary residence, and they have no ownership interest in any other residential property, such as second homes.- Their existing mortgage was originated on or before January 1, 2008, and they have made at least six payments.- They are not able to pay their existing mortgage without help.- As of March 2008, their total monthly mortgage payments due were more than 31% of their gross monthly income.- They certify they have not been convicted of fraud in the past 10 years, intentionally defaulted on debts, and did not knowingly or willingly provide material false information to obtain their existing mortgage(s).
How the HOPE for Homeowners program works:
“HOPE for Homeowners will add to HUD’s existing efforts to make FHA refinancing available to homeowners who need it most,” said FHA Commissioner Brian D. Montgomery. “One year ago, FHA expanded refinancing into its FHASecure program. Since that time, we have helped more than 360,000 families keep their homes by refinancing with FHA, and we will assist a total of 500,000 families by the end of this year.”
“HOPE for Homeowners will add to HUD’s existing efforts to make FHA refinancing available to homeowners who need it most,” said FHA Commissioner Brian D. Montgomery. “One year ago, FHA expanded refinancing into its FHASecure program. Since that time, we have helped more than 360,000 families keep their homes by refinancing with FHA, and we will assist a total of 500,000 families by the end of this year.”
The board expects that the primary way homeowners will participate in the program is by working with their current lender. HOPE for Homeowners will serve as another loss mitigation tool available to distressed borrowers.
HOPE for Homeowners also includes the following provisions:
- The loan amount may not exceed a maximum of $550,440.- The new mortgage will be no more than 90% of the new appraised value including any financed Upfront Mortgage Insurance Premium.- The Upfront Mortgage Insurance Premium is 3% and the Annual Mortgage Insurance Premium is 1.5%.- The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.- The existing first mortgage must accept the proceeds of the HOPE for Homeowners loan as full settlement of all outstanding indebtedness.- Existing subordinate lenders must release their outstanding mortgage liens.
Standard FHA policy regarding closing costs applies, and they may be:
- Financed into the new loan provided the value of the mortgage (including the Upfront Mortgage Insurance Premium) does not exceed 90% of the new appraised value of the home.- Paid from the borrowers’ own assets.- Paid by the servicing lender or third party (e.g., federal, state, or local program).- Paid by the originating lender through premium pricing.- The borrower must agree to share with FHA both the equity created at the beginning of this new mortgage and any future appreciation in the value of the home.- The borrower cannot take out a second mortgage for the first five years of the loan, except under certain circumstances for emergency repairs.
The lender will disclose to the homeowner the benefits of the program including home retention, a new affordable mortgage based on the current appraised value, and 10% equity. The lender will also explain the prohibition against new junior liens against the property unless directly related to property maintenance, and a minimum of 50% equity and appreciation sharing with the Federal government.
The costs to the homeowner include the upfront and annual insurance premiums, as well as a share of the equity created by the write-down associated with the HOPE for Homeowners mortgage and any future appreciation in the value of the home. At settlement, subordinate lien holders will receive a certificate that evidences their interest as an obligation backed by HUD, with payment conditional on the value of HUD’s appreciation share.
If the home is sold or refinanced, the homeowner will share the equity with FHA on a sliding scale ranging from a 100% FHA share after the first year to a minimum of 50% after five years. The lien holder that previously held the highest priority will receive payment up to a proportion of its original interest, not to exceed the amount of available appreciation. This type of delayed payoff will take place until all prior lien holders are satisfied or the amount of available appreciation is exhausted. All remaining appreciation is remitted to FHA.
The HOPE for Homeowners Board of Directors includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and FDIC Chairman Sheila Bair. They have named the following people to serve on the board as their designees: FHA Commissioner and Chairman of the Board Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel, and Federal Deposit Insurance Corporation Director Tom Curry.
Thursday, October 2, 2008
The Bailout: An Owner's Manual
This dialogue on the U.S. Financial Bailout is perhaps the best explanation thus far.
What about oversight?
The Treasury secretary would periodically submit to Congress a detailed report of the bailout's progress, including all financial transactions and the "types of parties involved." In addition, every quarter, a special inspector general would provide Congress with a report including all purchases made and income received from the bailout.
How much will it cost?
The initial addition to the federal debt would be $700 billion, although the Congressional Budget Office believes the net budget loss will be "substantially smaller" because the government can recoup some of its losses and perhaps sell the securities for a profit later. There are also administrative costs, which the CBO currently estimates at perhaps "a few billion dollars per year."
However, the newly added tax provisions of the bill alone will cost the government an additional $110.4 billion by 2018, according to a just-released study by Congress' Joint Committee on Taxation. Only $3.4 billion of that is related to the "bailout" portion of the bill. The AMT fix and the extension of certain tax incentives will cost $107 billion over the next 10 years. The energy provisions are completely paid for.
Is it big enough?
Probably. The administration asked Congress for $700 billion, thinking that was a large enough number to restore confidence to the markets, clean up the balance sheets of troubled companies and prevent it from asking for more. One thing that might help: Under the current version of the bill, banks issue the Treasury stock warrants, giving taxpayers a chance at making money once the crisis subsides.
That isn't going to be the only remedy, though. Already the Federal Deposit Insurance Corp. (FDIC) has stepped up its oversight of troubled banks, and the agency is taking a more aggressive view to recapitalizing banks or forcing mergers of strong banks with weak banks before they fail.
The Federal Reserve is also playing its part. It is pumping hundreds of billions into the banking system--nearly $1 trillion in actions announced this week--to help alleviate the pressure on balance sheets as banks reduce their leverage. The Fed will continue to flood the system with money through the next few months, with the year-end balance sheet preparation looming.
What happens to the companies who participate?
They will have to give the government the ability to acquire shares and executives at the companies will be subject to more restrictive compensation rules. There is the possible stigma of participating, since it may make them appear to be weak. But if everybody does it. ...
So who will use it and who won't?
Joshua Siegel from StoneCapital Partners, a New York private equity firm that invests in small banks, says the regional banks stand to gain the most from the plan. That is a group that includes National City (nyse: NCC - news - people ), Fifth Third (nasdaq: FITB - news - people ), Sovereign, Colonial BancGroup (nyse: CNB - news - people )--all companies whose shares have been pounded down in the market tumult. In addition, the American Bankers Association has pressed to make sure it's available to all 7,000-plus banks, not just those with big mortgage exposure.
But will the big banks use it? "They could say 'I can make it without it,' " Siegel says, "or they could take a little" and see what happens. Citigroup (nyse: C - news - people ), which bought Wachovia (nyse: WB - news - people ), still has more than $500 billion of assets it wants to unload gradually. JPMorgan Chase (nyse: JPM - news - people ) is taking on Washington Mutual (nyse: WM - news - people ) and its $1.9 billion in assets and liabilities. Bank of America (nyse: BAC - news - people ) is dealing with absorbing Merrill Lynch (nyse: MER - news - people ) and Countrywide Financial (nyse: CFC - news - people ).
JPMorgan's CEO James Dimon supports the plan but says he's not inclined to use it. Though he may change his mind after it becomes clear just how the program is going to work.
What's the best case scenario for the bailout?
That credit markets start functioning properly again, and the government can turn a profit on the sale of the assets it buys. The former scenario will become evident in the next several months, the latter could take years.
That doesn't mean the U.S. economy will become healthy again overnight, however. Stephen Auth, chief investment officer for Federated Investors (nyse: FII - news - people ), says to expect more bad economic news for at least the next couple of quarters, including unemployment levels at 7% or higher. "This is going to throw up a breakwater and keep it from swamping the whole system," he says of the bailout.
What's the worst case?
It simply doesn't work. Credit markets remain gummed up, borrowing and lending for consumers and businesses of all sizes comes to a halt and banks continue to fail. That could lead to a prolonged recession. There's also the possibility that the expansion of insurance caps on bank deposits won't do much to help small businesses, which typically need to insure more than $250,000.
In addition, if the government can't make any money from the purchase of these assets, it saddles Americans with more debt and higher interest rates, perhaps for years to come.
Is there a Plan B?
No. Once Congress passes a bailout package, it will almost certainly not give the administration any more money to rescue the economy.
But there are other ways to help the banking system help itself. For example, Citigroup announced it would buy Wachovia's deposits, assets and holding company debt for $2 billion in a transaction assisted by the FDIC. The government is providing a backstop on all but $42 billion of Wachovia's $312 billion of risky assets.
There's no reason the FDIC can't help structure other transfers like this, with no cost to its deposit fund, protection for all general creditors and limited exposure to taxpayers. "This does not require legislation," says William Isaac, the former FDIC chairman who used a similar technique to rescue Continental Illinois from failure in the 1980s. "The FDIC already has been granted this authority. It just needs to use it."
How will we know if it is working or not?
Several indicators will be of use, according to Auth of Federated Investors. Right now, the London Interbank Overnight Rate (LIBOR)--a rate banks charge each other to borrow--is at a record high, around 5%. Once it starts to come down, that's a good indication that credit markets are starting to function properly again. Same goes for "TED spreads"--the difference between three-month contracts for Treasury bills and eurodollars.
In addition, Auth says more capital moving into the financial sector is an indication that the bailout is a success. That's already started to happen, as indicated by Warren Buffett's recent investments in General Electric (nyse: GE - news - people ) and Goldman Sachs (nyse: GS - news - people ).
The Bailout: An Owner's Manual
by Brian Wingfield and Liz MoyerThursday, October 2, 2008, provided by FORBES
Washington, D.C. -
The "bailout bill" is back in play. The Senate's passage Wednesday night of a modified version of it puts pressure on the House of Representatives to approve it.
Whether that happens is another story. A vote is most likely Friday, but many House Democrats don't like the new version of the bill because it contains some expensive add-ons, including a provision that keeps the alternative minimum tax (AMT) from encroaching upon the middle class in 2008, clean energy tax incentives, disaster relief and the extension of expiring tax cuts for businesses and individuals. It also expands government insurance on bank deposits from $100,000 to $250,000 through 2009.
Lawmakers still have many questions about the bill under consideration. So do we.
by Brian Wingfield and Liz MoyerThursday, October 2, 2008, provided by FORBES
Washington, D.C. -
The "bailout bill" is back in play. The Senate's passage Wednesday night of a modified version of it puts pressure on the House of Representatives to approve it.
Whether that happens is another story. A vote is most likely Friday, but many House Democrats don't like the new version of the bill because it contains some expensive add-ons, including a provision that keeps the alternative minimum tax (AMT) from encroaching upon the middle class in 2008, clean energy tax incentives, disaster relief and the extension of expiring tax cuts for businesses and individuals. It also expands government insurance on bank deposits from $100,000 to $250,000 through 2009.
Lawmakers still have many questions about the bill under consideration. So do we.
A guide: How does it work?
The bailout plan gives the Treasury extremely broad authority to buy up to $700 billion in troubled assets, like mortgage-backed securities, from firms that are having difficulty selling them. Uncle Sam can also insure these assets instead of buying them.
The idea is to get these securities off firms' books--or at least give them a government guarantee--so that these businesses can more easily lend and borrow again. Only assets that were originated on or before March 14, 2008, are eligible. The Treasury has through 2009 to use the funds.
Once the bill becomes law, the Treasury will hire a team of consultants and managers to help the government figure out what to buy. This group will also assist the Treasury in determining how to price the assets, which are now tough to value. The most likely scenario is an auction. The Treasury could sell the securities for a profit at a later date. If there is a net loss, in 2013, the president will have to come up with a report to recoup the shortfall--however, only an act of Congress can put that plan in place.
The bailout plan gives the Treasury extremely broad authority to buy up to $700 billion in troubled assets, like mortgage-backed securities, from firms that are having difficulty selling them. Uncle Sam can also insure these assets instead of buying them.
The idea is to get these securities off firms' books--or at least give them a government guarantee--so that these businesses can more easily lend and borrow again. Only assets that were originated on or before March 14, 2008, are eligible. The Treasury has through 2009 to use the funds.
Once the bill becomes law, the Treasury will hire a team of consultants and managers to help the government figure out what to buy. This group will also assist the Treasury in determining how to price the assets, which are now tough to value. The most likely scenario is an auction. The Treasury could sell the securities for a profit at a later date. If there is a net loss, in 2013, the president will have to come up with a report to recoup the shortfall--however, only an act of Congress can put that plan in place.
What about oversight?
The Treasury secretary would periodically submit to Congress a detailed report of the bailout's progress, including all financial transactions and the "types of parties involved." In addition, every quarter, a special inspector general would provide Congress with a report including all purchases made and income received from the bailout.
How much will it cost?
The initial addition to the federal debt would be $700 billion, although the Congressional Budget Office believes the net budget loss will be "substantially smaller" because the government can recoup some of its losses and perhaps sell the securities for a profit later. There are also administrative costs, which the CBO currently estimates at perhaps "a few billion dollars per year."
However, the newly added tax provisions of the bill alone will cost the government an additional $110.4 billion by 2018, according to a just-released study by Congress' Joint Committee on Taxation. Only $3.4 billion of that is related to the "bailout" portion of the bill. The AMT fix and the extension of certain tax incentives will cost $107 billion over the next 10 years. The energy provisions are completely paid for.
Is it big enough?
Probably. The administration asked Congress for $700 billion, thinking that was a large enough number to restore confidence to the markets, clean up the balance sheets of troubled companies and prevent it from asking for more. One thing that might help: Under the current version of the bill, banks issue the Treasury stock warrants, giving taxpayers a chance at making money once the crisis subsides.
That isn't going to be the only remedy, though. Already the Federal Deposit Insurance Corp. (FDIC) has stepped up its oversight of troubled banks, and the agency is taking a more aggressive view to recapitalizing banks or forcing mergers of strong banks with weak banks before they fail.
The Federal Reserve is also playing its part. It is pumping hundreds of billions into the banking system--nearly $1 trillion in actions announced this week--to help alleviate the pressure on balance sheets as banks reduce their leverage. The Fed will continue to flood the system with money through the next few months, with the year-end balance sheet preparation looming.
What happens to the companies who participate?
They will have to give the government the ability to acquire shares and executives at the companies will be subject to more restrictive compensation rules. There is the possible stigma of participating, since it may make them appear to be weak. But if everybody does it. ...
So who will use it and who won't?
Joshua Siegel from StoneCapital Partners, a New York private equity firm that invests in small banks, says the regional banks stand to gain the most from the plan. That is a group that includes National City (nyse: NCC - news - people ), Fifth Third (nasdaq: FITB - news - people ), Sovereign, Colonial BancGroup (nyse: CNB - news - people )--all companies whose shares have been pounded down in the market tumult. In addition, the American Bankers Association has pressed to make sure it's available to all 7,000-plus banks, not just those with big mortgage exposure.
But will the big banks use it? "They could say 'I can make it without it,' " Siegel says, "or they could take a little" and see what happens. Citigroup (nyse: C - news - people ), which bought Wachovia (nyse: WB - news - people ), still has more than $500 billion of assets it wants to unload gradually. JPMorgan Chase (nyse: JPM - news - people ) is taking on Washington Mutual (nyse: WM - news - people ) and its $1.9 billion in assets and liabilities. Bank of America (nyse: BAC - news - people ) is dealing with absorbing Merrill Lynch (nyse: MER - news - people ) and Countrywide Financial (nyse: CFC - news - people ).
JPMorgan's CEO James Dimon supports the plan but says he's not inclined to use it. Though he may change his mind after it becomes clear just how the program is going to work.
What's the best case scenario for the bailout?
That credit markets start functioning properly again, and the government can turn a profit on the sale of the assets it buys. The former scenario will become evident in the next several months, the latter could take years.
That doesn't mean the U.S. economy will become healthy again overnight, however. Stephen Auth, chief investment officer for Federated Investors (nyse: FII - news - people ), says to expect more bad economic news for at least the next couple of quarters, including unemployment levels at 7% or higher. "This is going to throw up a breakwater and keep it from swamping the whole system," he says of the bailout.
What's the worst case?
It simply doesn't work. Credit markets remain gummed up, borrowing and lending for consumers and businesses of all sizes comes to a halt and banks continue to fail. That could lead to a prolonged recession. There's also the possibility that the expansion of insurance caps on bank deposits won't do much to help small businesses, which typically need to insure more than $250,000.
In addition, if the government can't make any money from the purchase of these assets, it saddles Americans with more debt and higher interest rates, perhaps for years to come.
Is there a Plan B?
No. Once Congress passes a bailout package, it will almost certainly not give the administration any more money to rescue the economy.
But there are other ways to help the banking system help itself. For example, Citigroup announced it would buy Wachovia's deposits, assets and holding company debt for $2 billion in a transaction assisted by the FDIC. The government is providing a backstop on all but $42 billion of Wachovia's $312 billion of risky assets.
There's no reason the FDIC can't help structure other transfers like this, with no cost to its deposit fund, protection for all general creditors and limited exposure to taxpayers. "This does not require legislation," says William Isaac, the former FDIC chairman who used a similar technique to rescue Continental Illinois from failure in the 1980s. "The FDIC already has been granted this authority. It just needs to use it."
How will we know if it is working or not?
Several indicators will be of use, according to Auth of Federated Investors. Right now, the London Interbank Overnight Rate (LIBOR)--a rate banks charge each other to borrow--is at a record high, around 5%. Once it starts to come down, that's a good indication that credit markets are starting to function properly again. Same goes for "TED spreads"--the difference between three-month contracts for Treasury bills and eurodollars.
In addition, Auth says more capital moving into the financial sector is an indication that the bailout is a success. That's already started to happen, as indicated by Warren Buffett's recent investments in General Electric (nyse: GE - news - people ) and Goldman Sachs (nyse: GS - news - people ).
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