According to news reports Congress is close to a $700 billion mortgage market bailout plan that will be ready to go to the floor of the House on Monday. It is a compromise measure that both political candidates appear willing to support, and it appears to have enough Congressional support to pass.

The first reports give these details. The plan tentatively includes:

1. A $250 billion initial authorization and $100 billion more that the President can spend if needed. An additional $350 billion will require more negotiation with Congress before it can be spent.

2. No golden parachutes for executives of companies that partake in bailout funds.

3. The government can choose to insure some of the bad mortgages rather than buy them.

4. The government can decide to accept stock warrants from beleagered banks who participate in bailout as a way of taking an equity stake in the eventual recovery.

5. Mortgage lenders will need to first try to negotiate with troubled homeowners to lower payments in lieu of foreclosure.

6.  In 5 years, if sale of the problem assets is not complete, the government will need to propose a new plan for disposal of the bad assets.

It appears that this plan has more oversight and equity-building options built in than the original Bush Administration plan. It seems to have bipartisan support now, including the support of the two presidential candidates.

How will it impact homeowners who are in foreclosure trouble?  Well, it appears that homeowners who have received the cold shoulder from their lenders in the past, will get a second opportunity from many of these lenders to discuss lower payments and other modifications that may make it easier to Avoid foreclosure and/or bankruptcy.

Perhaps the bailout will spell an end to the precipitous slide in housing prices that have ruined many local real estate markets because there will be fewer new foreclosures and less pressure to continually cut prices in order to sell. Banks may no longer have as much incentive to accept rock bottom short sale prices as they will have other options available for getting rid of bad property.

Certainly there will be pressure to increase taxes to pay for the bailout. But the negatives of higher taxes should be less onerous than the catastrophic results of a frozen economy that will make it impossible for many to borrow, drive many companies out of business, cost tens of thousands of jobs, and further fuel foreclosures.

I know that my good friend and real estate coach, Matt Gillogly, is in favor of letting the chips fall where they may with the banking industry and, like most of the callers into Congressional offices this week, is opposed to the bailout.  For Matt’s viewpoint on the matter, see  his blog at Createtrueriches.com.  In theory, I agree, a bailout is a terrible idea.

However, these are terrible times, and there is historical precedent to show that a short term fix of this time can work to make a recession shorter and less painful.  That is a recipe that this economy needs right now.

Liz Nichols

ednenterprises (at) gmail.com