The Treasury Department Tuesday morning said it would use $250 billion of taxpayer money earmarked for the new Troubled Asset Relief Program to invest in dozens of the nation's depositories, including some of the largest: Bank of America (which now owns Countrywide Home Loans), Citigroup, JPMorgan Chase, Merrill Lynch, and Wells Fargo.
All are key players in the residential mortgage market both as servicers and lenders. BoA, Wells, and Chase rank one, two, and three, respectively in terms of home mortgage servicing rights, controlling 52.13% of the market, according to National Mortgage News and the Quarterly Data Report. Specifically, Treasury is buying preferred stock in these banks but is also requiring that all continue to "strengthen their efforts to help struggling homeowners" who might go into foreclosure. Treasury hopes by investing in such pillars of the banking community it will send a message to investors worldwide that it stands behind these lenders.
The agency hopes its actions will loosen up credit conditions in the commercial paper market. "Our goal is to see a wide array of healthy institutions sell preferred shares to the Treasury and raise additional capital so they can make more loans to businesses and consumers across the nation," Treasury Secretary Henry Paulson said.
Participating banks and thrifts will have to agree to limit executive compensation and boost their loan modification efforts. In conjunction with Treasury's plan, Federal Deposit Insurance Corp. is starting a temporary program to guarantee newly issued promissory notes, commercial paper and other unsecured bank senior debt with maturities not to exceed three years