Question

Which one of the following was a major initiative of the Obama administration to deal with home mortgage foreclosures? (LOI0) a) TARP b) A federal funds rate of virtually zero c) A \(\$ 275\) billion program to lower mortgage payments, help mortgage refinancing, and provide \(\$ 200\) billion to Freddic Mac and Fannie Mac d) \(\Lambda\) massive tax cut to the middle class and working class

Short answer

The correct answer is (c) - A \(275 billion program to lower mortgage payments, help mortgage refinancing, and provide \)200 billion to Freddie Mac and Fannie Mae. This was a major initiative of the Obama administration specifically designed to address the home mortgage foreclosure crisis.

Step-by-step solution

Understand TARP (Choice a)

TARP stands for the Troubled Asset Relief Program, which was a program for the United States government to purchase toxic assets and equity from financial institutions following the 2008 financial crisis. Although it helped stabilize the financial markets, it wasn't an initiative specifically designed for home mortgage foreclosures.

Understand the Federal Funds Rate (Choice b)

The Federal Funds rate is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. Lowering this rate, as seen in the choice (b), could stimulate the economy, but it is not directly related to dealing with home mortgage foreclosures.

Understand the \(275 billion Program (Choice c)

Choice (c) refers to a specific program that aimed to lower mortgage payments, help mortgage refinancing, and provide \)200 billion to Freddie Mac and Fannie Mae, two major government-sponsored enterprises that buy mortgages and sell them to investors. This program is in line with the major initiative to address mortgage foreclosures.

Understand the Tax Cut (Choice d)

Choice (d) mentions a massive tax cut for the middle and working-class citizens. Although this would give people more money to spend and possibly help them afford their mortgage payments, it's not a direct initiative to handle the home mortgage foreclosure crisis.

Conclusion

The correct answer is (c) - A \(275 billion program to lower mortgage payments, help mortgage refinancing, and provide \)200 billion to Freddie Mac and Fannie Mae. This was a major initiative of the Obama administration specifically designed to address the home mortgage foreclosure crisis.

Key concepts

TARP

The Troubled Asset Relief Program (TARP) represented one of the U.S. government's critical responses to the financial crisis that erupted in 2008.

Initially enacted under the Bush administration, TARP was meant to stabilize the financial system by purchasing troubled assets, primarily mortgage-backed securities, from financial institutions. This would theoretically prevent the collapse of banks burdened by these toxic assets and restore confidence in the financial markets. However, it's important to note that TARP was not exclusively for addressing home mortgage foreclosures. Rather, it aided a broader spectrum of financial institutions that were at risk due to exposure to failing mortgage-related debts.

Federal Funds Rate

The Federal Funds Rate plays a pivotal role in the U.S. economy. It is the interest rate at which depository institutions lend reserve balances to other banks overnight. The Federal Reserve sets this rate to influence economic growth.

When the Federal Reserve lowers the rate, it becomes cheaper for banks to borrow money, which they can then lend to businesses and individuals. These lower interest rates can stimulate economic activity, including spending and investment. However, while it affects a broad array of economic fields, adjusting the Federal Funds Rate is not a measure that directly addresses the specific issue of home mortgage foreclosures.

Obama Administration Economic Initiatives

During President Obama's tenure, a suite of economic initiatives was introduced to combat the Great Recession and its aftermath. One of the central strategies was to alleviate the burden on homeowners facing foreclosure.

The \(275 billion homeowner assistance program was part of the administration's Making Home Affordable plan. This initiative provided direct help by lowering mortgage payments and aiding in refinancing efforts. Additionally, it supplied \)200 billion in support to government-sponsored enterprises Freddie Mac and Fannie Mae, key players in the housing finance market. This approach displayed a targeted method to address the foreclosure crisis and assist homeowners directly impacted by the economic downturn.

Government-Sponsored Enterprises

Government-sponsored enterprises (GSEs) such as Freddie Mac and Fannie Mae play an essential role in the housing finance system of the United States.

These entities are privately-held corporations with public missions to support homeownership and affordable rental housing. They buy mortgages on the secondary market, pool them, and sell them as mortgage-backed securities to investors. By doing so, they help increase the liquidity of the home mortgage market, making homeownership accessible to more Americans. The Obama administration's initiative to provide $200 billion to these GSEs was instrumental in stabilizing the housing market during the crisis and ensuring continued support for mortgage lending and refinancing.