Underwater

In 2008 the big banks were in trouble because there were so many home loans that were underwater, meaning the appraised value of the home was less than the mortgage owed. Homeowners, many of who had little to no equity in the house, walked away from their homes and turned them back to the banks. This put the banks in jeopardy and the government stepped in to help by bailing out the banks. The Troubled Asset Relief Program initially gave the Treasury purchasing power of $700 billion to buy illiquid mortgage-backed securities and other assets from key institutions in an attempt to restore liquidity to the money markets. The fund was created on October 3, 2008 with the passage of the Emergency Economic Stabilization Act Many people wondered at that time why the government didn’t bail out the homeowners instead. Here is what the situation looked like in 2008. Nearly 29 percent of U.S. homeowners with mortgages owe more on their homes than their properties are worth — the definition of "underwater." That's about 14.7 million borrowers, and they collectively owe $700 billion. Notice that the 700 billion needed to pay off the loans of all the homes underwater was the same amount given to the banks. If all these home owners had paid off their loans the banks would not have needed the bailout. As a matter of fact the government would have only needed to pay off a portion of the loans, enough to bring them above water and these homeowners could have remained in their homes.