Debt is a word that holds great power, but not for someone who is knee-deep in it. The idea of being in someone else's pocket and spending someone else's money isn't something most people are comfortable with. Although this feeling is especially true when it comes to first time borrowers and low-income households, it's a universal feeling of dread to see that looming threat of defaulting on your loan staring right back at you from your bank statement.
The banking industry takes on this debt, and it's associated risks, in order to earn a profit by charging interest. If too many of a bank's loans default, the bank will go under. Banks can lessen their risk greatly with Federal Loans. Federal Loans are loans backed by the full faith and credit of the United States Government.
The Fall of Federal Loans
You can trace government guarantee and federal loan woes all the way back to the Great Depression. Regarded as one of the most severe economic catastrophes in the world, this well documented era in American history is now being re-examined as lenders, economists, and governments are forced to evaluate the status of the current U.S economy.
Coupled with the Savings and Loan Crisis in the 1980s and 1990s, and the more recent housing market crash and financial crisis in 2007, the plague of subprime mortgages and the backlash of risky investment vehicles have turned the financial lending system on its head.
From Recession to Progression
With emphasis on the most recent recession, these economic downturns have been the very jolt the world governments needed to re-evaluate and rethink their positions. When it comes to Federal Loans, the system needs to be restructured to find the perfect balance between offering the lowest possible interest rates while maintaining the government's guarantee that the borrowers will not default. The Federal Reserve has taken keys steps in addressing this issue by:
- Purchasing more than $1 trillion in mortgage-backed bonds to add liquidity to the housing market.
- Supporting currency swaps with foreign banks to supply U.S dollars overseas.
- Floating an extra $200 billion to free up cash for credit card, car, student, and small business loans.
Federal Loans have come a long way in a very short span of time. Despite the recent economic upheavals, hundreds of thousands of Americans are slowly gaining back their confidence in letting their credit do the talking. The shift isn't expected to be done overnight. But just like any home, you begin by building it brick by brick.
Rana Foroohar of Newsweek describes what she calls "New Normal", the new lifestyle standard that has followed the wake of the recent recession. With the economy slowly gearing back up to a running start, most of the news is surprisingly good. Since the last two years, personal savings rates have quadrupled to over 4.5 percent, with a majority of Americans planning to save up to 15 percent of their income in the future.
With the general populace less likely to default on their loans, lenders will be more inclined to lend financial aid to potential borrowers. Backed with the reinvigorated guarantees from the government to insure these loans, new confidence is successfully injected into U.S markets.
The Confidence of Federally Backed Loans
It's quite timely to note that the economy and the federal loan system have begun to pick themselves up in time for a new decade. Although the economy still has a long way to go before returning to the financial utopia many economists had thought it was, we're definitely headed in the right direction. From USDA housing loans that cater to low and mid-income rural Americans, to military housing loans that guarantee financial aid for American military veterans, there are a wealth of programs that have been designed to cater to your specific financial needs.
Also, the Federal Housing Administration (FHA), which has been insuring financial aid to millions of Americans since the 1930s; is continuing to make good on its commitment to provide service for everyone from new home buyers to senior citizens.
With confidence quickly being instilled back into the market with federal loans, you can definitely start etching a new home into your plans without running the risk of an empty bank account.
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