Skip to comments.Kathleen Pender: How mortgage-rate freezes could go wrong
Posted on 12/06/2007 7:53:20 AM PST by SmithL
The Bush administration will unveil its methadone plan for the mortgage crisis today.
Instead of going cold turkey and letting the free market take its course, the administration reportedly has reached an agreement with lenders and mortgage investors to freeze interest rates for a select group of subprime borrowers who made bad, greedy or uninformed decisions.
"You're just giving the junkie more dope," says Christopher Whalen, managing partner with Institutional Risk Analytics, a consulting firm.
Treasury Secretary Henry Paulson also has urged Congress to pass a law that would let cities and states sell tax-exempt bonds to refinance mortgages for borrowers who otherwise might lose their homes. If that's not a bailout, I don't know what is.
Paulson offered a general outline of the plan on Monday. He identified four groups of subprime borrowers facing rate increases on their adjustable-rate loans: Those who cannot afford their payments even at the current rate; those who could afford payments at the higher rate; those can refinance into a "sustainable mortgage while keeping investors whole;" and those who can afford their mortgages today but could not at the higher rate.
Only the fourth group would get help.
According to media reports, people in this category who took out a subprime loan between January 2005 and July 30 of this year and whose rate is scheduled to rise between Jan. 1, 2008 and July 31, 2010 would have their rates frozen for five years.
(Excerpt) Read more at sfgate.com ...
Translation: “Kick it down the road five years for the next administration to handle, and hope the housing market recovers.” Washington at its finest.
Let the deadbeats wither on the vine.
While I totally agree that this freeze is idiotic, the idea of the far left Chronicle lecturing anyone on the free market is hilariously funny.
sounds like socialism in chamo
Gotta keep housing prices up. Don’t want them to fall and keep people from refinancing to aid consumer spending. And don’t want the banks to lose money. Who cares if lower prices hlep first time buyers.
WTF are a bunch of Republicans doing by screwing with the market?
Paulson and those guys must be on brown sugar.
Hillary recommended this yesterday. It was a bad idea yesterday and the same today.
Exactly. What were these idiots thinking- I’ll take out a loan and pay interest only for the first 2 years— then my income will quadruple and I’ll be able to handle the real payment. Let them fail. Let the banks and mortgage companies who lent them the money fail.
It may be quite ironic but it just shows that the Bush economic team has yet to hear that Pluto isn’t a planet anymore. Ok, that doesn’t especially make sense, but they are in far orbit.
Talk about unfunded mandates—investors, the Fed and the federal government don’t want to touch that stuff, so they propose that local governments float bonds and be on the hook to bail it out.
Freezing ARM adjustments represents a mass invalidation of private party contracts and further wipe out investors. It also would likely cause no one to ever buy a mortgage-backed security again (at least adjustable ones). Minimally you won’t get the rate discount so much on ARMs because resets will no longer be credible. Guess what that will do to the market?
Finally, such borrowers are likely to be underwater equity-wise and can’t afford the payments on a fixed-rate mortgage. All this does is put the borrower in deeper in debt and ensure that they will leave a larger blast crater in five years.
Busts are part of the natural cycle of free markets. When you interfere with them, you either prolong them get a bigger explosion later.
Hillary knew the White House had been working on this for months. She came out with that "idea" yesterday to make people think it was her idea.
But as you read some of the comments here...
Hillaries housing bailout - communistic demon seed that will turn us all into slaves
Shrub’s housing bailout - brilliantly conceived plan to stabilize the economy and restore confidence
I wonder if anybody will even buy mortgages any more after this turn into corporate fascism. Bought a bond? Thought you knew what the rate of return would be? Nope, sorry, we’re the government and now your rate of return is cut in half. It’s for the good of the country (i.e. banks).
The heads of Citicorp, Merrill Lynch, and E*Trade are all history.
Who cares if the sane people who refused nosebleed prices and did not buy into the bubble, get screwed?
Not modern Republicans. So we wreck capital allocation some more, and inflate some more, and pretend everything is peaches.
But it won't make house prices go up. It'll just make them go sideways a while, while the price of everything else goes up (except the dollar).
Didn’t actually read this thread, did you DJF? There’s not a SINGLE ONE in your latter category. Every response is a stern condemnation of this idiotic plan.
This plan is Nixonian.