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 ...
That’s the flaw in this. Although they’ll probably just use a debt-to-income calculation based on what is on their credit report, to determine affordability, so things like cable TV, food, and whatever, isn’t even included in the equation.
The funny thing is that methadone is/was the cop-out for heroine, heroine was the cop-out for morphine, and morphine was the cop-out for opium.
Why can’t people just rent? And also, these people got their houses only within the past two years. It is hardly as traumatic to go through foreclosure than with someone who lived in a house for 20 years. They’ll deal with it, and move on.
The industry has already eliminated most of the riskier subprime loans anyway - so I don't think much will change there. I'd venture to guess that 90% of the people who are affected are people who wouldn't qualify for anything today, since those loans are no longer available.
I couldn't agree more.
“No it’s not.
It gives the market time to work. Many of these people will get a little time to get refinanced or sell the homes.
It will stabilize the housing market which will be good for everyone.”
Most of the market did not buy homes in the last 3-4 years and a large percent that did buy didn’t use these BS loans. This “plan” does nothing for most of the market. It does reward risky behavior on both the borrower and lender sides.
There is a big difference between stablizing the market and proping the market up. I believe this long term is more destablizing. Letting the chips fall and allowing investors to buy the foreclosed homes is painful, but necessary to clean it up. Similar to the savings and loan crisis and aftermath.
I don’t see another Ronald Reagan/Paul Volker out there that will be capable of cleaning up this mess in the making in 2016.
Yep. We are descending into Latin American-style socialism. The little confidence global markets have in the U.S. will now evaporate.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
In the same breath, you say that “most people didn’t use these loans” (true) and that it’s a “mess.”
If most people aren’t in a situation where this policy will affect them, then it’s not a “mess” at all and is a small part of the entire market.
It’ll help a few people and smooth things out, nothing more. For that matter, I would say just leaving it be would be better, but the pragmatic side of me knows that politically, something had to be done, and I’d rather it be this than a taxpayer-funded bailout.
There’s no rate of return if the property is foreclosed.
How so? Our tax money didn’t go into this.
I think we’re all forgetting one major thing here.
It’s not new that lenders do what is called a loan “modification” similar to this, to help an INDIVIDUAL borrower or couple to stay out of foreclosure, because it’s a win-win generally for both involved. This is just a larger-scale version of that that involves a large number of people.
But still a small % of the entire market.
Re: “giving the market time to stabilize” it’s not going to stabilize simply by pushing out the day of reckoning. Given Washington’s history on financial matters (SS, Medicare, etc), it’s not surprising that this was their first instinct.
It’s a great deal if you have a 1% teaser rate extended for a couple more years; in the meantime since no one can buy your house anymore at the inflated price you paid, you’re stuck. Investors have an asset that instead of being cash flow positive is now cash flow negative, giving it a value of zero instead of 20 cents on the dollar. In five years, you’ll blow up because your even larger negative equity situation (since many of these are negams) prevents you from refinancing.
This plan is absolutely short-sighted.
Unless the agreement is voluntary.
It also would likely cause no one to ever buy a mortgage-backed security again (at least adjustable ones).
Investors are already buying the newer securities, even ones that include subprime.
I congratulate you for your perseverance. The ugliness and knee jerk responses were pretty bad.
I’m still not sure that the 1% Option ARM loans are part of this plan. I haven’t seen definitively whether they are or not. I think the target was the more typical subprime ARMs that start at 7% or so and go to 10% later.
I’m probably one of the most economically conservative people on this board (judging from the number of Huckabee supporters) but I’m also pragmatic and realistic. That doesn’t make me too popular at times.
Can you say “moral hazard”?
I wonder why no one knew this before. A stroke of the pen changes things and always has. Do we not pay attention only when it is us? Wait till someone takes up pen against 401K's and your retirement plans.
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