Which will engender another bubble of some kind to follow the internet and real estate bubbles.
Massive numbers of foreclosures will reduce the actual, not just the projected, income of lenders. That would have pretty drastic effects of its own.
The reason the banks vlunteered for this plan is to help them reduce the massive losses they are going to take when 1 million plus homes are foreclosed next year.
Your logic seems sound to me. Failing to deal with this now will mean bigger problems in the future.
Not that I support this fixing business, but the borrower in question cannot be behind nor could he have been late with a payment. Therefor he’s a better risk than the bank gave him credit for.
Should the bank take it in the shorts, probably not. But then again, is it better to have somebody who turned out to be a better risk at a lower rate continue to make the payments and not be foreclosed where the bank gets the full interest due and the property to sell at a depressed price?
I can’t answer that. Maybe. Maybe not. I would think it would be in the bank’s interest to convert as many of these ARM’s to a reasonable fixed rate for those who’s credit performance has been spotless, than to look to get paid from someone who can’t pay at higher interest rate.