You can’t swing a dead cat on the Internet today without hitting a mainstream media article or blog post about the “subprime rate freeze plan”. I’ve read dozens of posts, and as expected, opinions vary wildly.
I was all set to pen my own post on the subject when I came across Noah Rosenblatt’s “Mortgage Bailout Plan / Subprime Rate Freeze” on UrbanDigs.
It’s a gem of a post that sums up my thoughts remarkably well.
This subprime rate freeze plan will not fix the problems we face in the housing downturn cycle or the crisis to the credit markets & secondary mortgage markets that happened as a result. It may install some confidence for a while though and it may help some struggling borrowers, but it won’t nearly be enough!
But really, read the whole thing.
If it’s mainstream media news you want, go here.
If you’re looking for more bloggers opining, go here (Technorati), or here (Google)
Good plan? Bad plan? To be honest, I don’t know. Part of me says the government needs to step aside and let the market do what a market does — find its equilibrium. On the other hand, some people need help. Did they “ask for it”? Sure, some did. But many others did not.
It’s a mess, that’s for sure.
Your thoughts?
.
[tags]subprime, mortgage bailout, mortgage rate freeze plan[/tags]
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Jay – This is the news of the week and many are not going to find the relief they think this plan will bring. I spoke to a woman earlier this week who has not missed a payment. Her interest rate resets next month. Although qualified to refinance – she can’t get appraissal.
She was looking for this to be a “fix” for her. If the plan stands as stated, she will not qualify. Many won’t!
Ooops – meant to say her rate reset last month – next month would be good fior her.
Paula – I agree! And the more I read, the more conflicting information I get.
Undoubtedly this will help many. But it is no “cure all” by any stretch of the imagination….
Jay, kindly explain who did not ask for it? Just because you need help doesn’t mean you’re entitled to a reprieve.
Paulson’s plan will help a minority whilst stranding the majority. Read my two cents at http://blog.mariah.com/2007/12/henry-paulson-savior-or-marxist/
“It may install some confidence for a while though and it may help some struggling borrowers, but it won’t nearly be enough!”. I think every bit helps, when you are struggling to make ends meet; a lot of people value the reprieve.
Flynn wrote: “Just because you need help doesn’t mean you’re entitled to a reprieve.”
I couldn’t agree more.
When I wrote that some did not “ask for it”, I wasn’t very clear. I’ve read many times in many places that sub-prime borrowers are all out to get something for nothing, are looking to make a quick buck, are stupid, and a host of other accusations.
All I was trying to say is that there are many folks out there that were just trying to get into a home. Some were flat out lied to about the ramifications and potential hazards of getting a sub-prime ARM. One could argue that no one held a gun to these people’s head and made them sign the loan docs. And that is true. But I find it difficult to fault someone for trusting a lender, or dare I say agent, who is telling them they have no concerns and this is the only way they’ll ever get in a home. How many people out there with an ARM about to adjust were told, “you can just refinance when the time comes”? I suspect a LOT were told exactly that. And without the education , experience and/or guidance to fully understand the risks, they find themselves where they are today.
I bet the politics behind this must be fascinating.
Random thoughts;
1) The lenders didn’t do this out of the goodness of their hearts. They did it to lose less money.
2) The lenders may have also factored into their decision how taking action now might tone down the sweeping legislation that is winding it’s way through Congress during this election year.
3) This agreement won’t save home sellers but should take the top edge off of the future over-supply peak.
Thanks for post Jay!! I think this is more a political move heading into an election year. You are right, the gov’t should just let this be and let market forces correct the problem.
I hate to say it, but we desperately need a recession. We need those who made bad bets to get punished, the system to weed out the bad bets, the balance sheets to come clean, the borrowers who shouldnt have bought to get hurt, prices to come down more to stimulate sales, and complete reform in the innovations of the financial industry that created products like CDO’s, CMO’s, SIV’s, etc..
This will bring liquidity and confidence back for longer term sustainable growth. In short, we need to go through pain to get through this mess. Either the pain is loooong & slow, or its quicker but more sharp. Ill take quicker & more sharp so that we see the light at the end of the tunnel faster! No one wants a 5+ year bear market because of all of this, trust me!
Spot on Noah…
John’s random thought #1 answers a question I hear a lot — that being “who is going to pay for this?” No one is making up the difference. It’s about losing less money.
I have to look into more what it actually is, but if I understand it the government is paying nothing, giving no other incentives (like reducing taxes owed). With that being the case I can’t see why some people think it is bad. Now as to whether it is close to a fix for the whole problem that seems to be a pretty obvious: No. But if all the government is doing is using some moral suasion I don’t have a problem with it. It is an interesting case where no single mortgage holder owes enough to harm the lenders but together the class does hold enough to harm them.
“If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” J. Paul Getty
Individual mortgage holders are in the first situation, together they are in the second. It seems to me if there really is some significant amount of freezing of loan rates thaa will have a significant impact on how much harm the foreclosures do to real estate prices and the economy.
I think they should only do this for people who had a real hardship like lose of job or medical problems. If you do this for people who knew they could not afford home or have mutiple ones people will stop making payments to get bail out.
For some reason my comment name did not work just fixing it so it is correct when i post. I could not fix it in change comment form.
**Kevin2´s last blog post..Hsbc online banking.
To be honest, I find that the market IS self-correcting, it’s going to be a hell lot easier for us if the government just leave us alone instead of trying to help out.
No matter what the goverment does thier still is to many houses. Some people owned 5 or more hoping to flip them. I can see buying house remodeling it to make some extra money but to buy 5 or more homes and hope to resell at a huge profit and not doing anything to them makes no sense.
They saw easy money now they learned it is not so easy and the rest of us have to bail the market out.
The fact that alot of the mortages that have been redone already are going back into default shows that no matter what they do some homes will be foreclosed on. The people did not have the money to pay and will not be able to no matter what. If they can repay fine help them out and refinace but no job no income come on foreclose already.
I totally agree with jeff. If people can’t pay try to help them out, but it won’t do much good if they don’t have a job or income at all..
**john´s last blog post..Tjene penger på blogging – leksjon 4