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Home Front Economy
Deal Reached on Mortgage Rate Freeze
2007-12-06
This will probably be the best way to fix the credit fiasco. I can't say I feel too sorry for the credit companies for coming up with these subversive loans, and I can't say I feel too sorry for the consumer who doesn't subscribe to the "due diligence" thingy. This way it kind of splits the pain down the middle. The credit companies have to take the problem on for a few extra years, by when the homeowners have to figure out a way to get their act together or walk into the blast furnace. I would recommend using the five years wisely. I hope the five years just means that the homeowner has five years from the start of the loan. This would spread the refinancings out in time, otherwise there will be a rash of refinancings done in exactly five years from now, and for some reasons I trust the banks to be no more mature or honest about this than I do the contributors to the latest NIE on Iran.

The Bush administration has hammered out an agreement to freeze interest rates for certain subprime mortgages for five years to combat a soaring tide of foreclosures, congressional aides said Wednesday.

The aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of up to seven years and mortgage industry arguments that the freeze should last only one or two years.
Posted by:gorb

#15  Socialist response. First they try to screw the banks using the Community Lending Act because they wouldnt lend to marginal borrowers. Then when they did lend to these borrowers, at a fair subprime rate, they get screwed again when these people come screaming about not affording payments.

As for the banks, this wont be a good bonus year for much of wall street. We've already had our expectations managed.
Posted by: flushing_kenny   2007-12-06 23:05  

#14  And if you're a banker, you can't afford (in the long run) to make too many of that kind of sub-prime loan before it all collapses.

That's only partly true. The banks and mortgage co's don't necessarily lose on sub-prime. Why? Because they just package them up and sell them to investors. They make money originating the loan, and often times servicing it - but they don't (necessarily) hold the paper. If it gets foreclosed on, the investors who speculated in the paper lose. That these customers need to go out and get a new loan actually benefits the banks and mortgage co's in additional orgination fees.

I don't think the govn't should stay out of credit. I think they should set fair laws that prevent shysters from preying on the ignorant - and then get out. They failed to do that and now this seems like a pretty good solution to clean up a mess everyone knew was coming.

We all benefit if this doesn't come crashing down around us. Sure, they may have gotten lucky compared to me, who paid extra for a fixed. But if they are making their payments on time, I see no reason why booting them out of their homes benefits anyone.
Posted by: Whomong Guelph4611   2007-12-06 15:28  

#13  The way I understand it is that is not really a government action, it is facilitated by folks who happen to be memebers of the government. Bush et al got the players all into one room and they sat down and agreed at the private/corporate level to freeze interest rates. They could have done this themselves, but you know that even thought it makes sense the corporations would have never done this by themselves, so I thank the private individuals who happen to work in the government for facilitating this much-needed meeting.

Also, when a house is foreclosed, the lender loses about 40% or so these days, and the borrower gets hammered. This is a lose/lose situation. This agreement puts us closer to a win/win situation, but not entirely because you know very well that some of the borrowers are going to do just like Procopius said in #1, and I'm sure the lenders will have something up their sleeve after having had five years to think about how they are going to screw the customer when the time comes. It would also be nice to see that borrowers would not be allowed to take any more money out of their home equity loans at the low rates if they want to participate in the agreement.
Posted by: gorb   2007-12-06 14:30  

#12  What tu3031 said. And if you're a banker, you can't afford (in the long run) to make too many of that kind of sub-prime loan before it all collapses.
Posted by: trailing wife   2007-12-06 14:25  

#11  Basic rule of thumb: If you make 20 grand a year, you can't afford a 400 thousand dollar house. And if you can't realize that, I'd figure you're too stupid to lend money to.
Posted by: tu3031   2007-12-06 14:06  

#10  Congratulations to you and the Tsar, Swamp Blondie! And isn't it lovely this happened while the Tsarevich is so portable! Good luck selling the house quickly, to a good buyer.
Posted by: trailing wife   2007-12-06 14:03  

#9  My local rag (naturally) doesn't have anything about this at all.....'cuz Floridians don't even wanna hear the words "real estate", apparently.

Now, if anyone knows anyone heading to the Space Coast looking for a home....got a sweet one for sale! (nope, not a mortgage problem, we've got the standard vanilla 30 yr fixed....the Tsar got a job offer too good to pass up out of state, so that's why we're selling. Guess I'm gonna be "Iowa Blondie" next year. ;) )
Posted by: Swamp Blondie   2007-12-06 13:38  

#8  MHW, we are in agreement on the facts, but, maybe not on the conclusion.

You're absolutely right about gov't pressure and BS paper work and fine print.

That's where my open and honest comes into play.

I'm currently involved in a real-estate deal with my son (the Real Estate guru) and all of the legalese bull crap one has to go through, Ai Carumba!!

If government wanted to do something good (okay, stop that laughing) they would find a CLEAR standard way to present the facts so that real people could understand the bottom line.
Posted by: AlanC   2007-12-06 13:37  

#7  AlanC,

IMO there are several things going on beside mass stupidity and greed.

1. Banks have been pressured to devise ways to get more people to qualify for loans, especially minorities. This pressure has come from govt officials among others - which itself is a market distortion.

2. There are so many 'warning' notes to sign when you take out a mortgage that it makes a mockery of informed consent. Sure everybody who had a low rate adjustible had to sign something saying they understood that the loan is subject to a big rate increase. But they also had to sign dozens of other things (e.g., statements attesting to their address, their legal vs. nicknames, etc.) which make it difficult to separate out the real warnings from the minimal elements.

3. No one has yet come up with a good way of preventing individual real estate sales personnel from subtly minimizing the risk of the adjustable mortgage. They have to advertise themselves as equal opportunity people (which has no meaning) but we allow them to pretend they understand taxes, finance and the like in order to sell their services.
Posted by: mhw   2007-12-06 12:37  

#6  I always cringe when I see government getting involved w/private enterprise, i.e. the examples of Nixon w/the wage freeze. I agree w/AlanC that gov't is supposed to ensure honesty and openness. Other then that I don't like any precedents being set by gov't on the behalf of protecting people from who live outside their means & have poor money habits...fools and their money. Call me paranoid but it seems to lead to a slippery slope of incremental gov't encroachment on the market place. OTH, I did hear the credit card companies were caught pulling some fine print b.s. on rates this past week. I always pay my card off well in advance each month & my balance is never that big. However, some folks are prolly taking a hit they shouldn't do to plain ignorance and not from dumb spending.

Posted by: Broadhead6   2007-12-06 12:16  

#5  Remember that congress also pushed banks to give loans to more people for more to have the "American dream of home ownership". I blame every party involved for the screwup. Granted, I could get into a house that I would not have been able too because of lower standards. But, unlike many, I knew my loan premium was only 5 years and saved and refinanced into a fixed, lower rate. As people say, credit is earned. Use it wisely.
Posted by: DarthVader   2007-12-06 11:50  

#4  I'm not so sure this is a good move. From Stephen Green, "What the "sources" didn't say is that loan-wary banks are going to become even warier, as their expected high-risk rewards vanish in a puff of unintended consequences. Now that's how you tank an economy, you big giant dummy head. I haven't seen a Republican pull an economic move this stupid since Nixon's wage/price freeze back in '72. And Bush's could be every bit as disastrous."
I hope not but the potential is there.
Posted by: Deacon Blues   2007-12-06 11:35  

#3  Is mass stupidity & greed a market problem, mhw?

As far as I'm concerned the govt role in markets should be to insure openess and honesty. If people then make mistakes they should live with the consequences.

Remember, ugly is skin deep, but stupid goes to the bone.
Posted by: AlanC   2007-12-06 10:50  

#2  Give the US Treasury Dept the main credit for this. They seem to have a found a solution that is acceptable to everybody.

Without some solution there would have been Congressional action which would have likely created a long term menace. Also, although the banks nominally lose by being forced to freeze rates, they (the banks) gain by preventing a worse foreclosure crises.

Although I am a supporter of markets, it seems clear that the current situation is the result of, at least partially, a market failure. If you see it that way (granted not everyone will), it seems this market intervention was reasonable.
Posted by: mhw   2007-12-06 09:41  

#1  I would recommend using the five years wisely.

So they can turn around and get a new Lexus, or that 52" plasma big screen, or that vacation to Orlando, or .....

Credit is earned. It is not an entitlement [regardless pie hole utterances of the race hustlers like Jackson and Sharpton]. Get the banks and their papered over fronts out of the speculation markets. There was a reason those laws were written during the Depression. They should never have been altered during the Great S&L bailout in the 80s.
Posted by: Procopius2k   2007-12-06 08:35  

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