Bush Unveils 5-Year Subprime Mortgage-Rate Freeze

[Purveyor]

Source: Associated Press

WASHINGTON — President Bush announced today a plan to freeze interest rates for five years for hundreds of thousands of strapped homeowners whose mortgages are scheduled to rise in the coming months.

"There is no perfect solution," he said. "The homeowners deserve our help. The steps I've outlined today are a sensible response to a serious challenge."

Seeking to counter criticism he is violating his free-market principles, Bush said the private-sector plan does not represent the imposition of a government solution to the mortgage crisis.

"We should not bail out lenders, real-estate speculators or those who made the reckless decision to buy a home they knew they could not afford," he said.

Bush said that 1.2 million people could be eligible for help under the plan, developed in negotiations with the mortgage industry led by Treasury Secretary Henry Paulson. But only a small fraction of that number will be subject to the rate freeze. Others would get assistance in refinancing with their lenders and moving into loans secured by the Federal Housing Administration, Bush said.



Read more: http://seattletimes.nwsource.com/html/businesstechnology/2004056644_webmortgage06.html

[superconnected]

1. So they'll stay massively high like they've reached now, for 5 years.

Shall we freeze Oil prices at the highest rate they've ever been per barrel right now, too?

[napi21]

2. Actually I think this is meant to stop the hugh # of mortgages that are

due to reset in January. I never agree with Shrub on ANYTHING, but at least from the first bit I've heard about this program, it looks like he just might be doing something right for a change.

[TheWatcher]

4. Too Little, Too Late.

[sandnsea]

5. I think so too

It probably doesn't go far enough, but I think low income people who were just trying to carve out a little piece of "the dream" should be helped.

[TomInTib]

13. Low income people will not be helped.

The Devil will be found in the details.

Just watch as "homeowners" will have to qualify for the "freeze".

Wait and see.

[JuniperLea]

17. Yep, there's already talk

You have to be in good standing in your loan, having made all your payments and are current. This means that everyone who is already in foreclosure are just SOL. As are those who invested in fixed return investment vehicles, many of which are in 401k's and mutual funds.

Bush talks about going after those who took advantage, and mentioned the banks, but what about the investment managers who have created these new investments that are so convoluted that even the head of the SEC has to go to hedge fund managers for info on how these bad-boy investments work.

For those who have ARM's coming to adjustment Jan 1, this is a band-aid. It buys them time to sell their homes and find something they can actually afford without devastating their credit history with a foreclosure. I guess that's something, but it's really too late to help all the people who have already been screwed.

[NickB79]

30. If people start dumping their homes on the market in large numbers

Housing values will plummet as a housing glut occurs.

Wouldn't that make MORE people go upside down on their mortgates? Also, wouldn't that utterly destroy the construction industry?

[JuniperLea]

33. This is a huge domino effect

One thing will knock the other down... and the little guy (us) will end up ruined. Everything is already ruined, we just haven't seen it yet.

[Kolesar]

7. NPR said this was to punish speculators who were taking "short positions" on the mortgage bonds

The "shorters" were expecting the bond prices for packaged mortgage bonds to fall severely in the near future. They have committed to buy the bonds at whatever price they were in a few months. With this policy, the price won't fall.

"NPR said"--I heard it last night on All Things Considered.

[sandnsea]

3. This isn't high

Some people might want to read up on the 80's when interest was 15%. My first home back in '76 was 6 or 7, and it was a VA loan. People have no idea how bad bad can be.

[superconnected]

11. Okay, I was thinking of the arm loans that keep resetting.

[dysfunctional press]

34. massively high? you obviously weren't around in the 70's...

and the freeze applies to the "teaser rates" that the loans started out with, to avoid the higher resets.

[Mister K]

6. ...and what happens to investors

Investors took on a lot of risk by purchasing these loans along with others in exchange for a higher rate of return. Now they still have high risk without any reward.

[napi21]

8. No that's not true! Of course there's still a risk, but there will be

a reward too...albeit smaller than expected. That's better than repossession and bankruptcy don't ya think? With that the investors would get NO REWARD!

[JuniorPlankton]

10. For investors, it is a zero sum game.

These securities are packaged and sold in tranched form, with different risk classes.
Some of the investors will LOSE money because of the change. (I am not trying to touch the subject of fairness, my point is that it is good for some investors, bad for others.)

[hedgehog]

9. People capable of meeting the higher interest rates will not have

their mortgage rates frozen at the teaser rates. It should be fun seeing how it's determined who deserves the low rate and who gets the high rate!

[TomInTib]

14. It ain't gone be the Po' Folks, guaranteed.

Just wait and see.

Middle-class homeowners will have to re-qualify for the "Freeze".

[peacetalksforall]

15. It will be the desirability of the house and it could be a Katrina opportunity - by that

I mean - they could wipe out a neighborhood to rebuild it according to a scheme by some monied people who want to get rid of Dem votes and who will say they are improving things.

[sueh]

12. From today's New York Times:

<Snip>
The agreement contains numerous limitations that would exclude many — if not most — subprime borrowers, according to industry executives who have seen it. It would exclude those who are delinquent on their payments — about 22 percent of all subprime borrowers, according to First American LoanPerformance, an industry research firm.

The plan would also exclude any borrower whose introductory rate expires before Jan. 1. About $57 billion in subprime loans were scheduled to be reset at higher rates in the final three months of this year, according to estimates by First American LoanPerformance.

Mortgage companies could also exclude borrowers who they conclude are making enough money to afford higher monthly payments. Barclays Capital —extrapolating from a similar program recently unveiled in California — estimates that only about 12 percent of all subprime borrowers, or 240,000 homeowners, would get relief.

http://www.nytimes.com/2007/12/06/washington/06cnd-debt.html?hp


So, as usual, all smoke and mirrors.

[Mizmoon]

16. It will help some ...

my friend in Colorado and her hubby bought a townhouse with an ARM and a piggyback ARM. They were assured at the time that they could refi before the ARMs reset. They are both about to reset in Jan, raising their payment like $300 a least, which they cannot afford. They were desperate and are now praying that this will help them keep their place cause they sure can't sell in this crap market.

Of course the other issue is that two other townhouses in their complex have been repossesed and their HOA just sent them notice that their monthly fee is going from $135/mo to $420/mo to make up the shortfall and there's nothing to be done about it. At this point they wish they had been denied the loan upfront and that they'd never gotten into this mess.

I just hope it works out for them.

And Bush did this for political reasons and because if all these people get foreclosed it will send this crappy economy and the anemic dollar straight to hell. He had little choice in this matter, I think.

[Lance_Boyle]

19. Why in HELL should they keep that home?

They can't live up to the terms of the contract(s) they signed. They gambled and lost. But we hope to save them from their own recklessness? Why?

[Mizmoon]

21. The bank was reckless too

They were not savvy and figured that if the bank was willing to give them the loan that they would be ok. They can afford the loan now. They were assured they could refi and believed it.

As to why they should be able to keep their current rate, which is no bargain I assure you, is because if they and all their compatriots go under, the entire country will pay for it in flattened property value and an economy sagging even lower than it is now.

No one is saying to give them something for free, just not to let their ARM reset. They are not behind, but they will be if it resets.

The bank should not have assured them they could refi is the issue, imo.

[Lance_Boyle]

25. only partially the bank's fault

these people should not have taken out a gimmick mortgage (or two) to get into a piece of property they surely must have realized they couldn't afford. Didn't they realize that "ARM" meant that the rate would adjust? I object to them getting a free ride (i.e, keeping their teaser rates beyond the original contract term). If the bank told them they could refi, they should've gotten that in writing. Adults signing contracts should be more careful. They are legally responsible for the contract they signed. Or at least they should be.

[Mizmoon]

27. Lots of people made the same mistake egged on by the same banks

We as a society can either force their backs against the wall and all go down with them, or we can consider that maybe the banks need to make some amends since they caused so much trouble by greedily lending money to anyone with an income who came down the pike.

Do I think my friends acted foolishly? Yes I do. I agree with you there. I also think the bank took advantage of them cause they looked like nothing but big dollar signs to them and that the bank should have exercised more fiscal responsibility. Responsible lending is supposed to be the bank's specialty.

[Lance_Boyle]

28. greedily lending?

How's that work? The lenders put their terms in black and white in the form of a written contract. In many cases what they were asking for was unreasonable. The right thing to do in that situation is to not sign. Greedy BORROWERS opted to sign on, having either read and dismissed or ignored altogether the information explaining to them that they were borrowing more than they could afford to repay. Those contracts SHOULD be legally binding.

[Mizmoon]

29. Yes, greedily lending in order to sell the loan for a profit

What do you think they do with the loans? They sell them. They saw people to whom they could make a loan which they could later sell. They should not have made the loan but they were greedy and wanted to sell it for a profit.

My friends were not flippers trying to make a greedy profit - they were simply a couple who wanted a home in which to make a family.

[JuniperLea]

20. I feel for your friends

A lot of people hoped to refi right about now. But the problem is that there are no more stated income loans, there are no more teaser rates, and the criteria for getting a loan will now revert to the pre-subprime days. It will be increasingly difficult to qualify for a standard loan.

The best a lot of people will be able to do is to sell and get out of the deal before the bottom falls out and their credit is ruined.

[Mizmoon]

22. They would sell in a heartbeat

but there are no buyers at any price. They have a 1-year-old as well, and the hubby is in school to get a better job. If they can just hang on for maybe one more year, they will be ok. They are good people and are the model for the kind of family who deserves a break.

[JuniperLea]

26. That's heartbreaking

I'm sure this scenario will be played out over and over again.

These jerks who thought up this scheme had to know what the outcome would be! There's no way they couldn't have known.

Who benefits? I'm sure there is a hidden victor here somewhere.

[Name removed]

24. Deleted message

Message removed by moderator. Click here to review the message board rules.

[nealmhughes]

31. What exactly do they get from a HOA for $420 per month, pray tell?

There are a slew of we "renter class" folk who can buy a month's worth of groceries, all the utilities and commute to work on $420 a month and have money left over. But then again, our apts. are one step up from the old cold water flats with the fold out tubs in the Old East Side, but we do keep out of the rain, and there aren't any rats, and even room for a real live bed! But then again, we don't live in a "name," rather a neighborhood where people work, drink, eat, and play with others, not retreat to a mythic place that doesn't even really exist except in the minds of the "namers."

[Mizmoon]

32. I think in Colorado a lot of it is snow removal

snow, trash, upkeep like lighting, landscaping, that sort of thing. It's not a luxury gated place for snobs. It's just a townhouse complex and $135/mo seemed reasonable. They practically puked when they got the letter saying the payment was going up so high. It's just another surprise for people who didn't really realize what they were getting into or how powerful HOAs are. It reminds me of Upton Sinclair's "The Jungle" where the poor family keeps finding out that the home they bought is going to cost far more than they expected.

Again, they just wanted a home in which to have their family. They would be the first to tell you that they did not make a very wise choice here. All they want at this point is to survive this situation.

[customerserviceguy]

35. The term "teasers"

doesn't just apply to mortgages, I'm sure some developers use teaser HOA dues during the time they are marketing the unsold units to entice people into the properties. The best thing you can do is to research other nearby properties, and see what folks there are paying for HOA dues. If they're paying $300-400 a month, it's not realistic to think that you can skate by with a mere hundred bucks a month on that new condo or townhouse.

Real estate developers and mortgage bankers are just two of the biggest vultures that try to make a killing off of peoples' need for a decent, safe place to live.

[Mizmoon]

38. wow, good point

That is an excellent point. I never thought of that - teaser HOA rates. Could very well be, my friend.

[some guy]

37. They should read their covenant

That much of a HOA increase is excessive. In my covenant, the maximim increase from one year to the next is 15%, unless a higher rate is voted on and approved by 2/3 of the home owners.

2 homes got reposessed, so your friends have to pay the HOA fe for those two homes? Makes no sense. Is the entire community only three homes?

[Mizmoon]

39. Not sure how many units

in total in the complex but I think there are many. I haven't been out to visit them since they moved there. They used to live in the bad side of Denver - like scary bad side so they were just overjoyed to get into this nice place.

I was under the impression that HOAs could really eff people up if they wanted, like a tiny dictatorship. You know the stories of homes getting repossessed over unpaid HOA fees and the like. I will suggest that they read the covenant carefully and see if there's a limit cause that increase is deadly.

[Neshanic]

18. The monumental supidity of it all.

It's somewhat simple. People are living in houses they cannot afford when their ARM resets. Oh, it was OK I guess when some cretin from Countrywide got them in a house and the Real Estate agent/bad decisions enabler told them that they could easily sell in two years before the reset and cover if there was really an issue. You know how HOT real estate is. It ALWAYS make you money.

Now they know they can't afford the house after the reset. Nobody is buying. Not now, not in a long, long, long, time will they get back the money to cover the upsidedown they inhabit. This is a twenty year cycle we are talking about.

They can't afford it now, and unless they get a huge pay increase at work, they will not be able to afford later. The house can be taken now, or in two years. Take your pick.

It's still going to go back to whatever group of financial entities have it in one of their dubious tranches.

[Mizmoon]

23. yep it was Countrywide

that gave my friends the loan to begin with. Again, they wish they'd just been turned down. They were worried initially but were reassured that they could refi. These are not flippers, they are a family that wanted their piece of the American Dream.

As I mentioned above, the hubby is in school to be a radiology tech and will make much more money in about a year or so. but it's going to be a hard year. If this reset happens they will probably make it. I have my fingers crossed for them.

[AlphaCentauri]

36. Wow now I have to keep my over priced home for 30 years

my American dream is turning into a nightmare

[w8liftinglady]

40. CNBC polled their viewers-99.9% disapproved of this

they read a few of the e-mails-very hostile re: bailing out people who had no intention of paying their bills,etc.
CNBC DID have a small disclaimer-their viewers avg income is over 82K/yr

[Xenotime]

41. More should be done.