Why is Bush Freezing Mortgage Rates? There is no clear answer to this question. Some people say that Bush is doing what needs to be done:...
Why is Bush Freezing Mortgage Rates? There is no clear answer to this question. Some people say that Bush is doing what needs to be done:...
View Housing Market Watch RSS feedPresident Bush announced a plan last week to freeze interest rates on subprime loans due for rate resets. Read on to get the details of this plan, including how it works, why it has been initiated and whom it will help.
There is no clear answer to this question. Some people say that Bush is doing what needs to be done: preventing subprime spillover into the economy. Other people say that the teaser-freezer plan was politically motivated; Republicans want to show that they are doing something to help struggling homeowners.
The Bush Administration claims that mortgage rates need to be frozen to streamline the mortgage modification process and provide systematic relief to subprime borrowers.
The Bush Administration insists that this is a voluntary agreement among lenders, mortgage service companies, and investors, but don't be fooled. The government did its part by putting pressure on these groups.
No. This plan is for subprime borrowers only. Prime borrowers who are facing ARM resets are not eligible at this time.
Borrowers need more than just subprime ARMs to qualify for Bush's mortgage rate freeze; they need to meet a laundry list of eligibility requirements:
| Borrowers must have: |
|---|
| Jobs |
| Documented income |
| Good payment history |
| Credit scores below 660 |
| Some home equity |
| ARM subprime loans originated between Jan. 2005 and July 2007 |
| Resets scheduled between Jan. 2008 and July 2010 |
| The inability to refinance |
| The inability to afford payments after the reset |
| A loan packaged into securities |
The Bush Administration estimates that as many as 1.2 million subprime borrowers will be helped by the teaser-freezer plan. Other parties are not so optimistic.
Mark Zandi, chief economist at Moody's (Economy.com), estimates that only 250,000 homeowners will be eligible. An analysis from Barclay Capital suggests the number is closer to 240,000. The Center for Responsible Lending has the lowest projection at 145,000.
To put these numbers in perspective percentage-wise, consider that an estimated 3.5 million homeowners are expected to default on their home loans over the next three years. If Bush's plan helps only 250,000 borrowers as Zandi estimates, it will accommodate a mere 7 percent of the struggling population.
Right now, the rate freeze is set at five years. Hilary Clinton is pushing to have the period extended to seven years, but doesn't have the pull needed to make it happen (yet).
U.S. Treasury Secretary Henry Paulson has admitted that he isn't sure what will happen five years from now when the rate freeze is over. An extension may be on the horizon, but will most likely depend on who's in office as well as on the percentage of program participants who still own homes five years from now.
Not exactly, more like a government giveaway.
According to the Bush Administration, taxpayer funds will not be used to freeze mortgage rates. However, this doesn't mean that Americans won't pay for Bush's decision later on.
Freezing rates may lead to credit-rating reductions on some mortgage bonds. If this happens, investors will be less likely to pump money into the American mortgage market and credit will become even crunchier. Borrowers who can get loans will end up paying significantly higher interest rates than they would have in a real 'free market'.
There is also some concern in regards to the teaser -reezer's effect on the Federal Reserve's ability to set rates accordingly. Five years from now, the people who were helped by this plan will be facing rate resets. Will the Fed keep rates low just for them?
No. President Nixon once did something similar, imposing a freeze on wages and prices in 1971 (prior to the 1972 election) to dampen inflation. The wage and price control system has since been discredited and abolished.
Because doing so creates a moral hazard. Subprime borrowers, lenders and investors entered into BINDING contracts of their own free will. Many made bad decisions and took risks in hopes of making money in a booming housing market. Their gamble did not pay off.
By bailing out these parties, we are essentially saying that taking risks today is okay because we will bail you out tomorrow. This is not the way things should work in what is supposed to be the world's greatest free market economy.
Government giveaways and bailouts will not bring the housing market back. Home prices are falling now because U.S. home prices are too high for U.S. incomes. People are losing their homes because they were attempting to live beyond their means. Although it may seem cruel to leave these people to sort out their own mess, it is the best thing to do. Government intervention will prolong the housing slump and hurt the economy further.
Yes! If you disagree with the idea of a bailout or a government giveaway, it is essential that you speak your mind.
You can start by contacting state legislatures and your member of Congress. If you wish to take it a step further, you can try educating others though a blog, letters to the newspaper and everyday conversation.
The only way to prevent government intervention is to convince policymakers that a bailout is not what the public wants.
Some politicians are in favor of providing assistance to the millions of homeowners who are facing default as a result of poor decision-making and falling home prices. Others are dead set against it. Let's see where the American people stand.
An open letter to all of the lawmakers and taxpayers who think a mortgage bailout is what we need to solve the housing crisis.
To get borrowers to leave a house--and leave it in good condition--mortgage lenders around the nation have begun offering cash for keys. Some lenders are paying out upwards of $3,000.
Democrats unveiled a new plan last week that will allow the FHA to buy $300 billion in delinquent, underwater mortgages. The initial cost to taxpayers is estimated to be $20 billion.
Should mortgage borrowers at risk of losing their home be given a bailout? What about lenders who face lost profits? Four recent polls ask Americans where they stand on these issues.
Many people may be losing their homes to foreclosure because of legitimate financial crises, but there are even more people losing their homes because of lender follies as well as their own greed and stupidity. Here are five stories in particular that will be sure to induce fits of eye-rolling.
If you have followed the news at all over the last few months, then you know that the public has been spoon fed a spate of tearjerker news stories that are meant to paint struggling mortgage borrowers as victims. These stories talk about the importance of staving off foreclosures and helping people who need it, but they very rarely touch on the truth of the matter: most mortgage borrowers were reckless and do not deserved to be rescued.
Are you familiar with home loan terminology like adjustable rate, credit score and interest-only? Knowing this home loan jargon can help you become a savvy home buyer and allow you to better understand a realtor or lender. Read this article for explanations of these home loan terms.
Did you know that you could be required by a lender to have private mortgage insurance (PMI) as part of the terms of your home loan? Private mortgage insurance can raise a homeowner's monthly payments. Read this article to learn the details about private mortgage insurance.