Bush Announces Mortgage Rate Freeze Plan

zippyjuan · 12-06-2007, 02:12 PM

This is a pretty limited program. You have to be living in your home and not missed any payments yet. Other restrictions too such as when the loan was taken out.
http://my.earthlink.net/article/top?...1206-316066817

Quote:

Bush Announces Mortgage Rate Freeze Plan
By MARTIN CRUTSINGER (AP Economics Writer)
From Associated Press
December 06, 2007 3:08 PM EST
WASHINGTON - Hundreds of thousands of strapped homeowners could get some relief from a plan negotiated by the Bush administration to freeze interest rates on subprime mortgages that are scheduled to rise in the coming months.

"There is no perfect solution," President Bush said Thursday as he announced an agreement hammered out with the mortgage industry. "The homeowners deserve our help. The steps I've outlined today are a sensible response to a serious challenge."

Bush has been accused of moving too slowly to address a crisis that has spread to the broader financial market. But he also was careful not to sound as if he were imposing a government solution and violating his free-market principles. He billed his plan as a voluntary, private-sector arrangement that involves no government money.

"We should not bail out lenders, real estate speculators or those made the reckless decision to buy a home they knew they could never afford," Bush said after meeting with industry leaders at the White House. "But there are some responsible homeowners who could avoid foreclosure with some assistance."

Bush said 1.2 million people could be eligible for help. But only a fraction 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.

Also, the aid will only come to those who ask for it, he said. Thousands of borrowers who are falling behind on their payments have been sent letters about the options, and Bush also urged people to call a new hot line: 1-888-995-HOPE.

The announcement followed the news earlier Thursday that home foreclosures surged to an all-time high in the July-September period. The Mortgage Bankers Association reported that the percentage of all mortgages that started the foreclosure process in the third quarter jumped to a record 0.78 percent, surpassing the previous record of 0.65 percent of all mortgages in the second quarter.

The administration's effort is aimed at stemming a further tidal wave of foreclosures in coming years as 2 million subprime mortgages - loans provided to borrowers with spotty credit histories - reset from their introductory rates of around 7 percent to 8 percent to levels as high as 11 percent, adding hundreds of dollars to the typical monthly payment.

A recent surge in mortgage defaults, part of the worst housing slump in more than two decades, has piled up billions of dollars in losses for big banks, hedge funds and other investors while roiling financial markets worldwide. Some economists think the housing bust may become severe enough to push the country into recession.

Bush originally gave the wrong number for the hot line; the White House later corrected him.

The president mentioned other steps to prevent foreclosures. The FHA has greater flexibility to offer refinancing to homeowners with good credit histories. It is expected that this eventually will help 300,000 families, officials said.

The Federal Reserve is announcing stronger lending standards this month, while the Housing and Urban Development Department and federal banking regulators are acting to improve disclosure requirements, he said.

Fed Chairman Ben Bernanke said the streamlined procedures for supporting efforts to refinance mortgages and freeze rates were a "welcome step in helping Americans protect their homes and communities from the consequences of unnecessary foreclosures."

The highest-profile part of the plan would freeze introductory "teaser" rates on certain subprime mortgages, preventing rates from rising for five years.

This offer would apply only to people living in their homes and who have not missed any payments at the lower rate. It also only would apply to loans taken out between 2005 and this past July 30 and scheduled to rise to higher rates in 2008 and 2009.

The hope is that the five-year freeze will buy time for the housing sales and prices to start rising again. Such a rebound would enable homeowners to refinance their current adjustable rate mortgages into fixed-rate loans with more affordable monthly payments.

But even Treasury Secretary Henry Paulson, who led the negotiations with the mortgage industry, acknowledged the effort is "not a silver bullet."

"We face a difficult problem," he said.

The big sticking point in the negotiations was getting investors who had purchased the mortgages after they were bundled into securities to agree to accept lower interest payments. Critics have said even with a deal, there are likely to be lawsuits. But officials representing major players in the mortgage industry said they believed the plan would withstand any legal challenges and would help at-risk homeowners avoid defaulting on their mortgages.

But George Miller, executive director of the American Securitization Forum, which represents companies that package mortgages into mortgage-backed securities, told reporters he expected the industry would face suits from investors unhappy that the original terms of the mortgages have been modified.

The president also did not miss the chance to lash out at the Democratic-controlled Congress.

Bush blamed lawmakers for not sending him legislation that he said would show they "are serious about responding to the challenges in the housing market." One measure would give the FHA more flexibility; a second would change the tax laws temporarily to help people who have a portion of their mortgage forgiven by banks.

"The Congress has not sent me a single bill to help homeowners," Bush said.

YellowCoffee · 12-06-2007, 03:08 PM

Does anybody know the specifics on WHO is actually absorbing the cost of this rate freeze?

I find it hard to believe that banks or even lenders are absorbing the cost. Why would they want to? They would lose the interest revenue.

And why specifically restrict this program to borrowers who are current with their payments? What benefit does this provide other than a full on bail out?

Also, is this a loan modification or is there any interest deferment involved? I just don't understand why these people would be bailed out.....without penalty, for choosing a hybrid arm that's about to reset. I don't get it.

Does anybody know? Thanks.

Layla · 12-06-2007, 03:13 PM

Quote:

I find it hard to believe that banks or even lenders are absorbing the cost. Why would they want to? They would lose the interest revenue.

I think maybe the interest lost is not as bad as the possible foreclosrues looming on the Horizon. In this type of market, even the investors don't want to try to sell these homes and recoup the money. I live in a nice neighborhood, and just down the way there is a BEAUTIFUL home that is bank owned. It's been sitting there untouched for months. The bank is losing money on it. At least with the rate freeze, they're making SOMETHING, right?

YellowCoffee · 12-06-2007, 03:42 PM

Quote:

Originally Posted by Layla

I think maybe the interest lost is not as bad as the possible foreclosrues looming on the Horizon. In this type of market, even the investors don't want to try to sell these homes and recoup the money. I live in a nice neighborhood, and just down the way there is a BEAUTIFUL home that is bank owned. It's been sitting there untouched for months. The bank is losing money on it. At least with the rate freeze, they're making SOMETHING, right?

I understand what you're saying, but the conflict in that argument comes with the restrictions for Bush's policy. The only borrowers who qualify are ones who already are current w/ their payments. This means that the only people who can get their rates frozen are the least at-risk borrowers. Also, I can tell you the loss in interest revenue will FAR outweigh any potential loss from foreclosures.

zippyjuan · 12-06-2007, 04:07 PM

The intent is to help people who might be hurt by their loan making an upward adjustment by delaying the reset by up to five years-thus slowing the rise in future defaults and taking that pressure off the economy. They did not want it to seem like a bail-out for people or lenders and thus use any taxpayer money. It excludes people who do not live in their homes since they are most likely speculators. Forclosure does cost more than the interest increase loss since the bank (or lender) loses 100% of the interest they were getting (if it goes into default and forclosure) plus the costs of trying to resell the property at perhaps less than the value of the original loan. It does not sound like it is a deferment of interest payments, only a delay in the adjustment of the loan to a higher rate.

I think the Fed might be trying to lower the rates that mortgages will adjust to by cutting their rates (although there is not necessarily a direct link) but this will also lead to a further fall in the value of the dollar and increase the risks of inlfation slightly (demand is weak now so manufacturers will have a hard time passing along any price increases).

dbax791 · 12-06-2007, 10:55 PM

Quote:

Originally Posted by zippyjuan

The intent is to help people who might be hurt by their loan making an upward adjustment by delaying the reset by up to five years-thus slowing the rise in future defaults and taking that pressure off the economy.

Sorry, I have very little sympathy for people who took out adjustable-rate loans. That is the key word - "adjustable". Read the damn contract and don't buy more than you can afford. Federal government should not touch this.

I also have little sympathy for people that carry credit card balances at a 17% rate while buying a house, expensive furniture and an X-box with 50 games. Jeez, read a book on personal finance.

InfiniteNothing · 12-06-2007, 11:11 PM

I agree. The responsible people should get the "teaser" rate for 5 years too

Dave_7 · 12-06-2007, 11:36 PM

I'm beginning to see the point... lenders stand to lose lots, too. And these people are not getting to keep sweet-deal 4% rates... it sounds like 7% and 8% rates, which ain't that great. That said, meddling in the free market worries me.

Dave.

Daedalus · 12-07-2007, 01:38 AM

Quote:

Originally Posted by Dave_7

lenders stand to lose lots, too.

Lenders stand to lose the lion's share in this mess. These ARM borrowers have very little skin in the game.

This isn't really meddling in the market. Politicians are trying to take credit for "brokering" these agreements on behalf of the poor, mislead masses, but the real story is that lenders have reluctantly come to realize that freezing rates for some is in their best interest. Freezing rates is an act to bail out the lenders, not the homeowners. Despite the rate freezes, many homeowners would still be better off by walking away from their properties. The freeze is an attempt to entice these homeowners to keep making payments for as long as possible, putting a stay on the real losses that would otherwise hit the creditors.

Many who will qualify bought homes at way overinflated prices, so even with the freeze, their mortgage payments will be much higher than equivalent rent costs. E.g., a 2006 ARM in SoCal might cost $3000 a month for a house that would cost $2000 to rent. If (when) the house drops in value over a protracted period, the owner, with no equity, would do better to just walk away and rent a place. They can save $1000/mo on housing costs and buy again in several years when prices are lower (maybe in 7 years, after their credit heals some). Without a rate freeze, many people would be forced to walk away and rent, sticking the lenders with the losses. The lenders hope to incentivize people enough to keep them paying off overpriced assets.

johnnymk · 12-07-2007, 02:17 PM

No matter how you look at it, it will eventually amount to a bailout. Either the investors will suffer and/or the local and federal governments will suffer.

Many of these loans should never have been made, and as usual irresponsible behavior is being rewarded by the government.

zippyjuan · 12-07-2007, 02:45 PM

Local governments actually benefitted from the sub prime lending practices via higher housing prices since people were able to buy more expensive homes than they would have otherwise. This increased the value of other homes and increased the tax revenues that locals collect from property taxes. That should outweigh any revenue lost due to forclosed and not resold properties.

johnnymk · 12-07-2007, 04:12 PM

Local and State governments also invested in questionable subprime ventures. The case of one Florida county which froze their assets recently is a prime example of how this domino effect is playing out.

johnnymk · 12-10-2007, 08:12 AM

email from newsmax.com

While Treasury Secretary Henry Paulson tries to get the home loan industry to clean up the mortgage mess, politicians are piling on.

In some cases, they are tackling the former Goldman Sachs chairman personally. What was recently strictly financial is quickly turning political.

“In the normal case, this is the way markets work,” Paulson told reporters, defending President George Bush’s plan to offer five years of relief to some borrowers.

“There are workouts and there are modifications when homeowners have trouble making their payments. So all this is, is the private sector coming together... to do what they can to avoid foreclosures that are not in anyone's interest,” Paulson said.

Nevertheless, the actual plan - which would freeze rates for borrowers with lower credit scores, while forcing “good” borrowers to pay, even to pay higher rates - came under fire even before it was made public.

Democratic House Financial Services Committee Chairman Barney Frank (Mass.) immediately questioned the wisdom of penalizing borrowers with higher FICO credit scores, saying that credit scare was not a good measure of income or ability to pay.

He’s not alone. Democratic presidential candidates Hillary Clinton and Chris Dodd are airing arguments that there is a price to be paid - and not just on Main Street.

“Some people might say Wall Street only helped to distribute risk. Well, I believe Wall Street shifted risk away from people who knew what was going on to people who did not,” Clinton said in a speech delivered at the Nasdaq Market Site in New York.

No one should be surprised that candidate Clinton would question the role of the financial sector and the Bush administration.

What might be surprising is that conservative economist and commentator Ben Stein directly questions Goldman’s role.

Clinton’s speech echoed some of the comments Stein made in a New York Times column the day before. Stein questioned if Goldman Sachs in particular bears some of the blame since they were among the largest sellers of subprime debt instruments.

Other Wall Street firms were big sellers of these products. But what makes Goldman so responsible, in Stein’s opinion, is that they were also the largest short sellers of these products on the Street.

As Goldman was busy explaining the virtues of subprime investing to some buyers, believed the value of those same instruments would drop.

At the time Goldman was doing all this, Paulson led the firm. That has Dodd promising, if vaguely, to investigate Paulson himself.

"It is in the best interest of resolving this crisis if Secretary Paulson, who was leading Goldman at the time in question. Failure to do so may be cause for a more formal investigation," said Dodd.

While politicians will continue to discuss and debate how much Wall Street is to blame, Stein perfectly summarized the role of Goldman, and every other investment house, in this and any other crisis.

"The people there are not statesmen. They are salesmen," Stein wrote.

VTGreg · 12-10-2007, 06:07 PM

Quote:

Originally Posted by johnnymk

snip...

There is definitely some blame that can be passed around, but bottomline, these people signed their name to these legal documents without understanding what they were getting themselves into. As Stein said with the last sentence in his article, these are salesmen. They are in the business to make money.

12-06-2007, 11:11 PM	#7
InfiniteNothing Chief of Naval Operations Join Date: Aug 2002 Location: San Diego Posts: 10,086	I agree. The responsible people should get the "teaser" rate for 5 years too __________________ As for our common defense, we reject as false the choice between our safety and our ideals.

12-10-2007, 08:12 AM	#13
johnnymk Chief of Naval Operations Join Date: May 2000 Location: LEVITTOWN< PA> USA Posts: 13,621	Life Turns Ugly for Hank Paulson email from newsmax.com While Treasury Secretary Henry Paulson tries to get the home loan industry to clean up the mortgage mess, politicians are piling on. In some cases, they are tackling the former Goldman Sachs chairman personally. What was recently strictly financial is quickly turning political. “In the normal case, this is the way markets work,” Paulson told reporters, defending President George Bush’s plan to offer five years of relief to some borrowers. “There are workouts and there are modifications when homeowners have trouble making their payments. So all this is, is the private sector coming together... to do what they can to avoid foreclosures that are not in anyone's interest,” Paulson said. Nevertheless, the actual plan - which would freeze rates for borrowers with lower credit scores, while forcing “good” borrowers to pay, even to pay higher rates - came under fire even before it was made public. Democratic House Financial Services Committee Chairman Barney Frank (Mass.) immediately questioned the wisdom of penalizing borrowers with higher FICO credit scores, saying that credit scare was not a good measure of income or ability to pay. He’s not alone. Democratic presidential candidates Hillary Clinton and Chris Dodd are airing arguments that there is a price to be paid - and not just on Main Street. “Some people might say Wall Street only helped to distribute risk. Well, I believe Wall Street shifted risk away from people who knew what was going on to people who did not,” Clinton said in a speech delivered at the Nasdaq Market Site in New York. No one should be surprised that candidate Clinton would question the role of the financial sector and the Bush administration. What might be surprising is that conservative economist and commentator Ben Stein directly questions Goldman’s role. Clinton’s speech echoed some of the comments Stein made in a New York Times column the day before. Stein questioned if Goldman Sachs in particular bears some of the blame since they were among the largest sellers of subprime debt instruments. Other Wall Street firms were big sellers of these products. But what makes Goldman so responsible, in Stein’s opinion, is that they were also the largest short sellers of these products on the Street. As Goldman was busy explaining the virtues of subprime investing to some buyers, believed the value of those same instruments would drop. At the time Goldman was doing all this, Paulson led the firm. That has Dodd promising, if vaguely, to investigate Paulson himself. "It is in the best interest of resolving this crisis if Secretary Paulson, who was leading Goldman at the time in question. Failure to do so may be cause for a more formal investigation," said Dodd. While politicians will continue to discuss and debate how much Wall Street is to blame, Stein perfectly summarized the role of Goldman, and every other investment house, in this and any other crisis. "The people there are not statesmen. They are salesmen," Stein wrote.

Thread Tools	Search this Thread
Show Printable Version Email this Page	Search this Thread: Advanced Search
Display Modes
Linear Mode Switch to Hybrid Mode Switch to Threaded Mode

12-06-2007, 03:08 PM	#2
YellowCoffee Lieutenant Join Date: Jul 2006 Posts: 411	Does anybody know the specifics on WHO is actually absorbing the cost of this rate freeze? I find it hard to believe that banks or even lenders are absorbing the cost. Why would they want to? They would lose the interest revenue. And why specifically restrict this program to borrowers who are current with their payments? What benefit does this provide other than a full on bail out? Also, is this a loan modification or is there any interest deferment involved? I just don't understand why these people would be bailed out.....without penalty, for choosing a hybrid arm that's about to reset. I don't get it. Does anybody know? Thanks.

12-06-2007, 04:07 PM	#5
zippyjuan Picture of the Day Guru Join Date: Oct 2002 Location: Sunny San Diego Posts: 8,756	The intent is to help people who might be hurt by their loan making an upward adjustment by delaying the reset by up to five years-thus slowing the rise in future defaults and taking that pressure off the economy. They did not want it to seem like a bail-out for people or lenders and thus use any taxpayer money. It excludes people who do not live in their homes since they are most likely speculators. Forclosure does cost more than the interest increase loss since the bank (or lender) loses 100% of the interest they were getting (if it goes into default and forclosure) plus the costs of trying to resell the property at perhaps less than the value of the original loan. It does not sound like it is a deferment of interest payments, only a delay in the adjustment of the loan to a higher rate. I think the Fed might be trying to lower the rates that mortgages will adjust to by cutting their rates (although there is not necessarily a direct link) but this will also lead to a further fall in the value of the dollar and increase the risks of inlfation slightly (demand is weak now so manufacturers will have a hard time passing along any price increases).

12-06-2007, 11:36 PM	#8
Dave_7 Captain Join Date: May 2000 Location: L.A..... Costa Mesa... Whatever, Man! Posts: 1,824	I'm beginning to see the point... lenders stand to lose lots, too. And these people are not getting to keep sweet-deal 4% rates... it sounds like 7% and 8% rates, which ain't that great. That said, meddling in the free market worries me. Dave.

12-07-2007, 02:17 PM	#10
johnnymk Chief of Naval Operations Join Date: May 2000 Location: LEVITTOWN< PA> USA Posts: 13,621	No matter how you look at it, it will eventually amount to a bailout. Either the investors will suffer and/or the local and federal governments will suffer. Many of these loans should never have been made, and as usual irresponsible behavior is being rewarded by the government.

12-07-2007, 02:45 PM	#11
zippyjuan Picture of the Day Guru Join Date: Oct 2002 Location: Sunny San Diego Posts: 8,756	Local governments actually benefitted from the sub prime lending practices via higher housing prices since people were able to buy more expensive homes than they would have otherwise. This increased the value of other homes and increased the tax revenues that locals collect from property taxes. That should outweigh any revenue lost due to forclosed and not resold properties.

12-07-2007, 04:12 PM	#12
johnnymk Chief of Naval Operations Join Date: May 2000 Location: LEVITTOWN< PA> USA Posts: 13,621	Local and State governments also invested in questionable subprime ventures. The case of one Florida county which froze their assets recently is a prime example of how this domino effect is playing out.

User Name
Password
Remember Me?