Mortgage Rate Freeze Reached

[Yuriy]

Mortgage Rate Freeze Reached

Thursday December 6, 1:54 pm ET

By Martin Crutsinger, AP Economics Writer

Deal Reached With Mortgage Industry for 5-Year Rate Freeze


WASHINGTON (AP) -- President Bush announced on Thursday 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.

And the help only comes 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.

http://biz.yahoo.com/ap/071206/mortgage_crisis.html

 

[Uncle Max]

I wonder who is going to pay for such a freeze? Will the lending companies be reimbursed by our tax-dollars for the difference in rates? If not, what is going to happen to the CDOs where these mortgages were packaged? In this case, "frozen rate" mortgages will generate much lower payments then expected, and investors will see a huge reductions of yield in such securities.

 

[kean]

The new US President has to think hard. Well, it is about politics. At least, borrowers will love Bush for the time being.

 

[GusTsahas]

I am mostly a believer in Austrian economics, that it is far better to cleanse the system of inefficiencies quickly then to let problems drag out for years. We were proud of how quickly we solved the S&L real estate induced crises in the early 90’s by large liquidation (the Resolution Trust Corp) for the young people …. Resolution Trust Corporation - Wikipedia, the free encyclopedia

The Japanese had similar issues to deal with but from different causes, and they did not liquidate inventory or displace people. Their real estate market continued to fall for over a decade and if I remember right, they lost 75% of the real estate values from 1990 to 2003, or something close to this…. even with zero rates and liquidity that has flooded the world.

On a personal fairness level, the buyers of homes that acted responsibly and put down a substantial down payment with either an adjustable or a fixed rate mortgage will be paying higher monthly mortgage payments. The substantial down payment makes the adjustable mortgage “affordable” even when reset higher and the fixed mortgage payers have been paying over a point and closer to two over the adjustable and rate teasers from day one.

The buyers of the SIV notes are going to get hit but let’s assume their loss will be offset by the stability of the economy given the smaller number of expected liquidations. However, who will buy the next generation of liquidity enhancing investments at a reasonable rate of return knowing they could be called on to take a hit in the future?? Long term rates for assets have to go up.

What I will do, is buy a Maserati with no money down and an adjustable teaser rate and wait it out…. Given that auto foreclosures are climbing, in 2 or 3 years a bail out should be available for people taken advantage by the unscrupulous car salesman and hopefully us Maserati owners will be included in the package.
[FONT=&quot]:D [/FONT]

 

[Uncle Max]

Today's quote:

Homeowners dialing up their mortgage company to get their current rate frozen could be disappointed. The White House plan does not force mortgage companies to give eligible homeowners a break. It is voluntary.

Very interesting detail. What's a point of this plan, if it is voluntary?

 

[Yuriy]

The point was to make Wall Street happy and create a feeling that things might be getting better in the future.

 

[Uncle Max]

They will cut rates next week to make Wall Street happy
I think this initiative was designed to make voters happy

 

[woody]

I think this initiative was designed to make voters happy

bingo. we have a winner.

 

[Yuriy]

They will cut rates next week to make Wall Street happy
I think this initiative was designed to make voters happy

That is very true
It would be interesting to hear what presidential candidates have to say about mortgates

 

[Yuriy]

By the way, a while ago I read that they did not want to cut the rate more because of the possibility of inflation. Any news about "inflation vs. rate cut" topic?

 

[kean]

I wonder......?? >>>>> if the rate is freeze for 5 years, what are the losses imposed buy these financial institution? Who is going to bear the bills? Wall Street, investors or tax payers? Someone has to bite the bullet...then who?

 

[Yuriy]

I wonder......?? >>>>> if the rate is freeze for 5 years, what are the losses imposed buy these financial institution? Who is going to bear the bills? Wall Street, investors or tax payers? Someone has to bite the bullet...then who?

Most likely tax payers' money or more bonds

 

[Yuriy]

Bush subprime plan limited but a step forward

CNNMoney.com
Bush subprime plan limited but a step forward
Thursday December 6, 6:03 pm ET

By Les Christie, CNNMoney.com staff writer

The Bush administration unveiled a foreclosure relief plan Thursday that the White House said could help 1.2 million distressed homeowners.

In separate announcements, President Bush and Treasury Secretary Henry Paulson said the plan will streamline the mortgage modification process for many distressed borrowers. It will offer "more relief to more homeowners, more quickly," the president said. And it will include a five-year freeze on interest rates for borrowers current with their monthly payments.

But the freeze is limited. It excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months.

It also only covers borrowers with adjustable rate mortgages (ARMs) resetting beginning in 2008 and leaves out any who are judged capable of continuing to make mortgage payments at the higher reset rates.

Borrowers who can't afford the loan even at low introductory rates also will be ineligible, according to Anne Canfield, executive director of the Consumer Mortgage Coalition, which represents lenders and mortgage servicers. Those borrowers will have to work with servicers on a case-by-case basis to determine if their homes can be saved.

Of the perhaps 2 million subprime ARMS that are expected to reset through the end of 2009, only 240,000 of those would be covered by the freeze, according to an analysis made by investment bank Barclays Capital as reported in The New York Times. The Center for Responsible Lending, a group that promotes homeownership and works to curb predatory lending, estimates that only 145,000 households will qualify for the rate freeze.

Other borrowers will gain relief through FHASecure and other, lender-initiated refinancing efforts.

"I think the plan is good in theory," said Mark Zandi, chief economist for Moody's Economy.com, "but, in practice, it's going to come up short. There are too many impediments to its widespread adoption by investors and servicers." Obstacles include contractual obligations between servicers and investors as well as logistical difficulties. When loans have been sliced up and resold through the securitization process, it can be hard to determine who ultimately has the authority to decide what modifications are possible and still in the best interests of the investors.

...........

Despite all the criticism, the initiative was welcomed by nearly all the players, including consumer groups. Many wish it were stronger but were happy to see some response from the administration.

As Lampe put it, "Perfection is the enemy of progress."

The president also used the announcement as an opportunity to call on Congress to act more expeditiously on passing mortgage relief legislation, including the FHA Modernization bill, changes in the tax code, so lender concessions to borrowers are not taxed as income, and a bill enabling local and state governments to issue bonds to finance mortgage refinancings. All have been bottled up in the Senate for weeks or months.

more at : http://biz.yahoo.com/cnnm/071206/120607_bush_plan_is_limited.html?&.pf=loans

 

[alain]

Well, believe it or no, I am glad to hear about this.

why? I don't like socialism (I left Cuba so you get the idea)... so, anytime the government tries to clean up people's messes, it is an issue for me.