Bush to freeze rates for 5 years - I should've been a lemming!

NEW -> Contingent Buyer Assistance Program
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uppercuts_IHB

New member
This is really terrible news for those of us that "correctly" assumed the current housing market wasn't sustainable...



http://news.yahoo.com/s/nm/20071205/bs_nm/usa_subprime_plan_dc_8



It appears that the new plan will freeze rates on adjustable mortgages for a five year period. Holders need to prove that they can afford their teaser payments (i.e. probably doesn't help undocumented sub-prime holders, but should help alt-a) to benefit from the program.



The details haven't been released but if this is true then the government is essentially taking money from the majority of Americans that were financially responsible and giving it to those that weren't. This will happen either in the form of tax subsidies for the lenders (to make up for mortgages issued at lower rates) or in the form of higher mortgage rates going forward (to make up for mortgages issued at lower rates).



Either way, speculators will be able to stay in their nice new homes while those that bought homes they could actually afford or rented, followed good long-term budgeting principals, and saved up a real down payment will be stuck for at least a few more years while subsidizing others? lifestyles.



Another impact may be on the realtors. Given this may prevent a significant ramp in supply (fewer foreclosures and owners moving) and keep demand low (higher mortgage rates, tighter lending practices, and artificially inflated prices) real estate transactions may even slow from current levels.



At least the politicians won't have to deal with a more severe economic downturn into elections.



Obviously, my initial take is a little negative. Any thoughts?



J
 
at the least, I hope they limit this gov bail out to primary resident only, and put stiff punishment on people who lie about that.
 
In the article I saw on MSNBC they said they had to prove it was their primary residence. I still don't think this plan really does much for anyone. If I knew that my home was loosing value and that I wasn't paying down any principal nor had a nice down payment for such an occasion I would walk. But then again these are the same IDIOTS that thought housing always goes up!!!
 
<p>I await the details of the deal.</p>

<p>Back when I had a real estate closing practice, I dealt with these servicers all the time to get pay offs, etc. They didn't have enuf clerks to do the work then; they don't have the help now.</p>

<p>I think the bigwigs at these companies actually don't know what is going on in the trenches.</p>

<p>Got another foreclosure client; doesn't live in the house, so not qualifed for bail out.</p>

<p>I urged another foreclosure client to try to sell; she said there were 103 houses for sale in her general area of Miami-Dade, and none of them were selling. A Centruy 21 and another big name broker in the area had closed down.</p>

<p>When a fixed rate Alt A can't pay, they will walk. I think a lot of these reset people will walk too, when they try for the bail-out and can't get anybody to return their phone calls.</p>

<p> </p>
 
Lawyerliz.....I agree I shouldn't rush to judgement on the plan until further details are devulged however I have two big problems with this plan:





1) it's absolutely ridiculous for the Federal Govt to come in and save who spent carelessly and did not read the ink between the lines on their mortgages contracts. In fact, if the Federal Govt could prove or individual owners could prove that they given false information about resets and that the mortgage they signed up for was not what they received then yes they should be helped. But all the govt is doing now is allowing millions of homeowners to plead "ignorance"!!!





2) IMHO this is like throwing mud in the face of those who have been waiting patiently to save money and for prices either to become reasonable or until they had enough of a down payment to make the mortgage reasonable.





To me this program is pushing further towards a welfare state with the ignorant benefit by their foolish decisions and the ones who abide by COMMON SENSE get SCREWED!!!
 
I can't help but think this is going to destroy the mortgage market. In particular it will signal the end of adjustable rate mortgages. If the issuer or an adjustable rate mortgage does not have the ability to adjust it, then it becomes a fixed-rate mortgage. What investor will be buying adjustable rate mortgages under these circumstances?
 
I may be wrong, but while this legislation may allow some folks to stay in their homes, I don't see how it is going to prevent home prices from falling, especially with the high inventory that is already on the market. For prices to remain high, or go higher, current homeowners and home builders still need a supply of BUYERS if they want to move their product at current levels. There won't be move-up buyers because they won't be able to sell their current home at prices that will give them the necessary equity for their next purchase, nor will they be able to secure a new loan under the new standards. Potential buyers will STILL need 20% down and high FICO scores, and jumbo loans will STILL carry a large premium.



Regardless of this new legislation, prices will still need to fall in order to balance supply with the current lack of demand and "easy" access to mortgage capital.
 
I don't think this will destroy the ARM market. It's very limited in scope - credit scores below 660 for people who bought houses from 2005 to mid-2007 (i.e. top of market). Realistically, virtually all of these purchasers will default in the next few years anyway, so the mortgage industry isn't giving up much. They may actually gain - almost all these homes will end up short sales or REO eventually but now the banks will get a very high rent during the extra time the FB's try to tough it out. Additionally, the mortgage industry was involved in setting these limits - they haven't yet acceded to the idea that modifications can be imposed on them unwillingly.



Of course if this is just the breach in the dike and if further modification plans come along to deal with further bombs (Alt-A? Option ARM?) then it's a different story.



Now if Clinton floats a stronger plan that might very well destroy the ARM market. Since she has an excellent chance of being our next president lenders have to take her plans into account, even if they're not going to be implemented for 18 months. Are her plan details out yet?
 
I understand the logic of collecting 7% interest from the home owners for 5 more years with the hope that there credit and home prices will allow them to refinance into a fixed.........especially if the homeowner is making their payments now. If the market does not turn up in the next 5 years so the owner can refinance, then my bet is the banks would go another 5 years...unless interest rates go up and the prevailing rate for home loans is 9 or 10 %.
 
<p>Tune in tomorrow...</p>

<p>but my gut tells me it's all lip service. </p>

<p>It's not a grand forgiving of debt. It's not a locking of a 1.5% teaser rate. It's not bailing out a speculator. It's not bailing out the migrant strawberry picker who's documents were somehow fudged and got a $800,000 loan for a house. It's not bailing out stated income borrowers.</p>

<p>In the end, i suspect it's just burying the guy that previously overreached on other credit such that their credit was poor, took an ARM on too big of a house on the word of the broker on don't sweat you can refi it later and will lock them in for the next 30 years at 9%. Provided of course, that they haven't already messed up the payments, can show all their income and everybody believes there is more blood to squeeze from the turnip.</p>

<p>What is that 1/10th of 1% of the market in California? </p>

<p>It's a win - win - lose as the politicians get to say they did something, the banks bleed a few more payments out at above market rates an don't need to take 50 cents on the dollar today. Cuz frankly 50 cents on the dollar in two years plus 24 months of 9% interest payments is a hell of a lot better deal than nothing today, holding a junked house from a bitter evictee and taking 50 cents on the dollar in 6 months when your REO dept eventually get's their pricing right.</p>
 
I don't think the policy is going to do anything to help support or reinflate the bubble. The problem I have with the policy is that it is nothing more than a welfare policy to prop up those who have made bad decisions once again. I don't care what your credit score is, if you make $55K / yr you should not be in a $500K condo and so on. Infact I believe you could make a strong argument that most of these people trying to stay in these homes would be better off if they walked away, paid for everything in cash for the next 7yrs, saved money while renting, and then bought a home with a fixed rate and a sizable down payment.



Rather the govt would have them nickle and dime themselves for another 5yrs hoping that their modest raises keep up with inflation, which I dare not elaborate on.
 
Can someone help my tiny brain understand how Ben's plan to continually dump dollars into the market will keep the mortgage products from drying up and triggering a domino effect across the broad economy? Understandably, people do not want to throw the baby out with the bath water, but what makes throwing gas on the fire a better option? Will the spur in investments as a result of lower fed funds rates really be enough to offset the fallout? Good grief!
 
<p>Just remember, don't use the r word (renting). Who would rent their current pad at higher priced rent than elsewhere, and lose money in principal every month to boot. Nor would banks "rent" as they're not allowed to hold assets on the books. Oh no, this is helping stretched proud homeowners trying to keep their homes. Yeah, that's the ticket.</p>
 
<p>I don't understand how an investor can accept this. They bought these loans with the idea that they will make more money during the resets. </p>

<p>Also, according to the CNN article, "The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate." </p>

<p>Who decides that they cannot afford the higher adjusted rate? Do the homeowners themselves decide this or does the bank? I think a lot of people who can afford payments today can afford it at 30% more if they are willing to sacrifice the luxuries they become accustomed to. Sadly, I can imagine people getting this bailout not changing their lifestyle one bit and spending money with no problem...afterall, they are subprime folks who never were good with their money. </p>

<p>CNN article: <a href="http://money.cnn.com/2007/12/05/real_estate/bush_freeze.ap/index.htm?cnn=yes">http://money.cnn.com/2007/12/05/real_estate/bush_freeze.ap/index.htm?cnn=yes</a> </p>
 
<p>First, this just makes me mad. This plan rewards irresponsible behavior on the part of borrowers, mortgage brokers, appraisers, lenders, purchasers of MBS, the rating agencies, investment banks, etc. MORAL HAZARD!!! (sorry for the realtor type)</p>

<p>Second, the US economy needs a housing disaster to wean Americans off of a debt-fueled, unsustainable lifestyle. The Great Housing Bust should have been a nice dose of "medicine," but this plan will reduce the medicine's effectiveness.</p>

<p>Third, we can't hope for a politician to stand up and oppose this plan because the Dems are the nice guys trying to help hard working Americans from losing their homes and the Republicans are in bed with Wall Street (which clearly benefits from this plan).</p>

<p>Fourth, if the backers of this plan are truly concerned about the borrowers that were taken advantage of (and, yes, I do think there were a lot of people taken advantage of -- primarily by shady brokers), then something should have been done to aggressively prosecute fraud. A broad-based bailout sweeps in too many people that don't need/deserve any help.</p>

<p>Fifth, I'm pissed because I feel like there is nothing I can do to stop this plan (I feel helpless). I did find this online petition -- it was created well before this current plan surfaced, but I think it is still applicable. Not even 6,000 signatures yet. Need a lot more to have any influence. <a href="http://www.petitiononline.com/bailout/petition.html">http://www.petitiononline.com/bailout/petition.html</a></p>

<p>Sixth, I remember an article (NYT perhaps) posted on these forums re: how Countrywide didn't have the financial incentive to modify mortgage terms because they make so much money off of fees when the foreclosure process starts. Is this likely the case with other lenders? I figure this might also be the case with servicers -- does anybody know?</p>

<p>Finally, I expect at least some litigation to result from this. There have been interviews with law professors where they question how contract terms can be modified by outside parties. However, if this plan is "voluntary," then this may not be an obstacle.</p>
 
<p>There should be a lot of rules. example... do they get to keep the BMW?? I'm going to really be upset if I have been saving to have my dream delayed longer. Fine help them but it better come with a punishment. </p>

<p>Everyone from the gov to the customer who signed the loan docs are at fault. I hope they have a plan also for the future so this doesn't happen again . Like to read this board!! I have saved 70K just by waiting </p>
 
My big question is, what of the people who've lost their homes in the past 3-6 months to whom this "plan" was not available? They might have no legal standing to bring such an argument, but if it were me whose credit just got ruined and suddenly heard about this plan, I'd be a little ballistic.



This is pure market manipulation. And the fact that our "Republican" administration is at the forefront of it is extremely disheartening. (To say nothing of the chills that run down my spine when I hear Hillary say "it's not enough"). As an analogue, this is as if the government brokered a deal between banks and highly leveraged hedge funds to say "listen, we don't want these hedge funds going under, so why not give them a low interest rate for 4 or 5 years, just until the market rebounds".



If _that_ were to happen, Democrats would be climbing all over each other to get to the podium and condemn the "big business first" policies of the administration.



There were companies and individuals who acted in bad faith, and possibly criminally, in the run-up of this bubble. Let those people suffer the consequences of their actions, and let the market continue to set the prices so that this arc can find its bottom and we can all begin _working_ (operative word) toward homeownership again. All the policy makers have accomplished here is prolonging the devastation (right out of Bush's presidency, you may have noticed, and right smack into another election cycle) and playing into the hands of the lenders themselves, who now have a chance at not being buried in real property assets instead of paper.



Fin.
 
<p>so this helps what one guy in Modesto?</p>

<p><strong>* Mortgage had to be issued between January 2005 and July 2007


</strong>


<strong>* ARM must reset January 2008 to July 2010


</strong>


<strong>* You must not have more than 3% equity in your home (what? are you f*cking kidding me? if you put money down you're f*cked!)


</strong>


<strong>* Home must be worth more than the mortgage (ha ha ha ha ha!!!!)


</strong>


<strong>* You must have income (i.e. sorry realtors and Casey Serin)


</strong>


<strong>* You must prove that you can make the payments


</strong>


<strong>* You must not be more than 60 days past due</strong>


<strong></strong>


<strong>* Program is voluntary with the lenders - government has no authority or legal status</strong>


(housingpanic.blogspot.com)</p>
 
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