Article about the proposed bandaid for the subprime mess: http://www.forbes.com/home/wallstreet/2007/12/06/bush-mortgage-subprime-biz-wall-cx_lm_1207subprime.html
Actually, I am a bit impressed. I am not a Bush fan, and expected a completely worthless program to come out. This one actually promises to help people who can afford their current mortgage payment a few years breathing room to get things in order to save their homes. Doing a massive bailout to the tune of $440billion would have been fiscally irresponsible, I think. Plus I have a philosophical problem with the government bailing out people who over-reached to get risky mortgages they couldn’t qfford to begin with.
The biggest problem I have with the solution is that the owner has to ask for the freeze. Just because someone is overseas, or just doesn’t keep up with the news, if they don’t ask for it they don’t get it. And how much of a headache will the paperwork/process be for the freeze?
But again, short of authorizing FHA to get into the Subprime business in a huge way, there isn’t a whole lot more that reasonably could have been done, I think.
It’s a tough situation to be in, here are how I see the pros and cons of this situation:
Pros-
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Poor homeowners that were swindled don’t get totally screwed (ok I’m being devils advocate here, I think this mainly was a lack of paying attention to what they were signing)
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Could potentially help the economy stay afloat somewhat
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Could stabilze the real estate market somewhat by keeping the number of REOs down
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Saves the expense to the mortgage lenders of foreclosure and keeps performing loans from going to nonperforming status
Cons-
- As the article mentioned rewriting loans after they have been put into play destabilizes the secondary market and investors will be leary about buying paper that can be redrafted on a whim.
- People like me that don’t have an ARM are footing the bill for someone else’s screwup.
People will think the gov’t will bail them out every time they screwup.
[li]Could further destabilize the economy and weaken the dollar EVEN MORE. Have you checked the exchange rate lately?
I think it’s a TERRIBLE plan.
People that took mortgages they can’t afford, should lose their houses.
Banks that made bad loans should go out of business.
Investors that bought worthless mortgage securities should take the hit.
Capitalism is the best medicine, not the idiots in government.
Mike
I need to stop following propertymanager but he is right. I am putting people that lost their houses in this sub prime mess pretty regularly now. They almost exclusively came from a brand new house that was overvalued and they lost the house because they really couldn’t afford it. I put them in usually a bigger house, it is not new but it is rehabbed to perfect condition and I don’t let them in unless they can actually afford the house. I help people and I make money by doing it. If I could buy every foreclosed house in Houston I would reassign them based on people’s ability to pay and I could fix the world and get rich doing it. Capitalism works.
Mike’s right on the money. Sadly though this is going to hurt the economy as a whole no matter which way the gov’t goes on this, at least in the short term. Oh well, at least savvy investors will be making good money. 
This “PLAN” is not really going to help that many homeowners as you might think. There are alot of qualifiers that will eliminate those who overreached and bought something they couldn’t afford and also those who haven’t been making their payments on time previously. Plus it will rule out investment properties and second homes, and I would assume they won’t be allowing any stated income loans.
FHA also will roll out a new product on Jan 1st. Essentially, it will allow those who have been late on their mortgage AFTER it adjusted, but were on time BEFORE it adjusted. But still you will have to qualify everything else just like normal with an FHA loan (i.e. DTI, credit, income).
I don’t believe that it is fair that homeowners who failed to run the numbers should be bailed out. I don’t believe that lenders who failed to perform due diligence with their underwriting should be bailed out.
But this isn’t about that.
Regardless of who should be blamed for this whole mess, it has grown to an international problem with implications that need to be addressed. The Fed needs to keep cutting rates, congress and the White House need to exercise innovation and creativity to resolve this problem and keep our economy (and Europe’s economy and the Chinese economy and the Japanese economy the list goes on….) solvent.
I am a capitalist and do not believe in government intervention. I don’t want to see Wall Street speculators get rewarded for putting together mortgage backed securities that they should have known were high risk. I don’t want to see honest people who waited and rented or who lived within their means feel like they did this for no reason. I don’t want to see mortgage brokers who lied about their client’s income rewarded. But I don’t want to see the entire globe fall into a financial crisis. I don’t want to see developed nations struggle with recession, stagflation or any number of other financial catastrophes because we failed to act. This is not a simple problem, and the people who are reaching for a simple solution are not considering the scope and complexity of the problem carefully enough. George Bush probably has about as much to do with the solution as the tooth fairy, but he’s the go to guy for people like Paulson and Bernanke, who recognize this for the fiasco that it is, and I’m sure are drawing parallel lines to previous stock market panics, including the junk bond panic in the 1980s, the panic of 1907, and the Great Depression itself.
In all honesty I think this plan may avert a SEVERE depression in this country.
Is it perfect? NO, but let me tell ya, to do NOTHING would be the same as watching someone drowning and saying, “Hey, they shouldn’t have gone in the water.” True statement? YES. Good policy? NO!
I usually agree with Property manager but not on this one. There are times when goverments HAVE to step in. Don’t forget Mike, it was that dope Alan Greenspan who came right out an said “People may benefit from the new adjustable rate mortgage products.” When the Chairman of the Federal Reserve is touting these mortgages it’s a little difficult to simply place ALL the blame on the people who got them.
I don’t have a lot of sympathy for someone with a lousy credit history and a track record of making late payments getting off the hook. That being said, I DO have sympathy for someone who HAS been making their payments but will see the home they are living in lost because their payment will go up by 50% on a home that has gone DOWN in value by 25% or more. Most of these people got into these loans because “THE EXPERTS” told them that the house would continue to appreciate and they could then refi into a traditional mortgage with that equity.
While this plan is not perfect, it will help. And remember this…BUSH has had as much to do with putting this together as he has with planning Hillary’s inaugeration. This is Hank Paulson’s plan all the way. Paulson is a VERY smart guy who took a gigantic pay cut to serve his country as Treasury Secertary. This plan was THE BEST he could negotiate between Wall St. and the Federal Goverment.
If nothing was done even you slum lords would have been TRUELY hurting. The theory that “they have to live somewhere” doesn’t fly in an economic meltdown. Remember Mike, YOU DON’T OWN YOUR HOMES, Your bank does. They crumble, and you go with them. On EVERYONE of your mortgages there is a clause which states that the lender can CALL that loan in at ANYTIME.
This may have averted a collapse not seen since our grandparents were children.
I read Bush’s plan and it had such a big list of criteria - I didn’t understand exactly who it would help? It seemed like the amount of people who fell into that small category would be small.
I’m a believer in the market working itself out
If everyone could re-write thier mortgage - why would banks continue to loan money?