Mortgage rate freeze plan
My take. Yesterday, I introduced the proposal and offered no comment. Today, I'll offer my opinion on the mortgage rate freeze.
OK, here's why. First of all, the politicians are piling on top of each other to show that they want to do something to help.
Strike one.
There are so many restrictive qualifications to get a rate freeze that it simply won't change anything but make people feel good for a few days.
Strike two.
Now how about those folks who don't qualify, either those who took a loan out before January 1, 2005 or a prime borrower who put money down and chose not to take an adjustable rate mortgage opting for the security of a fixed rate product or just plain old taxpayers or their children and grandchildren who will pay for this mess. How do they feel about not qualifying, buying a home the old fashioned way or paying more as taxpayers to help those who do qualify for the rate freeze.
And will this really stop the bleeding or simply postpone the inevitable.
Strike three.
I'm sorry but in my opinion it will not change anything. Most of the "bailed out" borrowers will still default. The loans were bad. Let the market sort it out, putting a band aid on a problem this big won't save the patient.
From HUD, regarding alternatives to foreclosure, some history about success and failure, (emphasis added).
"FHA developed its Single-Family Mortgage Assignment Program. Under the assignment program, FHA pays full insurance claims to lenders/servicers and becomes both the investor in and servicer of the loans. Borrowers are granted a period of reduced or suspended payments, which create long-term accounts receivable with FHA. The forbearance period can last up to 36 months after which borrowers have up to 10 years beyond mortgage contract maturity to pay off their entire debt.
From the perspective of borrowers, the assignment program has been a mixed success. Only a minority have cured their default, while many more families have postponed foreclosure for long periods of time. Some families simply avoid foreclosure but never fully recover. Based on FHA's experience from 1984 to 1993, a reasonably accurate distribution of outcomes can be constructed. During the first 10 years after families enter the assignment program, approximately 15 percent fully recover; another 25 percent sell their homes, many at prices insufficient to pay off the entire debt; and roughly 50 percent lose their homes through foreclosure."
While I certainly feel for the borrowers who are in trouble, I feel just as deeply for the borrowers who aren't and who are just as affected. And if the government rewards reckless behavior by lenders and borrowers, it will just encourage more of it in the future.
But if the government wants to throw some money around, why not just pay off everyone's mortgage. My last name begins with the letter A.
Let's start there. 