Experts: Freeze on home-loan interest no cure-all

[Lone_Star_Dem]

Source: Associated Press

WASHINGTON — If lenders temporarily freeze low introductory interest rates on home loans made to risky borrowers before they soar, it would be a modest fix for the country's fractured housing market.

The problems are so far-reaching, analysts say, that an emerging Bush administration-backed plan — nicknamed "teaser-freezer" by one economist — won't spare many borrowers, or bankers, from the pain of escalating foreclosures and defaults.

Edward Yardeni, an economist who runs Yardeni Research in Great Neck, N.Y., called the plan "better than doing nothing," but added that it is "not necessarily going to make a big dent in the foreclosure problem that's facing us" because thousands of borrowers still might not be able to make their monthly payments.

<snip>

The freezes would apply only for borrowers who are current on mortgage payments but unable to afford loans when they adjust to higher interest rates — and sometimes dramatically higher monthly payments. The Federal Deposit Insurance Corp. estimates that 1.1 million borrowers are in that situation.

Read more: http://www.chron.com/disp/story.mpl/chronicle/5345861.html

[Robbien]

1. So do nothing. That'll fix it.

Experts are not happy this approach is targeting the little guy.

Experts say focus on the bankers. Bail them out. Give them a free pass for all their sins of greed so that they can go out to freely sin again.

[Lone_Star_Dem]

4. According to this article it will be up to the lenders if they do anything at all

As it stands, loan servicers are being asked — but not mandated — to give extensions of two to five years for subprime mortgages made to borrowers with weak credit that are due to reset at higher rates in the coming years.

<snip>

The plan hatched by government and industry also is intended to benefit investors who purchased these risky mortgages. Agency officials counter criticism from investors concerned the plan will deny them potential profits by arguing they will be better off in the long run through the loan modifications. It spares them the cost of a foreclosure, which can run around $50,000, and decreases the likelihood of default.

"Lenders and investors will ultimately benefit," Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., said in an October speech in which she unveiled the idea to investors. "You'll come out ahead of the game with a performing mortgage that's being paid versus having a loan that's in foreclosure."

Initially, investors gave a chilly reception to Bair's proposal. But since then, Democrats have been moving forward legislation — ardently opposed by lenders — to allow home mortgages on primary residences to be modified in bankruptcy court.
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This sounds to me as if they've found their little Dutch boy to stick his finger in the dyke.

[Javaman]

5. aka nothing will happen unless the lenders see themselves losing money. nt

[Lone_Star_Dem]

6. Yes, exactly.

If you're home hasn't depreciated to the point that the bank is going to lose its shirt you're out of luck. Expect the foreclosure to take place as scheduled.

If it has depreciated beyond profitability, they'll give you another couple of years to pay them in hopes of offsetting their losses a bit. Then they'll raise your payments and your personal loss will be greater than if you'd gotten out now.

[Doctor_J]

2. it's not intended to be a cure, only to pass it to the next president

Just like the Iraq debacle, budget crisis, trade imbalance, and environmental disaster.

[pscot]

3. This is a completely bogus "fix"

It's nothing but PR. Eventually the weak loans will clear and the system will right itself. Some people are going to be squeezed in the process. It's happened before. People over-reach. It's traumatic, but people pick themselves up and move on. In a year or two we'll have something else to hyperventilate about.

[customerserviceguy]

7. It has happened before

I remember the housing recession of the 1981-83 period. There were important differences then, the baby boomers were starting families, and needed the multi-bedroomed houses. Also, look how much stuff around you (helps to see this if you live in or visit the suburbs) has been built since 1983, it wasn't part of the last housing bust, but will be part of the next one.

There's no perfect solution out of this, it's all a matter of whether a $250,000 house sinks to $150,000 in a matter of six months, or a few years. The latter course of action will far less disruptive to a lot of working folks out there.

[Xenotime]

8. Govt needs to help those who need it and punish those who caused this mess.

[sandnsea]

9. A freeze will make it worse

When the freeze lifts, people will discover the value of their homes have plummeted and they still won't be able to get a new mortgage. Not to mention, who knows how high the interest rates will be by then. This is just setting up people to fail in 2 years instead of now.