Subprime Borrowers Get Break: Five Year Mortgage Freeze
The word is out. The Bush Administration has announced a five year mortgage freeze for some subprime borrowers. This five year mortgage freeze would delay the reset of between 1.5 and 2 million mortgages in the coming year or so. The Australian reports on the basics of the plan:
The president’s plan would make it much easier for lenders to freeze the “starter” interest rate for those borrowers for five years, according to a document being circulated by the Treasury Department. The plan applies to loans originated between January 1, 2005, and July 31, 2007, that reset between January 1, 2008, and July 31, 2010. To screen out speculators, owners would have to live in their homes. Office of Thrift Supervision Director John Reich said earlier this week that the plan could help “tens of thousands” of homeowners.
For other borrowers who are in somewhat better shape, the White House also wants to speed up refinancings through the Federal Housing Administration and other sources. For example, the administration wants to allow state and local governments to use more tax-exempt bond programs to fund refinancings.
Proponents of the plan tout the fact that it could result in a “soft landing” for the U.S. economy, mitigating the effects of a recession, and helping Wall Street avoid massive losses.
Others, however, complain that the mortgage freeze doesn’t go far enough. Wisebread points out that if you bought a house you could afford, making the better financial decision, there is no help for you:
Of course, if you were clever enough not to buy a house you can’t afford, nobody wants to help you out.
Even though an adjustable rate mortgage is not the best choice under any circumstance, at least being responsible enough not to get in over your head should count for something. But it doesn’t.
The other issue is that the mortgage freeze does nothing to address the underlying problems of the mortgage industry, and the way our society has come to view debt. The mortgage industry can still peddle poor mortgages, investors can still invest in them (and count on the government to bail them out) and Americans will still be encouraged to spend more than they can afford.
Tags: mortgage freeze, subprime borrowers, home mortgage loan, mortgage industry,
Bush Administration, adjustable rate mortgage, five year mortgage freeze
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