The Pitfalls of the Mortgage Bailout

[ScreamingEagle]

The plan to help out struggling borrowers won't do much to stem the tide of foreclosures.

The plan aims to prevent a wave of expected foreclosures by allowing troubled homeowners facing interest-rate hikes in the next two years to keep their low, introductory rates for up to five more years. The Bush administration says that as many as 1.2 million of the 1.8 million homeowners facing rate resets over the next two years will be eligible to apply. But probably far fewer will qualify -- perhaps only several hundred thousand.

The hurdles are many. The rate-freeze plan applies only to borrowers who took out loans between the start of 2005 and July 30, 2007, and whose rates are scheduled to rise between January 1, 2008, and July 31, 2010. Anyone whose rate has already reset is stuck with the higher payment. Homeowners who are in arrears by more than a month, or those who have been 60 days late more than once in the past 12 months, are ineligible. Homeowners who are in the foreclosure process, or those who have already refinanced their loan, are also ineligible. And only homes that are occupied by owners qualify. Lenders and loan servicers get a lot of discretion to decide who's in and who's out.

Taxpayers are off the hook. Lenders and Wall Street firms will foot the bill because the cost of renegotiating loans is less than the cost of a foreclosure.

Investors will pay a steep price because the freeze lowers the monthly payments they expected to get. The list includes overseas hedge funds but also mutual funds, money markets, pensions and 401(k) plans closer to home and heart. Expect a host of shareholder lawsuits.


http://www.kiplinger.com/magazine/archives/2008/02/mortgage_bailout.html

 

[Toro]

One of the Wall Street firms estimates that it will help 1%-5% of subprime borrowers.

 

[ronpaul2008]

A particular theme regarding governments is they find a problem and convince the populus that government intervention into that area will help. Then the government scews things up horribly and suggest to remedy the terrible situation they are in they take even more control over that particular area. Regarding government involvement in the housing market, one idea that took hold among political types was that many borrowing candidates were not able to become homeowners because instutitionalized racism was preventing them from getting loans. Of course ideas like this started with the left but became part of the rights agenda as well as evidenced by all the highlighting given by proponents of the Bush Administration how his policies got black Americans the higest rates of home ownership under his watch. So obviously policies were put into place by the government that filtered down through the financial institutions and where people were getting loans that were interest only, no money down, etc, things unheard of in the past. Now the borrowers are defaulting and the lenders are being accused of as predatory in the democrats speeches. So the lenders are racists if they refuse the loan and predatory if they make the loan. The federal reserve is the root cause of the problem by taking interests rates so low. All these people were taking ARM loans and many having no idea that interest rates were bound to rise, most were just hoping they would stay low for a long time. The fed and the government knew the rates were going to rise by their hand yet they did not inform the public. They were too busy parading stats that home ownership is up. They also had to know a bubble would form pricing virtually everybody out of the housing market except those willing to indebt themselves to the lenders. Notice nobody in government (except maybe Ron Paul) will criticize the federal reserve about this? Who do the politicians work for?