Will Bush’s Mortgage Rate Freeze Plan Slow Foreclosures?
The “plan” the President outlined today is non-binding on the mortgage industry. Here’s more from Newsday:
Bush said that 1.2 million people could be eligible for help under the plan, developed in negotiations with the mortgage industry led by Treasury Secretary Henry Paulson. But only a small fraction of that number will be subject to the rate freeze. Others would get assistance in refinancing with their lenders and moving into loans secured by the Federal Housing Administration, Bush said.
And the help only comes to those who ask for it, he said.
Thousands of borrowers who are falling behind on their payments have been sent letters about the options, and Bush also urged people to call a new hot line: 1-888-995-HOPE.
The plan targets homeowners who have been keeping up with payments, got loans in 2005 through July of this year and will face problems when their interest rates are scheduled to rise between next January and July 31, 2010, according to several wire services.
You gotta love the phone number!
Here is an example of someone who hopes they are helped by the plan:
Freeport homeowner Barbara Santamaria says she hopes she’ll fit the mold because she and husband, Alex, who have three children, already pay $3,700 monthly on a $414,000 loan, whose 7.5 percent from the summer of 2006 will go up to 10 percent in August.
Referring to the plan, Santamaria, 37, said, “That would help tremendously.” Without a freeze, she said, “I’m done. There’s nothing I can do and there’ll be no way I can keep the house.”
My question is- who will be sitting down with all of these homeowners to see if they qualify? There is going to be tons of bureaucracy.
Will this “plan” help or do more harm?
No
Ha! Well, that says it all Chicago Bubble Blog.
Referring to the plan, Santamaria, 37, said, “That would help tremendously.” Without a freeze, she said, “I’m done. There’s nothing I can do and there’ll be no way I can keep the house.”
by definition…
Anyone who can only qualify for a mortgage 400 basis points above the market rate has NO BUSINESS OWNING A HOME, period! Sell it and rent. Or arrange a short sale if it’s under water (keep the forclosure off your record, banks are very willing to do this these days, they don’t want the REO) and then rent. Build up some savings and live within your means so you you can pay your bills on time. Your credit score will go up faster than you realize and if you are still obsessed with buying a home you can buy the same house at probably a lower price a year or two from now at (or at least much closer to) a market interest rate!
Why is it so darned hard for people to understand this??? Most people don’t even know what the problem is, how can they offer any solutions? I’ll tell you what the problem is…
People have been brainwashed to buy homes at any price point and only be concerned with their initial monthly payment.
Prices as a result have been driven too high relative to borrowers ability to service the debt they need to take on to buy the homes in the first place. It was a mathematical certainty that this arrangement would eventually come to a screaching halt, which it has.
Either incomes will move higher to close the gap, or home prices will move lower. Keeping (relatively) poor people in (relatively) rich people’s houses by edict and rate-freezing is not just incredibly stupid from a long-term macroeconomic standpoint, it is morally bankrupt.
The Hope Now plan will only delay the inevitable. It will help some people in the short term, but give false hope to the vast majority of others who ARE MUCH BETTER OFF RENTING for the time being. The stock of housing needs to be moved into strong hands as soon as possible to get this credit crunch behind us ASAP. The longer we delay the inevitable the more likely this credit cruch will expand and suck down the entire economy.
John
I agree John. This “freeze” delays the inevitable because they shouldn’t be in the house in the first place.
I actually know of someone who bought a new construction condo in Lakeview (that’s where you don’t have to pay property taxes for two years after you purchase.) It’s two years later and she got her first tax bill for $9500 and she was like, “I don’t have that money.”
Um…did she think she didn’t have to pay the taxes ever?
This is a college educated woman with a good job.
The bank of Mommy and Daddy is rushing in to “save” her. But what happens next year? And the year after that? She basically shouldn’t be living in that condo.
I also heard a story from the Chicago suburbs where a bunch of McMansion homes are being built. People could barely afford to get into the house, but they couldn’t “afford” to buy furniture, drapes or anything once they moved in. So you have all these homes with no drapes, but the home is “worth” $1 million or more.
It’s messed up.
It all needs to be purged from the system. And the only way to do that is through pain.
Why can’t banks print off an Amortization schedule for people and staple it to the contract. Its that easy. Show them on paper what they will be paying in january of 2017 and make them sign off on it. Build in a little sensitivity and Bingo, all the liability gets passed to the homeowner. Can you really blame Capitalism for originating these profitable mortgages? If so, then you also have to slap starbucks on the hand for charging to much for a mochiato after they bought a $100 SBUX card and whole foods taking advantage of people with their prices. After all, aren’t these the institutions that leave homeowners with a destroyed budget curve? Should the government step in?
laissez-faire please.
First of all, I can’t believe that there are not more people outraged by this plan! My husband and I waited for years to buy a house because the market was not right. Everyone kept saying that you need to get into the market now, that prices will only go up. My husband and I had more common sense than that and waited. We are both in our thirties, have good paying jobs and yet still cannot afford a home! It makes me so angry that people who made bad investments, because that’s what they are, who couldn’t use the common sense that God gave them, might get help to keep their homes! It seems as if my family, who did the right thing by realistically assessing their income, is getting the short end of the stick! Gee, I wish the government had helped my parents when they made a really bad investment back in the 80s that completely bankrupted them! Is that what it’s all about now? Are we to help every poor soul who makes a bad investment? It’s not like you have to own a home to survive. My husband and I have lived 8 years of our 8 year marriage in an apartment. We aren’t happy about it but we have survived. What I really want to know is, where was the government when all the banks were selling these loans like drug dealers to anyone who would bite? Where was the prevention? I’m sorry, but as for me, I hope they all go down in flames! Then maybe my hardworking family and I can afford a home of our own at a realistic price!