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All Da King's Men

Bush, Hillary Propose Mortage Rate Freeze

By Da King Published: December 6, 2007


President Bush and Hillary Clinton have both called for a 5-year freeze on sub-prime mortgage rates to offset the rising foreclosure rates sweeping the country. From the article:

[Treasury Secretary Henry] Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes — as a way to make sure that the break is not granted to real estate speculators.

The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures that are feared as an estimated 2 million subprime mortgages reset from lower introductory rates to higher rates.

The higher rates in many cases will boost monthly payments by as much as 30 percent, making it extremely difficult for many people to keep current with their loans.

The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.

Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year.

Here's what I'm thinking. What is the true problem with housing ? The answer is - the price of housing is overinflated. This is in no small part due to all these unwise loans that were granted to people who couldn't really afford them. That artificially raised demand above where it would normally have been. Home ownership is at an all-time high. I'm not sure how lenders and borrowers could be so ignorant as to not see that 1) adjustable interest rate mortgages mean that the interest rate will go up in the future, or that 2) rising interest rates means that the borrowers monthly payment will go up in the future, or that 3) making risky loans is bad business for both the lender and the borrower, but c'est la vie. It is what it is. The result of it is that now, foreclosures are going up, and the price of housing is going down. I don't want to see people being booted out of their homes, but it occurs to me that falling housing prices, though temporarily painful, is exactly what needs to happen for the long term good. If housing wasn't so expensive, then mortgage payments wouldn't be so high, and foreclosures wouldn't be so high. Falling housing prices is a natural market correction, and will help people. All the details of the Bush and Hillary housing bills have not been seen yet, but my fear is that they will go too far, and government interference will keep housing prices artificially inflated more than they should be. I hope I'm wrong. The 5-year freeze on certain sub-prime rates by itself shouldn't be too harmful, but as always, beware of Big Brother's good intentions.



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