There has been a lot of press over the last couple of days in regards to freezing interest rates on Sub Prime loans where the rates are scheduled to reset (increase) in the near future.
A little background may be in order:
A lot of people got Sub Prime loans in the last lending cycle. Sub Prime loans were very profitable to the lenders and others when they were made. Sub Prime loans are loans made to borrowers who had credit issues and could not qualify for regular Prime loans. If you read the Wall Street Journal 12-3-07 you can read an article about how people with good credit were given Sub Prime loans by lenders who were not exactly working in their customers best interest. The Wall Street Journal would suggest that was not a nice thing for those lenders to do. I certainly would not disagree.
For the most part these loans had teaser rates that are below market rates that are scheduled to reset at the end of two years at very high above market rates. In some cases the interest rates would more than double from the low teaser rates. Many buyers are not able to pay these rates or don’t want too pay them to the point they might let the home foreclose. The Bush administration is proposing some requirement for lenders to simply keep the rates at the low start or teaser rate. There are plenty of problems technically speaking with doing an across the board fix on this problem. The Bush administration actually put an FHA loan (FHA Secure Loan) into circulation so people with ARM loans could refinance and the reality of that fix is it is not working. In my opinion there are too many loans with too many variables to make it a workable program in practice. The type of new program President Bush is proposing to require the lender not to reset the rates will have the same problems if you ask me.
Do I agree with what The President is trying to do? There are a couple of ways to look at it I guess. On the one hand I can say hey, the borrowers should have known what they were getting into, let them crash and burn. On the other hand I can say that many buyers did not know what they were getting and mortgage lenders did not represent the buyers properly and therefore should be held to some higher standard, not do the reset and take the loss. I guess bottom line is this: If there is a workable plan to give some relief and keep homes from foreclosing then I think full speed ahead. I just don’t think the idea in practice can or will work. We will see.
More to come
Lonny
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1 comment:
I saw a report on channel 8 last night where a woman was moaning about not being able to make her payments due to the increase in her adjusted rate. She sure made a lot of demands about making things right. I noticed her makeup and hair looked pretty good. Too bad she cannot give up some of her "necessities" to make her payment. Don't get me wrong here, I am not condoning some of the practices that took place, but some of these people need to take responsibility for their decisions instead of trying to fix blame and demand government mandated changes.
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