Bush Mortgage Rate Plan - Absurd!

by Osman Parvez

I don't normally delve into politics (at least not on this blog) but the Bush administration just unveiled a scheme to freeze mortgage rates for five years on those with adjustable rate mortgages. Although some will argue the positive implications for the housing market, I'm not in favor (to put it mildly). It's a huge bailout for borrowers who got in over their heads at the expense of everyone else. It will also be detrimental in the long run to the normal mechanics of the housing cycle.

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    I wish I could do something that stupid and then get bailed out by the government. Geeze, if I had known that, I would have bought five houses instead of one. It infuriates me. This government continually reinforces stupidity.

  2. It sounds so warm and fuzzy though.

    I doubt that freezing an APR at a 12% blended rate is going to do much to help many people. It's only going to delay the suffering of being in perpetual debt for most people.

    I agree Osman, what a preposterous response to this problem.

    However, nothing is popping into my head about what I would do if I were in a position to attempt to repair it. Any thoughts?

  3. My thought is that it's unhealthy for our economy and represents a moral hazard.

    It not warm and fuzzy to me. When the government steps in to bailout people/investors from the consequences of their decisions, it's downright dangerous.

    I'll give you this. In the short run, it may help turn around the housing market and inject liquidity into certain sectors of the bond market. In the long run, it's a step backwards for our country.

    What would I do to repair the problem? I would let people bear the full responsibility of their actions, learn from it, and encourage them to make better decisions in the future. If some companies in the housing sector are struggling to find liquidity, that's fine. It will spark a wave of consolidations, the weak players will exit, the strong will survive. Call it economic Darwinism, if you want but I agree with Warren Buffet's view that you only know who has been swimming naked when the tide goes out. That's the way it *should* be and is actually a healthy part of our economic system.

  4. One consideration is that our government regulatory bodies should not have allowed this bad lending to occur in the first place.

    In comparison (at least) to Europe where I know that much stricter guidelines are in place, and not any 'joe blogs' off the street can be selling mortgages either!

    I don't mind the idea of 'bailing out' people ('stupid' or not), by locking a fixed rate, as long as it is the mortgage companies who foot the bill.

  5. I agree with you and most of the posters here. The Bush plan is a bad idea that messes with the free market in some scary ways.

    I wish we could say that this idea is purely a right wing Bush Admin thing. But unfortunately, it's not. It looks like every politician in the spotlight right now has a "plan" that is a variation on the same idea of freezing sub prime rates. As an example, the quote below is from Hillary Clinton's site:

    "Clinton would implement a three-step plan to tackle the foreclosure crisis, including: at least a 90-day moratorium on foreclosures; a freeze on the fluctuating rates on subprime loans for at least 5 years until they can be converted into fixed rate, affordable loans....'

  6. Osman for Prez!!!!

    You're right though - I'm one person who felt the wrath of the double edged sword of consumer stupidity + predatory lending.

    Warm & Fuzzy = Sarcasm.

    You know what? I learned from it. So should the million+ people who would be 'bailed out' with this program.

    Guess what...after going through this proces, I think I've figured it out. The paid off home mortgage has replaced the BMW in the driveway as the status symbol of choice for this former forclosuree.

    Shame on banks for making loans to 22 year old kids with no income.

    Shame on the average consumer who doesn't read through the disclosure docs.

    There's nobody to blame here except the 'consumer whore' concept that has been instilled upon our society by money-hungry people in 'power' who have lost all sense of morality.

    I say: let the lending institutions who made poor lending decisions fail. Let the folks who made poor borrowing adjudications get foreclosed upon. At the very least it would impress financial conservatism upon those who need it most.

  7. They're All Greedy Bastards12/20/2007 06:26:00 PM

    Oh please. The "bailout" is more about bailing out the banking industry from the results of its dubious lending practices and it's outright fraud, than it is about getting the average american out of the financial mess they are in. If the greedy banking industry wasn't threatened with collapse, we wouldn't be seeing any action at all by the fed.


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