The plan has been agreed upon by Wall Street firms, the administration, and lenders. The plan offers individuals with adjustable rate subprime loans a free, five year interest rate freeze on their mortgage rate, assuming the following circumstances:
- Borrowers must be current on their subprime mortgage payments
- The rate freeze will apply to 2/28 and 3/27 arms (two or three year fixed loans) loans taken out between January 1, 2005 and July 30, 2007 that will adjust in 2008 or 2009.
- The rate freeze will exclude the following:
- borrowers who are delinquent on their payments
- borrowers whose introductory rates have already expired or will expire before January 1, 2008
- borrowers whom mortgage companies determine have sufficient income to pay the higher rates
- mortgages on homes that are not primary residences
If President Bush had any conservative credentials left, they are gone now. Never again should the word conservative be uttered in a sentence with President George W. Bush's name. Many conservatives have been arguing that point for years... but never has there been a more clear example than this policy diverging with conservative principals.
Basically, this "plan" will only benefit people who made bad choices or lied. Period. A lender has to consider a borrower's ability to repay a loan. While most people got into adjustable subprime loans looking for a bandaid, intending to refinance or sell before the introductory rate adjusted, they were fully informed of the impending adjustment and had to sign waiver after waiver explaining their understanding. Many borrowers, fearing the potential for higher payments in the future opted for fixed payments from day one with no chance of adjustment. Those borrowers made responsible and honest choices, and for the past year or two have paid higher rates and payment than their adjustable rate counterparts. For their fiscally responsible decision they get nothing, while the adjustable crowd gets a free pass and a continued lower rate for 5 more years.
And what about the people who refinanced this past year, hoping to avoid their payment adjustment? They paid for new appraisals, application fees and other closing costs while other customers who didn't act responsibly now get a Christmas gift from Uncle Sam.
And what about the people whose rates adjusted this month instead of next? They get nothing, even though the people whose payments are scheduled to adjust just 25 days from now get a free five year rate freeze. Is this fair?
And lets not forget about people who mortgage lenders determine have enough wealth to make their higher payments. Their payments will adjust like they are were supposed to, or they can spend the money to refinance. The cost for taking a loan they could afford and being fiscally responsible? Higher rates or greater out of pocket expenses.
So if you weren't responsible or downright lied on your application you get a free pass and five years of extra savings... while the rest of us who have worked hard for every payment we make and considered the ramifications of our financial decisions get nothing but a bitter lesson: Don't worry if you lie... don't worry about saving or the future... don't worry about your home or your family... a bulging federal government so eager to remain in power and make you reliant on their welfare will continue to let you suck on their teat. And the rest of you who work hard will continue paying the bills for everyone else.
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My wife and I bought our new home eleven months ago. We could have opted for a "subprime" adjustable rate mortgage and borrowered 100% of the purchase price. Instead we opted to put much of our savings down so we could obtain a conforming fixed rate loan. We have great credit and worked hard for everything we have, but it would have been much easier the borrower 100% and take a less stringent subprime adjustable loan instead of putting money down and verifying income and employment. Today our government rewards our responsibleness by telling us we made the wrong choice. Had we borrowed more and invested less in the home, we would have received a freeze on our interest rate for an extra 4 years. Had we done that, we would have more savings today and a lower mortgage payment. So much for being responsible.
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I have been both a subprime and prime borrower as well as a subprime and prime loan originator. I have the unique experience of having been on both sides of the table and spent my entire adult career in the mortgage business. This is wrong on so many levels. All of what has been going on and most of the media reports this year have been wrong on so many levels. The industry agreed to act out of fear of additional increased regulation and an overbearing government. The government chose to act out of a lack of knowledge of the industry and a pandering for political gain. Three of the states most affected by the current mortgage crisis are California, Nevada, and Florida. Two of those three states have high electoral college votes and very important primaries. Do you think that is a coincidence?
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If the federal government isn't going to stop playing politics with industry, free markets be damned, then capitalism is dead. Without capitalism, democracy will wither on the vine. What then will fill the void?
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