|  | | 2007 News and Press Releases | | |
HEADLINE NEWS:
Bush's Bad Mortgage Medicine
Liz Moyer
Forbes.com. December 7, 2007
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EXCERPT: The Bush Administration's plan to rescue the housing market and keep the economy from slipping into recession took flak yesterday for freezing interest rate hikes for a mere fraction of subprime, adjustable-rate borrowers. But there's a bigger risk: It could deepen and lengthen the credit crisis. According to analysis by Barclays Capital, the "freezer-teaser" plan applies to just 240,000 subprime loans. The Mortgage Bankers Association reports the number of subprime adjustable rate mortgages at 2.9 million. It also won't help the 16% of subprime borrowers who are already delinquent or in default, and it won't help millions of other homeowners who either will be deemed able to pay the higher rates when they adjust, starting in January, or who have the unhappy circumstance of having a house worth less than their mortgage or a loan that has already reset to the higher rates. President Bush, along with Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson, outlined other proposals Thursday that are meant to help the 2 million borrowers facing sharply rising rates on their adjustable-rate mortgages beginning next month. The plan includes refinancing some of the borrowers into private, fixed-rate mortgages, or putting them into Federal Housing Administration loans. The loan modification, or rate freeze, would apply to a limited subset of subprime borrowers who meet a series of criteria, not least of which is that they must have paid their loans on time. Also, the freeze applies to loans taken between January 2005 and July 2007, excluding other adjustable loans that have already reset to higher rates. The expected backlash to the plan started immediately after the Administration announced it. Housing advocates said it leaves millions of struggling borrowers at risk of foreclosure. Others decried it as a shameful bailout of irresponsible lenders and borrowers. "President Bush's plan may make good politics, but it is terrible economics," said Edward Ketz, an accounting professor at Penn State University. "It punishes those who have acted prudently and rewards bad decisions by homeowners who bought what they could not afford. It gives incentives for future homebuyers to act rashly, because they may believe Washington will rescue them from error and greed." Perhaps more significantly, Ketz and others warn the plan could further choke off the credit markets and result in higher mortgage rates in the long run. |
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