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Kathleen Pender: How mortgage-rate freezes could go wrong
San Francisco Chronicle ^ | 12/6/7 | Kathleen Pender

Posted on 12/06/2007 7:53:20 AM PST by SmithL

The Bush administration will unveil its methadone plan for the mortgage crisis today.

Instead of going cold turkey and letting the free market take its course, the administration reportedly has reached an agreement with lenders and mortgage investors to freeze interest rates for a select group of subprime borrowers who made bad, greedy or uninformed decisions.

"You're just giving the junkie more dope," says Christopher Whalen, managing partner with Institutional Risk Analytics, a consulting firm.

Treasury Secretary Henry Paulson also has urged Congress to pass a law that would let cities and states sell tax-exempt bonds to refinance mortgages for borrowers who otherwise might lose their homes. If that's not a bailout, I don't know what is.

Paulson offered a general outline of the plan on Monday. He identified four groups of subprime borrowers facing rate increases on their adjustable-rate loans: Those who cannot afford their payments even at the current rate; those who could afford payments at the higher rate; those can refinance into a "sustainable mortgage while keeping investors whole;" and those who can afford their mortgages today but could not at the higher rate.

Only the fourth group would get help.

According to media reports, people in this category who took out a subprime loan between January 2005 and July 30 of this year and whose rate is scheduled to rise between Jan. 1, 2008 and July 31, 2010 would have their rates frozen for five years.

(Excerpt) Read more at sfgate.com ...


TOPICS: Business/Economy; Editorial; Government
KEYWORDS: anticapitalism; bailout; bush; fnm; mortgage; subprime
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1 posted on 12/06/2007 7:53:21 AM PST by SmithL
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To: SmithL

Translation: “Kick it down the road five years for the next administration to handle, and hope the housing market recovers.” Washington at its finest.

}:-)4


2 posted on 12/06/2007 7:56:22 AM PST by Moose4 (Wasting away again in Michaelnifongville.)
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To: SmithL
Methadone analogy is spot-on.
3 posted on 12/06/2007 7:57:46 AM PST by steve86 (Acerbic by nature, not nurture™)
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To: SmithL

Let the deadbeats wither on the vine.


4 posted on 12/06/2007 8:00:03 AM PST by Nascar Dad (President Barack HUSSEIN Obama?? Possible only if McLame goes 3rd party.)
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To: SmithL
Instead of going cold turkey and letting the free market take its course,

While I totally agree that this freeze is idiotic, the idea of the far left Chronicle lecturing anyone on the free market is hilariously funny.

5 posted on 12/06/2007 8:00:11 AM PST by calex59
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To: steve86

sounds like socialism in chamo


6 posted on 12/06/2007 8:01:43 AM PST by righteousindignation
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To: SmithL

Gotta keep housing prices up. Don’t want them to fall and keep people from refinancing to aid consumer spending. And don’t want the banks to lose money. Who cares if lower prices hlep first time buyers.


7 posted on 12/06/2007 8:02:47 AM PST by doc30 (Democrats are to morals what an Etch-A-Sketch is to Art.)
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To: SmithL
Instead of going cold turkey and letting the free market take its course, the administration reportedly has reached an agreement with lenders and mortgage investors to freeze interest rates for a select group of subprime borrowers who made bad, greedy or uninformed decisions.

WTF are a bunch of Republicans doing by screwing with the market?

8 posted on 12/06/2007 8:02:58 AM PST by Centurion2000 (False modesty is as great a sin as false pride.)
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To: SmithL
I see a longer term effect this will have. It will be very difficult for banks to justify giving variable rate mortages if is is possible for them to be fixed by the government at the low rate. Since banks liked them before because they moved all the interest rate risk to the borrower (as opposed to 30 year fixed loans which pushed the rate risk to the lender), I expect that the primary loan of the future will be short term baloon mortgages. You would only have the money for three to five years before you have to pay off the loan either with cash or a new loan (with all the expenses that entails).
9 posted on 12/06/2007 8:03:58 AM PST by KarlInOhio (Government is the hired help - not the boss. When politicians forget that they must be fired.)
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To: righteousindignation

Paulson and those guys must be on brown sugar.


10 posted on 12/06/2007 8:04:03 AM PST by steve86 (Acerbic by nature, not nurture™)
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To: Centurion2000

Hillary recommended this yesterday. It was a bad idea yesterday and the same today.


11 posted on 12/06/2007 8:04:26 AM PST by golfisnr1 (Democrats are like roaches - hard to get rid of.)
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To: Nascar Dad

Exactly. What were these idiots thinking- I’ll take out a loan and pay interest only for the first 2 years— then my income will quadruple and I’ll be able to handle the real payment. Let them fail. Let the banks and mortgage companies who lent them the money fail.


12 posted on 12/06/2007 8:05:43 AM PST by petercooper ("Daisy-cutters trump a wiretap anytime." - Nicole Gelinas - 02-10-04)
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To: calex59

It may be quite ironic but it just shows that the Bush economic team has yet to hear that Pluto isn’t a planet anymore. Ok, that doesn’t especially make sense, but they are in far orbit.


13 posted on 12/06/2007 8:06:07 AM PST by steve86 (Acerbic by nature, not nurture™)
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To: SmithL

Talk about unfunded mandates—investors, the Fed and the federal government don’t want to touch that stuff, so they propose that local governments float bonds and be on the hook to bail it out.

Freezing ARM adjustments represents a mass invalidation of private party contracts and further wipe out investors. It also would likely cause no one to ever buy a mortgage-backed security again (at least adjustable ones). Minimally you won’t get the rate discount so much on ARMs because resets will no longer be credible. Guess what that will do to the market?

Finally, such borrowers are likely to be underwater equity-wise and can’t afford the payments on a fixed-rate mortgage. All this does is put the borrower in deeper in debt and ensure that they will leave a larger blast crater in five years.

Busts are part of the natural cycle of free markets. When you interfere with them, you either prolong them get a bigger explosion later.


14 posted on 12/06/2007 8:08:35 AM PST by Deathmonger
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To: golfisnr1
Hillary recommended this yesterday.

Hillary knew the White House had been working on this for months. She came out with that "idea" yesterday to make people think it was her idea.

15 posted on 12/06/2007 8:08:44 AM PST by Cementjungle
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To: calex59

But as you read some of the comments here...

Hillaries housing bailout - communistic demon seed that will turn us all into slaves
Shrub’s housing bailout - brilliantly conceived plan to stabilize the economy and restore confidence


16 posted on 12/06/2007 8:09:56 AM PST by djf (Send Fred some bread! Not a whole loaf, a slice or two will do!)
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To: SmithL

I wonder if anybody will even buy mortgages any more after this turn into corporate fascism. Bought a bond? Thought you knew what the rate of return would be? Nope, sorry, we’re the government and now your rate of return is cut in half. It’s for the good of the country (i.e. banks).


17 posted on 12/06/2007 8:13:49 AM PST by jiggyboy (Ten per cent of poll respondents are either lying or insane)
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To: Centurion2000
Saving their nervous banker friends who screwed the pooch.

The heads of Citicorp, Merrill Lynch, and E*Trade are all history.

Who cares if the sane people who refused nosebleed prices and did not buy into the bubble, get screwed?

Not modern Republicans. So we wreck capital allocation some more, and inflate some more, and pretend everything is peaches.

But it won't make house prices go up. It'll just make them go sideways a while, while the price of everything else goes up (except the dollar).

18 posted on 12/06/2007 8:14:44 AM PST by JasonC
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To: djf

Didn’t actually read this thread, did you DJF? There’s not a SINGLE ONE in your latter category. Every response is a stern condemnation of this idiotic plan.


19 posted on 12/06/2007 8:15:00 AM PST by ProtectOurFreedom
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To: Centurion2000
WTF are a bunch of Republicans doing by screwing with the market?

This plan is Nixonian.

20 posted on 12/06/2007 8:17:14 AM PST by Lancey Howard
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