Re: “giving the market time to stabilize” it’s not going to stabilize simply by pushing out the day of reckoning. Given Washington’s history on financial matters (SS, Medicare, etc), it’s not surprising that this was their first instinct.
It’s a great deal if you have a 1% teaser rate extended for a couple more years; in the meantime since no one can buy your house anymore at the inflated price you paid, you’re stuck. Investors have an asset that instead of being cash flow positive is now cash flow negative, giving it a value of zero instead of 20 cents on the dollar. In five years, you’ll blow up because your even larger negative equity situation (since many of these are negams) prevents you from refinancing.
This plan is absolutely short-sighted.
I’m still not sure that the 1% Option ARM loans are part of this plan. I haven’t seen definitively whether they are or not. I think the target was the more typical subprime ARMs that start at 7% or so and go to 10% later.