That depends upon the loan-to-book value and the amortization schedule...
In a way you are right, but it is not "welfare" for the rich.
A lot of the banks have sold bundles of mortgage-backed securities far and wide, from US cities and municipalities, to foreign banks, to retirement funds.
And then there are more complicated instruments based upon those.
The problem is that some of the firms assigning the risk to these instruments have now *admitted* that their models were built upon the assumption of prices going up forever--and that they would fail *badly* if prices were just *flat* for a couple of years, let alone falling...!
So the problem is, we have all kinds of debt where the risk (and therefore the price of interest paid, the % collateralized, etc.) was badly done. None of the banks want to rock the boat and force any sales, for fear it will start the dominoes falling -- "mark to model" is very different from "mark to market". And this is compounded by the fact that many collateralized debt obligations are required *by law* to be backed by AAA-rated securities. So if one of the insurers gets downgraded, it will start a cascade of selling in order to meet the collateral requirements; which will drive prices further down; etc. etc. Kind of like a margin call in the stock market, but worldwide, and on steroids.
So putting higher loans under Fannie Mae etc. is designed to increase the confidence of lenders. The problem is not that "the rich" will lose money, they do that all the time. The current problem is that the velocity of money is dropping, nobody wants to take the risk of lending. And lowering interest rates is like pushing a string, you can't *make* people want to lend.
The side effect of lowering the interest rates will be to push up inflation and to crater the dollar. India's steelmakers have just announced a 15% hike in spot steel prices.
And it isn't just "the rich" homebuyers either...
As an example Yahoo.com wrote in the last couple of days a story about a Mexican immigrant with three kids, whose mortgage was going to reset from $659 / month to ~$2500 / month -- almost quadrupling.
I have spoken with local realtors about this -- he told me of a client six months ago who in normal times would barely have qualified for a $600,000 home being approved for a $1.2 million dollar home. The realtor got his money, the loan originator got his money, the sap client lost the house in 6 months. Nobody cared.
Will be interesting to watch.
Cheers!
The 'rich' don't get anything for free. The 'rich' in this case are the lenders, and they just get their money back. It's the poor who get a free ride for a while in a house they can't afford.
The rich lenders were just doing what the government wanted, making loans in previously (and accurately) redlined areas.
It's not like they were charging high rates like your average credit card. Rather than bail out folks with overstressed credit card accounts, the govt tightened up on the bankruptcy rules.
A lender is not the bad guy, unless he is foolish enough to lend where any problem might show the failure of a government policy. Then the press and government will come done on him like a ton of bricks.