Obama Offers Homeowners Exploding Mortgages

Business Insider ^ | February 18, 2009 | John Carney

[reaganaut1]

Ever since the credit crisis began, a lot of blame has been heaped on adjustable-rate mortgages, home loans that recalibrate according to market fluctuations. One brand of these innovative mortgages that have come under special criticism has been so-called "exploding A.R.M.’s" that lured borrowers with unusually low teaser rates that then reset skyward a few years later. These have often been derided as predatory, and lenders who offered them accused of luring homeowners into buying homes they couldn't afford for the long-term.

Critics of these might want to check out the Homeowner Stabilization Plan put forward by the Obama administration today. The plan would reduce mortgage payments and interest rates for homeowners who have seen their payments rise to more than 38% of their monthly income. But those reductions last just five years, after which they begin to reset to higher rates. In short, Obama is just drawing out the teaser rates a bit longer.

During the next five years, the Stabilization Plan will encourage lenders to lower loan payment below 38% of the owners' income and provide subsidies for banks that lower the payments to 31%. The actual rate of payment will be even lower, since the government will also pay homeowners with the reduced rates $1000 a year to stay current on their payments.

After five years however, those government sponsored adjustable-rate mortgages will reset. The Obama adminstration promises they will reset at a moderate phased in level. But the loss of both the subsidy and the $1000 payment will automatically make the monthly payments much more expensive. What's more, many market watchers expect interest rates will be much higher five years from now, putting additional pressure on mortgage rates. We could, in short, simply be prolonging the housing crisis.

[reaganaut1]

After five years there will be calls to make Obama's mortgage subsidies permanent, just as Democrats will try to extend the increased welfare spending in the "stimulus" bill after the two year initial period.

[pnh102]

Obama can't let his constituents down now can he?

[TCats]

It is the classic “From those according to their ability and to those according to their need” mentality. Homeowners will be given payments capped by their income (Ability to pay) and the rest of us, who presumably don't need our tax dollars will make up the difference.

Pure, unadulterated Socialist solution.

[wombtotomb]

The problem was created in large part by sub prime exotic mortgages. The solution? Government subsidized sub prime exotic mortgages.

The definition of insanity- Doing the same thing over and over, yet expecting different results.

Obama mortgage solution= insanity. Any questions?

[Obadiah]

Coincidentally, reauthorization of this government welfare handout will occur right around election time. A whole new class of housing welfare recipients will be born and in the tank for Democrats. Only evil, heartless Republicans who lack compassion will want to cut or do away with this new government welfare sceme. Get the picture?

[MrB]

Oh, but he cares!!!
Can’t you see? It doesn’t matter if it’ll work or not... heck, we don’t even know how it’s SUPPOSED to even work,

but... he CARES!!!

[Piquaboy]

I thought that the legislature made the laws. How in the hell can this piece of chit do it?

[Bringbackthedraft]

Would it be wise to put a cap on an ARM? If one gets an ARM for 5% only allow a 3% increase for the life of the loan, thus guaranteeing the lender will not pay more than 8%. Otherwise you get what occurred during the Carter Administration with rates up to 12%. We took a fixed rate 3 years ago at 4.75%, I think we’ll leave it where it is. That’s just 1.75% up from one we had in 64’.

[A. Morgan]

WTH Welcome to Obama Bizzaro World !

[massgopguy]

Will people like my parents who have paid off their houses have a Reverse Mortgage imposed on them just to make it fair? All that equity shouldn’t just go to this White guy. Just ask Robert Reeeeeeeeeeeeeeeeeeeeeeeeeeeeich.

[OneTimeComment]

These people will be just like the Katrina “victims” whose free housing has been extended time and time again, for going on four years now.

[Kozak]

In 5 years Bambi is into his second term and home free.....

[Piquaboy]

I guess your parents are like me. When I took out a home loan and promised to pay the money back with interest, I was stupid and did it. What a fool we are!

[WayneS]

After five years there will be calls to make Obama's mortgage subsidies permanent, just as Democrats will try to extend the increased welfare spending in the "stimulus" bill after the two year initial period.

You are 100% on target!

[Merlinator]

Its a double screw. Those who are financially responsible and are in homes we can afford get nothing from the porkulus and on top of it have to pay for the idiots that borrowed beyond their means and/or didn’t bother to read or comprehend their mortgage terms. I want to move to another planet please!

[WayneS]

It would be wise to let people take their own finacial decisions, good or bad, and then to let them live with the consequences, good or bad; just like you did/are.

[BenLurkin]

Yup. It is so predictable. All of this was predictable — even before teh election. Aa pox on the houses of those who elected this evil sob.

[Puppage]

The problem was created in large part by sub prime exotic mortgages

What started this whole mess was the Community Reinvestment Act signed by Carter & expanded by Clinton.

[wombtotomb]

yes, I am aware, redlining and all. It’s hard to be pithy in a paragraph :)

[ProtectOurFreedom]

But those reductions last just five years

And what happens four years from now? Another presidential election. What a coincidence -- O subsidizes these homeowners who are unable to pay their mortgages until after the next election.