Friday, December 7, 2007

Here They Come To Save The Day

I can't let the week end without discussing this Bush deal, where he is asking lenders to work with borrowers to freeze interest rates. What is a Republican president doing by sticking the government into the private responsibility of borrowers? I don't get this. He doesn't have to worry about reelection. Maybe he thinks it will look good for the party during the primaries. I have to stress, yet again, that this is a really bad idea!

My 5-year ARM expires next year. Since when is it the duty of the federal government to pay my mortgage? Will they actually make my payment? No. However, the plan to force note holders to "modify" my loan docs will save me from having a higher payment, and will poorly impact some securities investors. They bought these loans under the provisions by which they were signed. For the government to come in and "save the day" by asking lenders to change the rules of the game midstream will wreak havoc on the investment market. And for those loans that have been chopped up and sold off, who makes the decisions? Not the servicing company who collects the payments.

I should have bought a bigger home with a loan that I could never hope to afford when the fixed period was over, so that I could sit back and let the government swoop in and try to force lenders to keep my payments down to the introductory rate. So, who will this plan help? Definitely not investors--they're excluded. Those rotten speculators must be punished!

The deal is to freeze interest rates for "distressed" borrowers living in the home as a primary residence. But, according to the CNN article, the government has defined homeowners who sound anything but distressed:

"It excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months.
It also only covers borrowers with adjustable rate mortgages (ARMs) resetting beginning in 2008 and leaves out any who are judged capable of continuing to make mortgage payments at the higher reset rates.

Borrowers who can't afford the loan even at low introductory rates also will be ineligible . . "

Hey, what do you know? I qualify. Only, I'm not in fear of losing my house when my rate adjusts. However, I think that it will be a burden to have a larger mortgage payment--even if it's only $278 more. After all, we lost about $700,000 this year, and our new business is just getting started. Come to think of it, I'm SURE it will be a burden.

I don't believe that the government has a right to "bail" anyone out when it comes to the consumer's choice in buying a home and selecting a mortgage (unless fraud can be proven in the transaction) and I think the economy will suffer for it in the long run. But, if this is a plan to "save" people's homes, who are they really helping?

The best part of the "deal" is that it doesn't appear to have any teeth to it--"moral suasion," as the article calls it. However, it is the precursor to "an opportunity to call on Congress to act more expeditiously on passing mortgage relief legislation." Hopefully, like everything else in Congress, this will be stuck in committee until the market rebounds.