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Bush has a plan to fix subprime debacle
By Jon Menaster | December 6, 2007
Today President Bush unveiled a plan to try and make better the disaster that is known as the sub-prime mortgage market. Of course, we could immediately classify this into the “too little, too late” department, but let’s analyze some of his comments. First off, we have
the Bush administration hopes that it can help more than half of the two million homeowners who took out adjustable-rate subprime loans with payments due to move sharply higher soon by offering some of them a five-year mortgage-rate freeze.
How nice of the Bush administration to hope! The idea to freeze some of the rates before they reset is a good idea, so that should help those of you out there stuck with a loan about to reset to a much higher interest rate, and therefore a much higher monthly payment. The article further explains that some $367 Billion with a B worth of mortgages are set to reset within the next two years. That number is truly mind-boggling. Now when you read the next quote keep in mind Bush said he hoped to help more than half of the 2 million homeowners… in my mind when someone says more than half of 2 million it’s at least 1 million or more. So let’s listen to Mr. Zandi:
“In theory, the plan could help as many as 750,000 subprime homeowners,” said Mark Zandi, chief economist for Moody’s Economy.com. “In practice, my sense is that it will probably help at best about 250,000 homeowners.”
250,000?? Seems like a lot of people are going to be left out. I bet those living above the poverty line but still really having trouble paying the mortgage are going to be stuck. That means there’s still going to be hundreds of thousands of people making the choice between eating or paying the mortgage. Not a pleasant thought. I understand that some of these people shouldn’t have been thinking about homes, but when they walked in to sign the loans everybody around them was smiling and patting them on the back. As the Reuters article states, the devil is in the details. Those words of wisdom apply in many more situations than just home loans.
And, my favorite quote of the Reuters article:
Some on Wall Street worried they would be forced to accept mortgages rewritten in the borrowers’ favor.
No attribution, but let’s all collectively say “aww, poor Wall Street billionaires” in our most sarcastic tones. I mean seriously you guys.
UPDATE: Details of the plan are now out. Check out my man Mish’s most excellent post on the subject!
Topics: Business, Debt, Finance, Investing |