coutrywide1107.jpgAccording to an article in this morning’s Wall Street Journal, the Treasury Department is close to a deal with a coalition of major U.S. lenders known as the Hope Now Alliance that would freeze—for the time being—interest rate levels on some subprime loans. While details are scant, under one version of the plan, introductory “teaser” rates could get extended for some peope for up to seven years. Members of the coalition include such heavy hitters as Citigroup, Wells Fargo, Washington Mutual and Countrywide Financial as well as a number of so-called mortgage service companies. The one group of stakeholders that’s been less enthusiastic is the investor community, but The Journal reports that investors are coming around to the idea that “it’s better to get some interest than none at all.” Do you think this is the right thing to do? Do you think this kind of bail out risks creating a moral hazard that could lead people to make the same mistakes next time around?
U.S., Banks Near A Plan to Freeze Subprime Rates [WSJ]
Photo by Meghann Marco


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  1. the govt bailed out chrysler, the govt bailed out LTCM counterparties and now the govt is bailing out mortgage company counterparties. where does it end? in reality none of these bail outs prevented any future irresponsibility and should be discouraged in any free market society. it simply sends the wrong message and ENCOURAGES irresponsible behavior.

  2. The thing that really bugs me about all of this is that it was PREDICTED three years ago! And yet no one cared because the gravy train was simply too damn flush for lots of different sectors.

    All I keep thinking about is what my grandparents would think about this – not just most of these bank’s devastating irresponsibility but also our government’s COMPLETE irresponsibility in the way thay have conducted themselves over the last seven years.

    We went from black to red in a heartbeat, and now, as a nation, we continue to borrow tons of foreign money at rates we really can’t afford (and that probably can never be paid back) to buy tons of cheap toxin-laden shit made overseas that we don’t even need. It’s very sad.

  3. This definitely “rewards” those irresponsible individuals who bit off more than they could chew, but the banks and the mortgage industry are just as responsible for facilitating such reckless behavior.

    Nevertheless, it is in everyone’s interest that these homeowners continue living in their homes and continuing paying something rather than nothing. The last thing this country needs is for communities with a high percentage ownership of no-interest mortgages, etc. to see these families let their homes go to foreclosure because the neighborhood will quickly follow. Simply look at what’s happening in Cleveland right now.

    Is this a slap in the face to those people who budgeted and saved diligently for their down payment? Absolutely! However, the overall social and economic costs of these families leaving their homes is far greater than the feeling of playing by the rules and watching others get by. What’s also terrible is the fact that some of these people in danger of losing their homes are showing up to foreclosure prevention seminars in Escalades and S500’s. Go figure!

    I’ll feel your frustration, so the next round is on me.

  4. Most holding a property now should consider it a good idea even if they think it rewards the bad actors because the wave of foreclosures now is just the start. If it continues as predicted by the reset schedules it is going to severely depress your own much coveted home equity that far exceeds any personal income you’ve saved in the last 5 years.

    To these 700+ fico whiners with good equity and a cheap fixed mortgage: to a large extent the run-up in house prices – the run-up that boosted your home equity so much in the first place – was BECAUSE so many “small income no asset” folks could afford to buy expensive properties with teaser rates. Your paper wealth is largely because of the recent & massive expansion of the great american home-owning dream.

    So you face a choice: maybe hold on to most of that equity and watch everyone else get bailed out (rewarded) for their greed, or be a hard-ass about it, and lose a large part of your own free ride as the foreclosure wave hits and house prices return to the long term trend/affordability line (down 20 to 30% on current levels).

    As a dedicated saver with no (US) property I wish the whiners reap what they now want: no bail out and the full force of the foreclosure wave – because then I can watch prices return to sane levels and the equity of these smug home owners – who think themselves geniuses for buying 5 years ago – get halved inside 12 months.

  5. “This plan rewards irresponsible people and their banks for buying property that should never have been in the first place”

    Well yes, it does, not a happy situation! However the alternative might well be punishing the rest of us with, at best, a recession and, at worst,a situation that approaches ” the What’s” predictions of a collapse of the world economy. A bailout DOES suck, but not as much as the alternative.

  6. If done correctly, I am for the this plan, and here is why:

    In theory, I am against any kind of government intervention in free markets. There is usually no place for them. But in this case, if done correctly, then i think a government plan for people who own their homes and would actually be helped by a freeze in interest rate levels might be a good thing for all concerned. I too saved and saved and bought a home in the last few years, and did so with a 30-yr fixed rate loan. But if foreclosures are allowed to happen on all loans that cannot be serviced, this could potentially throw our economy into a recession due to the many-reported effects of the weakening of the real estate market. And I don’t believe that a recession is in the best interests of the nation as a whole. I, for one, am rooting for a soft landing — sorry i don’t share in the same Schadenfreude that the majority of the readers of this blog do — as opposed to a full sclae real estate meltdown and corresponding recession. And it sounds like the plan, as dicussed in the article, might just help those that can really be helped in this situation. To wit:

    Treasury officials say financial institutions are likely to set criteria that divide subprime borrowers into three groups: those who can continue to make their payments even if rates rise, those who can’t afford their mortgages even if rates stay steady, and those who could keep their homes if the maturity date of their mortgages were extended or the interest rates remained at the teaser rates. Only the third group would be eligible for help.

    So, if the Administration (of which I am no fan), can limit the program to the latter group of individuals, help keep people in their homes, and stave off a recession, stock market and real estate meltdown, then i’m all for it.
    Why not?

  7. it is a very tough call.

    I agree with most who say this is bullshit and the government shouldn’t be in the business of bailing out morons who took out $450k loans with no money down and had annual salaries of $40k. Its not only the morons taking the loans who are to blame, but also the lenders. Who was looking at the risks? Also the mortgage brokers, who profited handsomely should take it on the chin..

    It pisses me off because ultimately, I’m going to end up paying the bill.

    I do agree with Bob Marvin that there isn’t really a better alternative. But saying that, aren’t the banks and lenders in the “risk” business and they should be footing the bill for the bad loans?

    I pay my bills every month. I’m not looking for a bail out. When I purchased my apartment I was sure that I purchased what I could afford. (which made me pas up the real estate deal of the century, a boerum hill townhouse for 200K).

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