Rate Freeze Plan Will Chill Mortgage Investors
When the going gets tough, to hell with integrity, change the rules. We can file this under “the government in it’s attempt to fix a problem only perpetuates it”. Apparently the government and lenders are working out a plan to freeze mortgage payment resets. Here are some details on the mortgage payment freeze plan from Marketwatch.
The report said the gist of the plan was to extend the low introductory rates on home loans made to borrowers who will have trouble meeting higher reset rates. Under one scenario, the extension of lower rates could run as long as seven years, the report said.
This a marvelous way to fix the real mortgage meltdown issue, which is securitization. /sarcasm The government will restore efficiency and integrity to the mortgage securities market by telling current investors we are changing the rules on the investments they bought. We are changing them in a manner that will negatively impact their holdings. By the way, do you want to buy some more mortgage securities?
The second issue I have with this initiative is that the government shouldn’t be bailing out people who have very little invested in their homes. I’ve stated it before, there is a class of homeowner out there that is nothing more than a glorified renter.
If it turns out resources for this plan are finite and only some homeowners can get the prescribed payment relief, homeowners who put money into their purchase or have the most equity, should be first in line. Financial prudence should be rewarded over financial irresponsibility.
Graph courtesy of Credit Suisse
Furthermore, studies have shown that the mortgage payment reset phenomenon as it stands now, will last for the rest of this decade. By extending these resets for another four to seven years, without addressing the real issue of securitization, will only delay the inevitable and at a greater expense than currently faced with.
Without securitization, there is no mortgage industry. This bailout is contrary to saving the mortgage securitizaton process.