The Mortgage Freeze Plan: Public Relations Style over Substance
The mortgage payment/interest rate freeze plan is contrary to the well being of competent homeowners, the rules of nature and our gene pool.
In nature, the strong and intelligent survive and the weak and stupid get pruned from the gene pool. Thus perpetuating a stronger species over time.
In modern America, the strong and intelligent get pushed aside (often times on their very own dime) and the weak are given artificial life support. The strong wither and the weak thrive, perpetuating a much weaker and problem prone species. Evidently, it’s compassionate to destroy the future of the species.
The Common Sense Forecaster did some homework on the proposed freeze plan. Who it helps, who it doesn’t and what are the likely affects of the plan. It’s plain to see that the mortgage payment freeze plan is nothing more than a public relations stunt that will cost billions, delay the inevitable and destroy the mortgage industry.
From CNNMoney:
. . . .U.S. Treasury Secretary Henry Paulson began to address efforts to stave off a foreclosure epidemic by lenders, those who service loans, and investors who hold mortgage debt.
Despite much speculation that Paulson is close to helping coordinate a rescue plan that would broadly freeze levels on adjustable mortgages before they reset to higher rates, Paulson gave few details on how such a plan would work.
He did however say who the plan would help, and it would probably leave out a large number of homeowners stretched by their mortgage payments.
Paulson divided subprime borrowers into four groups. The plan would be most geared toward those who can afford the mortgage now but won’t be able to after the adjustment.
The other three groups are largely left out: Borrowers who can afford an adjustment; those who are already behind on their payments; and those who can refinance into a fixed-rate loan.
According to the Mortgage Bankers Association, 5.12% of outstanding loans were in default in the second quarter, a rate about 17% higher than a year ago.
The plan would also seemingly exclude borrowers who hold option-ARMs that aren’t subprime. These are loans that start with extremely low “teaser” rates before rising dramatically a few years into the loan.
It has also been reported that homes that were bought as investments - as opposed to for the purpose of living in - would be excluded.
More than 50% of the increase in delinquent mortgages are actually investor-related, said Wachovia senior economist Mark Vitner. “It’s hard to conceive how many people are actually going to meet this criteria. There’s nothing at all in there that addresses investors,” said Vitner, who added he doesn’t support an investor bailout.
So by Paulsen’s own admission, the plan will only help a small portion of the homeowners afflicted by the mortgage and real estate meltdown.
Clearly it won’t solve the problem and it’s obvious to me that it will only make it worse by leaving the mortgage backed securities investors holding the bag, so to speak. By putting the screws to the mortgage investor, they are killing the life blood of the mortgage industry.
Paul Krugman of the New York Times writes…
Credit — lending between market players — is to the financial markets what motor oil is to car engines. The ability to raise cash on short notice, which is what people mean when they talk about “liquidity,” is an essential lubricant for the markets, and for the economy as a whole.
But liquidity has been drying up. Some credit markets have effectively closed up shop. Interest rates in other markets — like the London market, in which banks lend to each other — have risen even as interest rates on U.S. government debt, which is still considered safe, have plunged.“What we are witnessing,” says Bill Gross of the bond manager Pimco, “is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.”
So why is Paulsen and company pushing forth remedies that clearly miss the mark and cause further damage to our already broken mortgage securities market? Especially when the real problem is so severe that if left untreated, we are facing very dire financial times.
More from Krugman… As before, the emphasis is mine.
The freezing up of the financial markets will, if it goes on much longer, lead to a severe reduction in overall lending, causing business investment to go the way of home construction — and that will mean a recession, possibly a nasty one.
Behind the disappearance of liquidity lies a collapse of trust: market players don’t want to lend to each other, because they’re not sure they’ll be repaid.
Paulsen, the politicians like Barney Frank and Chuck Schumer, the mainstream media and even some mortgage industry executives are pushing socialistic initiatives that won’t help the majority affected by the mortgage crisis.
If they are not helping the majority of homeowners or the mortgage industry, which is a vital component to the health of the American economy, why are they doing it?
The only thing politicians and government regulators are committed to is keeping their jobs. Plain and simple. Look at the current state of American politics for verification. To some extent, the same holds true for industry CEO’s.
So instead of studying the problem and putting forth potential solutions that will really fix the issues, they take the easy way out. Easy because it is good press.
It’s great public relations fodder to be able to say “awww, the government is going help people who should have never been able to buy a house in the first place, keep their house”. This at the expense of the American public and the American economic system. Good public relations helps one to keep their jobs, incompetent or not.
Shame on them. They are worse than the mortgage brokers that they so fondly vilify.