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Treasury Plan to Freeze Mortgage Rates

Thursday, December 06, 2007 | 02:36 PM

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"More than 30 percent of borrowers with subprime adjustable- rate mortgages are behind on their payments before their loans reset at a higher rate, according to estimates from analysts at Credit Suisse Group. The bank projects 775,000 homes with $143 billion of mortgage debt will go into foreclosure in the next two years."

-Bloomberg

Hence, the political and economic motivation for doing something -- anything -- rather than look like they are just sitting there.

Which leads us to the just announced "rescue" plan. While it isn't exactly binding, it does have the support of "major investors." I assume this refers to the various banks, brokerages and funds that own the increasingly worth less and less (though not "worthless") paper.

The terms of the plan applies to "loans originated between Jan. 1, 2005, and July 31, 2007, that reset between Jan. 1, 2008, and July 31, 2010." According to the WSJ, the Office of Thrift Supervision Director John Reich said that "the plan could help "tens of thousands" of homeowners."

Tens of thousands? The subprime foreclosure forecast for 2008-09 is over 3/4 of a million homes.

The WSJ asked readers, Do you support the Treasury's plan to freeze rates on some mortgages? Their answer was quite similar to mine:

I am not sure why the rest of the crowd voted no, but I can tell you my reasons: This plan does nothing to address the issues which led to the snafu in the first place:

• The FOMC, who took rates down to historic lows, and left them there for a year;

• Ratings agencies, (not unlike the equity scandal of the 1990s) were in cahoots with underwriters, to the detriment of investors;

• The Federal Reserve, in their capacity of over-seers of the Banking industry, failed to supervise the rampant issuance of irresponsible debt;

I am sure you can think of additional reasons as to why this is unlikely to have a major impact. (Use the comments for this).

Sources:
U.S. Mortgage Delinquencies Rise to 20-Year High
Kathleen M. Howley
Bloomberg, Dec. 6 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aalYt3UzOuLU&

Bush and Paulson Unveil Plan To Aid Struggling Homeowners
DAMIAN PALETTA, AMY CHOZICK and JOHN D. MCKINNON
WSJ, December 6, 2007 2:44 p.m.
http://online.wsj.com/article/SB119696216000715924.html

Question of the Day
Do you support the Treasury's plan to freeze rates on some mortgages?
WSJ.com Forums, Thu Dec 06, 2007 2:28 pm
http://forums.wsj.com/viewtopic.php?t=1035