Bush’s mortgage plan – the consequences
December 6th, 2007, 4:52 pm · 25 Comments · posted by Mathew Padilla, Reporter
President Bush announced a plan today to help some subprime borrowers with adjustable-rate mortgages keep their homes. He said some loan servicers have agreed to freeze for five years the low introductory rate on subprime mortgages, if the borrowers demonstrate they can’t afford the loan when the teaser rate ends. (To read a Reuters story on it CLICK HERE.)
I interviewed three sources about the plan and got wide-ranging reactions.
Michael Pento, a senior market strategist with Delta Global Advisors, an investment advisory firm in Huntington Beach, lambasted the plan.
“I hate it. I think it’s disgusting,” Pento said.
He said the plan would perversely encourage subprime borrowers whose loans reset to miss payments, since that would show they can’t afford the higher rate. He also said government was dangerously close to modifying private contracts, because investors bought loans anticipating rate increases in the mortgages.
And, finally, the plan is morally reprehensible, he said.
“It’s anti-capitalist to have responsible consumers punished and reckless consumers rewarded,” he said. He said renters who have been patiently waiting for home prices to fall and saving their money now may face an extended wait, since the Bush plan may prolong the housing correction.
“Who is speaking for them?” he said of renters. Such folks are getting the message they should have gambled recklessly on buying a home, he said.
On the flipside: Steve Bailey, senior managing director in Countrywide Financial’s Simi Valley office, said the pact is nonbinding on lenders, but they will be under political pressure to follow its guidelines. That’s good for homeowners, and will be of some benefit to the housing market, he said.
“I can tell you the rate of foreclosure increase in this product will definitely slow,” Bailey said. “It will not make home prices go back to positive increases. That’s really what’s driving the increase in foreclosures.”
Bailey said loan servicers will remain legally obligated to serve the best interest of investors who own the loans. The president’s plan, however, will put pressure on lenders to look closely at modifying subprime loans to see if it would be in everyone’s best interest to freeze a teaser rate as opposed to a possible foreclosure and loss.
Scott Anderson, a senior economist with Wells Fargo in Minneapolis, said the plan could forestall a recession, but it could also lead to an extended period of sluggish economic growth. He compared it to slowly pulling off a Band-Aid rather than ripping it off.
Anderson compared the current real estate downturn in the U.S. to one in Japan in the 1980s when the government there intervened.
“Those banks were kept on life support and they kept the bad loans on the books,” Anderson said. “The result was a decade of sluggish growth.”
And he said the President’s plan could result in lawsuits from borrowers not included in the plan or from investors in mortgages.
“This could be a goldmine for trial lawyers,” he said. “The lawyers will win again.”
December 6th, 2007 at 5:25 pm
President Bush and Republicans DISAPPOINTED me very much.
No Bail Out.
December 6th, 2007 at 5:55 pm
As a former mortgage industry employee for the last 13 years, I think I’ve witnessed both good and not so good in this industry. What saddens me is that long-term ex-employees of the industry that worked challenging hour through month-end year in and year out with loyalty and dedication. And now, in an Orange County market that is flooded with these people now given the tainted new title of “ex-mortgage industry employee”, who is going to help them pay their mortgages, property taxes, etc.? No one. Who will save them from foreclosure? No one. It would seem that they can’t refinance because they don’t have a job or their new career choice does not prove adequate seasoning. Overall, we find ourselves in a very challenging and heartbreaking situation on so many levels.
December 6th, 2007 at 6:01 pm
I said this yesterday and let me say it again.
THIS IS NOT A BAIL OUT.
Rather, it is screwing the investors who were promised returns.
Also, it is just one more great reason NOT to invest in thise types of bonds.
December 6th, 2007 at 6:20 pm
They just announced on the news that a couple of Real Estate agents in San Diego County will plead guility to lying on hundreds (yes hundreds) of loan applications in order to get people qualified for a mortgage. The good news is that they will be going to jail. The bad news is that Bush and Congress are going to reward the liars with even more money. I bet they are going to create a commission on the demise of morality in America. The good news is that all the commission has to do is buy 536 mirrors.
December 6th, 2007 at 6:33 pm
What ever happened to free markets?
If you think getting a jumbo mortgage is difficult now, you wait and see what happens when investors have their contracts renegotiated by the government to please borrowers. This is blatantly stupid, and goes completely against everything in american business. We are a country of laws, and that fundamentally includes contract law. I cannot believe they’re going to do this … but hey, anything is possible in the political circus that we live in.
December 6th, 2007 at 6:33 pm
If I were a lender I would quickly foreclose on any loans possible then lend my capital on something that was increasing in value. Also, the idea of FHA loans for borrowers in trouble IS A BAILOUT!
December 6th, 2007 at 7:03 pm
One thing they keep forgetting is that the investors that have and will continue to get burned on these bailouts will be the ones thinking twice before giving credence to the credit rating of those mortgage backed investment vehicles in the future. Regardless of foreclosure or frozen rates, they still are making less of a return than what they were made to expect.
They’ll be displaced by the ones that haven’t yet.
“lookoutdownbelow ” - investors are not the only ones getting screwed here. What about the hard-working homeowner that decided to buy what they truly can afford and got into a fixed rate? They thought they were being responsible. Now the Fed comes out and shows them that responsibility is not required and has little value.
December 6th, 2007 at 7:23 pm
I’ll join the club.
December 6th, 2007 at 8:36 pm
“Screwing the investors who were promised returns”, “demise of morality in America”, “quickly foreclose on any loan possible”??? This plan would not have been put out if the economy wasn’t expect to spiral downwards. Loans were made to big banks and interest rates were cut (probably will again), but it still seems to many high officials and economist that the economy will still go down. This plan is meant to slow that downward process. When the economy goes down many investors loose anyway, America hurts, and foreclosures will happen. The negative views of this plan are blown way out of proportion.
December 6th, 2007 at 9:15 pm
so this is going to be Bush’s legacy
This is like the early 90’s all over again. Think about how bad things have gotten in just the past year, now imagine the next 5
If you would have told alot of people that the government was going to get involved to help subprime borrowers across the country, even as little as 6 months ago, everyone would have said your nuts
This is to try and stop a recession but will do nothing have the sort.
December 7th, 2007 at 12:23 am
What can we do to stop Alan Greenspan and President Bush to destroy this Great Country before it is too late?
December 7th, 2007 at 5:28 am
Carlos,
To answer your question. Vote for Ron Paul. Check his record.
Bruce,
Ron Paul won’t need a mirror. Check his record.
To everyone,
Our government has failed us once again. The market needs to sort this out. Many of you agree with me, but it can’t be said enough. The government should never intervene into a contract with 2 willing parties. They should only use there power to enforce contracts.
http://www.solventproperty.com
http://www.investmentbinder.com/view-binder?id=kennycud
December 7th, 2007 at 7:59 am
If Bill Clinton did this the Republican’s would crucify him and call for an impeachment!!!
December 7th, 2007 at 8:01 am
Carlos,
Vote their asses OUT! Time for a change!
No more Neo-Cons!
December 7th, 2007 at 8:10 am
Bush’s legacy = Greatest American Joke, Vote Bush out? he has already run his full term, unless he tries to pass a bill to become the USA’s fisrt dictator…
December 7th, 2007 at 9:57 am
“Bush is gonna save us.”
try to say that with a straight face.
December 7th, 2007 at 9:04 pm
Greenspan, Bernanke, Paulson are the same breed of people coming from Wall Street. They are destroying America and lead us to ruins. Bush is too stupid to figure it out, and going along with their plan. What can average American do? The Bankrupcy law has changed, so they will owe the debt forever, the student loan debt will stay with you forever, the CEO cashed out and kept the loot, and the politicians looked the other way, and got paid off.
December 9th, 2007 at 7:08 am
SAMSHAY,
Well said!
I know it’s hard for OC but we need a chage…Make a statement and Vote for the Dem’s
December 10th, 2007 at 9:07 am
@Carlos
“What can we do to stop Alan Greenspan and President Bush to destroy this Great Country before it is too late?”
VOTE!!! (just VOTE)
Make sure 1) everyone you know does likewise and 2) let it be known to your representative that you voted.
One of the main reason why politicians don’t have to listen is the small number of people who vote. Those who do are already well identified and the political message is tailored to their, er, “needs”.
Should the popular participation to vote in the USA be equivalent to the rest of the western world, things would DRASTICALLY change.
But they won’t, won’t they? The pain is not acute enough and not widespread enough.
And rest assured that the actual administration will do WHATEVER it takes to punt the problem to the next Administration. Should it be a Democrat one, the Republicans will be very happy, since they will do what they do best: playing destruction and obstruction to “prove” that the “others” can’t be trusted to govern.
The 90’s deja vu all over again.
December 10th, 2007 at 9:09 am
““Bush is gonna save us.”
try to say that with a straight face.”
LMAO!! Very good one…thx for the laugh.
To quote an ex-president, it depends on what the meaning of “us” is.
*evil grin*
January 11th, 2008 at 3:46 am
Susan
I completely agree.