They bought their houses with subprime loans, they knew what they were getting into. I say, let ’em crash!
The administration announced this week that it would freeze the interest rate for adjustable rate mortgage borrowers who are not yet in foreclosure. Approximately 1.2 million homeowners whose ARMs are due to reset in 2008 may be affected. The plan will “streamline the mortgage modification process for many distressed borrowers” and also includes “a five-year freeze on interest rates for borrowers current with their monthly payments.”
It’s no wonder Americans have a negative savings rate and personal finance gurus make millions. Why learn to budget and save money for a 20 percent downpayment when you can get a no downpayment, interest-only ARM and have the government bail you out when the bill comes due? And from the lenders’ perspective, why offer ARMs at all when the government can intervene to prevent you from raising rates on your least reliable borrowers?