Counterpoint

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?

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One response to “Counterpoint

  1. Moral hazards all through the process, aren’t there?

    It’s a crazy complicated thing. We’ve taken out small loans when buying our last two vehicles, after much thought and careful budgeting, and both times my husband has expressed surprise at being approved, and both times the loan officer has expressed disbelief at his surprise. Seems we’d qualify for a four-digit car payment… more than double our house payment. There’s a certain sense of “well, the bank wouldn’t give me the loan if they didn’t think I could pay it back” in operation there. I suppose we probably could make a four-digit car payment (and house payment) if that was where our priorities were, but still – our credit history shows that that’s *not* where our priorities are, and you’d think that’d make a banker hesitate.

    And that’s in a bank that’s *keeping* our loan. The system has just completely fallen apart with the originators not keeping the house loans and all.

    Funny day for you to post this, too… I think today is the last day for our Netbank checking account. Maybe I’m not reading the right places, but I’m surprised that hasn’t gotten more press. I don’t think it’s going to be the last closure.

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