Tomorrow, President Bush will outline a plan to freeze rates for 5 years for subprime mortgage loans that “originated between January 1, 2005, and July 31, 2007, with rates that are due to reset between January 1 of next year and June or July of 2010,” reports Reuters.
There’s not a lot of information about the plan yet—we’ll have to wait until the President’s announcement tomorrow—but according to Reuters,
The plan is aimed at borrowers who can afford their existing rates and who are current on their payments, but who would face default when the rate resets higher.
“Bush to outline mortgage plan on Thursday: source” [Reuters]
(Photo: Getty)
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This is the most cliché-ridden stream of comments I’ve ever read on Consumerist, and that’s saying something.
It appears very few commenters know anything about this plan, so using the words bail out seems sort of ignorant. All those who have used those words, please let me know how your tax dollars are being used in this plan. (Because maybe I’m ignorant and missed that fact.)
To you fixed-rate mortgage holders hating on the ARM mortgage holders, claiming, “You knew what you were doing,” I can only say most of them didn’t, just like most of you didn’t either.
If you have a good loan, it’s because you trusted a loan officer/mortgage broker/real estate lawyer/whatever who deserved to be trusted. You yourself (or 95% of you) technically didn’t know what you were doing because you don’t understand your loan documents. Admit it: You don’t. You trusted.
How does that make you superior to those who also trusted and were misled?
Most people with subprime loans were just regular schmoes who wanted a home. They weren’t investors, they weren’t flippers, they weren’t criminals. Why is there all this pleasure in the trouble they got themselves into?
@JustRunTheDamnBallBillick.: Hope the little bird that told you that is right!
@zouxou: I tend to be cynical enough to believe just that. Isn’t the current administration just artful in how they perform their legerdemain? Distracting us from real issues with juicy targets to hate instead of them.
@zouxou: While I might be guilty of a grade-school rant…to you I say
Touche!
What happens in 5 years time, when these all reset with the massive negative amortization?
Ahh let someone else worry about the consequences, sounds about par for course for Bush.
@JustRunTheDamnBallBillick.: I hope you’re right. If so, thanks, makes me feel better that I took my fixed rate loan.
Well, I have an ARM and I dislike those who bought homes they couldn’t afford.
And I am really gonna Hate those who get to lock in the low rates vs. those of us with ARMS who, because we have the means to actually pay for our “real” mortgage, are not going to get this special deal.
Still absolute BS…screw the people waiting for the bottom to drop to buy…just prolongs the inevitable…people still can’t afford their mortgages.
The flippers and people who can’t afford will still walk away with or without rate freezes. 20% under on a house? why keep it?
I’m amazed at the number of commenters that appear to have taken fixed rate mortgages during the real-estate runup heyday when ARMs were being shoved in our faces. I thought I was the only one!!!
This probably says something about the type of people that are on this blog. How many of you took ARMs? How many took fixed? Anyone want to start a poll?
I distinctly remember meeting with a Countrywide rep who’s parting words (after our meeting) to me were: “even if you go with another lender, don’t be stupid and take a fixed rate.” That statement cemented my decision to go with another lender for a fixed rate (5.45%). I sleep well at night.
My husband and I took an ARM in 1999 — but it was an FHA which had a restriction that the lock-in rate could only be 2% above the starting percentage. Even then, we refinanced a couple years later to lock in a better rate once we saw the rates trending upwards.
This is an extremely drastic measure, and I think it means that the American economy is in serious trouble – way more than the government is letting on.
@waydownriver:
I will reserve judgment on the plan. I want to know the facts, which nobody knows about yet.
I got my fixed rate 30yr mortgage 3.5 years ago when people were falling all over themselves to get ARM’s. I trusted my loan officer because I was informed and he agreed with the way I felt. Fixed rates were rock bottom and ARM’s were crazy low. Any idiot should have assumed that rates were going to be higher in 5 years. Unless you were selling your home before the ARM ended you were not making the right decision. Chances are you were not taking the fixed rate because you would not have been able to afford it. Well, you were setting yourself up for disaster if the rates were going to inevitably go up. I am not a financial genius but I was able to figure that out with some research and common sense. So stop saying that most people don’t know what they are doing.
@waydownriver: Fine rant, but the insinuation that only 5% of all recent mortgage holders–including myself– were soooo lucky to simply trust the right person to steer us dolts down the prudent financial path is gravely insulting.
This is not some sort of Katrina-like disaster, where whether you be big or small the shit indiscriminately hit everyone’s fan. This ‘crisis’ solely infects the stupid and/or the greedy, none of whom deserve support or compassion.
The truly defrauded already have legal recourse for relief, the rest can go back to renting.
What some of you guys fails to mention is that all the defaulted loans have killed the housing market. Housing price drops of 10 to 20% in 12 months/ So basically we are just going to watch a depression wipe out our entire economy. This meltdown was caused by lack of regulation, not too much.Ponzi schemes alwasy blow up.
There are some of the most cruel and heartless comments posted here I have ever seen on Consumerist. No matter the stupidity of some of the ARM borrowers and the criminality of some of the sub-prime lenders, gov’t action (but not gov’t money)to keep a few more American families in their homes, and a few more homes off the market, even temporarily, certainly seems prudent to me.
Amen, Dazette. And it’s not just here. Housing blogs have attracted even more of the angry crazies, it seems. Perhaps someday they will need help to resolve a situation in their lives. But, wait, no…they’re perfect!
J@sethom:
Amen, Amen. I have held out during the real estate boom and was accused of:
1) Not understanding real estate markets (I trade commercial real estate debt for a living).
2) Not understanding how mortgages work (see above)
3) Throwing away money by renting (yeah, okay, the house I can afford 3 years ago is not the one I’d like to be in today, so add in transaction cost, etc. I’m back to close to even).
4) Hating the ownership culture of America (simply because I thought and continue to think the mortgage interest tax deduction is the biggest load of crap reason to buy).
I had been looking at the rate reset charts and thinking about how much is going on in the beginning half of ’08 salivating. Now I guess I’m just going to have to wait for the people that tapped their “equity” to pay the mortgage until they could refi out higher and cheaper to fall down and swoop in there. Thanks GOP!
@Me:
There was a huge sentiment of entitlement in many of these people. It used to be that a home was the largest investment one would ever make and the acquisition of such was the result of years of saving, careful planning and only came about after showing the financial prudence necessary to take on such a large commitment. Sometime in about 2002 that went out the window and if you had an SSN and a pulse (sometimes they waived the last one) you could qualify for financing to buy whatever house you felt entitled to. Yep…the american dream right there.
@calvinneal:
The drop in home prices is not caused by defaults. Home price appreciation outstripped wage growth by 4-8X annually for the past 4 years depending on where you lived. That is absolutely not something that is sustainable on a going forward basis. The only think that lowered the intermediate cost of home ownership was historically low interest rates. In those terms (debt service) still outstripped wage growth but by a smaller margin. To bring things back into balance homes need to become cheaper to own either via dropping house prices or drop in interest rates. As rates really don’t have much room to go down the lever that gets pushed is housing price. Also the left hand side of the supply/demand equation is increasing as the right hand side is going down, outcome, new price curve!
@junior: I took an ARM. I readily admit I didn’t know what I was doing but 4.75% for 5 years sounded good so I took it. Looking back I should’ve investigated more but my credit wasn’t the greatest–not the way it is now–and I really thought I had got a good deal. In some ways I still do–I have 2 more years left of the 5 on this low fixed rate. I make more money now than I did 3 years ago so I can easily afford my payment (plus extra) vs. then when I think my income just barely qualified me for my loan.
i took a 5/1 ARM back in 2005, since my wife will get her PhD before the rates change and we are getting outta dodge. So for us it was a smart choice. Of course, we didn’t forsee all the current problems, and my concern is if we will be able to sell. Considering our house has not depreciated in value, I am confident we will be ok.
My wife and I found a loan we were pretty happy with. $0 down, $0PMI, and a fixed rate of 6%. Sure 6 is high compared to those 4.75% ARMS, but it still very low historically speaking (my parent’s first house was 11% I think). Plus, while we had a modest downpayment saved up, it was great not totally blow our savings with a baby on the way.
Turned out to be a good move. Though insured, the baby needed one more day beyond “usual and customary” in the hospital. Just for observation, no treamtent, mind you. Total cost after insurance paid their part: $13000. One day. But that is a whole other post.
@lockdog:
that good old american health care…completely insane and out of touch with reality.
@sibertater: “RUDE! How many of these people are first time buyers, or upgrade buyers with good credit that didn’t know what they were doing.”
Strange – I was a first time buyer with a subprime credit rating around 3 years ago when the whole housing thing was just starting to take off and everyone was pushing ARMS as the only way to go.
You know what I did? I talked about the options with my father, my uncle, my boss, as well as researching loans online and buying a book about the entire home buying process (start to finish).
I figured if I was putting myself $100k+ in debt, I was going to be damn sure I knew what I was doing. After all my research, I decided anything more than a fixed mortgage was a gamble I wasn’t willing to take. Even with my subprime credit score, I got a 30yr fixed under 6%.
If you’re spending the kind of money you do buying a home how can you justify not researching and fully understanding what you’re doing? I’ve seen people put more thought and research into buying a digital camera then they do into their mortgage.
Wow…this just pushes the eventual explosion into another administration! Genius!
Like many of you, I am a stout believer in market forces and that controls on the scale implied is an error.
@dazette:
Keeping houses off the market is prudent??? What about us new buyers, who are completely priced out of this market? My wife and I make decent money (by all measures) here in Bay Area, we have almost 100K in savings, and yet we cannot get a 20% down non-jumbo mortgage, unless we’re willing to settle for a shack in an undesirable neighborhood. That’s insane! My only hope is that houses FLOOD the market, bringing these ridiculous prices down. Otherwise, no American dream for us, the younger generation.
In other words, “Delay Until George Bush Is Out Of Office, Then Crank Up The Right-Wing Noise Machine Blaming His Successor.”
Hey, it’ll work great with Iraq, why not everything else?