WSJ: U.S., Banks Near A Plan to Freeze Subprime Rates

<p>As lawyerliz pointed out, the category #3 folks could also still be getting screwed. Rather like that cruel experiment where they put a frog in a beaker of water and turn on the heat below the beaker. If you make it hot too fast, the frog notices & jumps out and lives. But it you increase the heat gradually enough, the frog doesn't notice - and slowly gets cooked to death. The cash trickle from the homeowner needs to be just low enough for them still to have hope and keep on paying until every last bit of financial life is sucked out of them, instead of them experiencing a sudden financial shock and hoping out of their beaker home...</p>
 
It is occuring to me that the folks who lose their home will be bummed, but losing a property in which one has no skin isn't the end of the world financially. I am wondering if these mortgage workouts are not more for the benfit of the lenders and the financial system than they are for the borrowers?
 
I just got a teaser rate of 0% on my credit card. If I maxed out my limit I would have difficulty making the payments once the rate jumps to 15-20%. Do you think I can get them to freeze the 0% for a few years?
 
<p>Mortgage aid plan sparks hope and resentment </p>

<p><a href="http://news.yahoo.com/s/nm/20071130/us_nm/usa_housing_hazard_dc">http://news.yahoo.com/s/nm/20071130/us_nm/usa_housing_hazard_dc</a></p>

<p>"The government is punishing people who were more responsible in the way they took out mortgages," said Peter Schiff, president of Euro Pacific Capital in Connecticut. "Of course they're going to be pissed."</p>

<p>Schiff also wonders how the government will pay for the bailout -- and said the looming November 2008 presidential election was likely behind its timing.</p>

<p>"They're trying to keep the you-know-what from hitting the fan until after the election," he said. "The rhetoric is 'We've got to help homeowners,' but the reality is it's designed to help the fat cats, Wall Street. It's bailing out the lenders."</p>
 
Peter Schiff is a rare breed: he sees and speaks the truth. Most of CNBC and its guest commentators are clueless or deceitful. In fact, I would say most of what is spoken or written about financial matters on Wall Street is the same.
 
<p>Free" MINI Cooper for every loft buyer at LA's Santee Village</p>

<p>http://www.carbuyersnotebook.com/archives/2007/11/free_mini_cooper_for_ever.htm</p>
 
A better idea would be to reset the rate at current 30 year fixed rates, but only if they've a perfect payment record. That way they don't benefit any more than if they could have refinanced. Their penalty will be in the loss of equity.
 
<a href="http://www.ft.com/cms/s/16dbd90a-9f52-11dc-8031-0000779fd2ac.html">Saving the subprime borrowers</a>.





<img src="http://media.ft.com/cms/753f201c-9f73-11dc-8031-0000779fd2ac.gif" alt="" />
 
<a href="http://www.reuters.com/article/ousiv/idUSN0135696720071202">U.S. mortgage industry hashes out rate-freeze plan</a>

<p>WASHINGTON (Reuters) - Mortgage industry executives worked on Saturday to hammer out details of a homeowner rescue plan that would freeze interest rates on some U.S. subprime mortgages for up to seven years, but questions remained over how to avoid investor lawsuits and other legal challenges...</p>

<p>A particularly thorny problem is the threat of lawsuits from investors who bought securities backed by the mortgages. These investors were promised a certain yield, based on the expected hikes in interest rates, and an automatic freeze without reviewing individual loans may give them grounds to sue mortgage servicers.</p>

<p>More business for lawyerliz? </p>
 
As I said on another thread, I suspect parts of the deal will be:



1. That the rate freezes will apply to people who have been making payments regularly, especially those where borrowing rates are higher than they would get now.



2. Major changes in underwriting and appraisal standards will drastically reduce the number of people with those loans who can refi at a lower rate. Thus, much of this group of borrowers get locked in place at above-market interest rates. The rate resets don't go to their original maxes, but as long as they are performing loans, they are profitable.



3. Various informal ways and promises to keep the banks borrowing costs down. These include keeping the fed funds rate low, and accepting MBS as collateral.



You might wonder why the more responsible banks that carefully underwrote subprime (or avoided it entirely) aren't opposed to the changes. It's partly because the banks with a small portion of junk loans also are helped. Most banks who retained mortgages have short-term borrowing that provides a big chunk of their capital. Lower that cost, and the profitability of existing loans goes up. A good explanation of these principals is at the St Louis Fedhttp://www.stlouisfed.org/col/director/Materials/alco_basic_investment.htm
 
<p>Paulson Sees Limited Aid in Rate Plan </p>

<p><a href="http://www.nytimes.com/2007/12/04/business/04debt.html?_r=1&adxnnl=1&adxnnlx=1196740848-trD2ERAp5BhmtaSly3awJA&oref=slogin">http://www.nytimes.com/2007/12/04/business/04debt.html?_r=1&adxnnl=1&adxnnlx=1196740848-trD2ERAp5BhmtaSly3awJA&oref=slogin</a></p>

<p>WASHINGTON, Dec. 3 — The Bush administration’s effort to help borrowers in danger of defaulting on their subprime mortgages could help only a small number of those who took out such loans, industry analysts said Monday.</p>

<p>Though administration officials have yet to agree on crucial details with mortgage lenders and the securities industry, a similar effort in California is likely to help about 12 percent of borrowers in the state with adjustable-rate subprime loans, according to estimates by Barclays Capital.


</p>
 
<p>Ah, these servicers, who don't have enough employees right now, are going to be asked to scrutinize people's pay stubs and such to see that they don't make too much money. For free. Yeah, right. And fish will fly.</p>

<p>How can servicers, who don't own the loans modify loan terms?</p>

<p>Why are these people in a responsible position anyway, much less the former head of GS?</p>

<p>They are insane. They must be in possession of feethy pictures of somebody powerful, it's the only explanation.</p>

<p>Here in fraudulent Florida a good percentage of the pay stubs were phone anyhow. What makes these geniuses think that people who forged a falsely high pay stub to qualify for a loan won't be able to produce a falsely low one for a payment break?</p>
 
<p>And here we go...





<a href="http://www.msnbc.msn.com/id/22120229/">Paulson to unveil mortgage plan to Congress</a>





George W. Bush is expected to announce on Thursday a five-year interest rate freeze on some subprime mortgages as part of a deal brokered by Hank Paulson, Treasury secretary, to prevent a tidal wave of home foreclosures.</p>

<p class="textBodyBlack">The five-year freeze - a compromise between regulators, who were pushing for a seven-year freeze, and some lenders, who had argued for a one- or two-year freeze - was in a draft accord circulated on Wednesday, a Treasury official confirmed.</p>

<p><a href="http://www.msnbc.msn.com/id/22120229/"></a></p>
 
<p>We won't know for sure until the details come out, but ...</p>

<p>I don't think this qualifies as a government bail-out. It looks more to me like it is a way for some paper holders to squeeze out as much as they can from some over-extended families on some devalueing property which the paper holders do not want. They would rather have the payments for 5 years. Bush, Paulson, and the government are involved only to the extent they are giving the plan credibility and a government stamp of approval, and Bush wants to be seen as a doer.</p>

<p>I sincerely doubt this plan will much effect on anything, except maybe stretching out some financial pain and suffering for some overextended families.</p>
 
I have mixed feelings about the plan, but the part that I like is that it will help communities (somewhat) from being gutted by foreclosures.
 
I'm not a lawyer. I didn't even play one on TV, or stay at a Holiday Inn last night. So I'm left wondering. By what legal mechanism can the government force a change in loan conditions to freeze the interest rates on a mortgage?
 
<p><em>"By what legal mechanism can the government force a change in loan conditions to freeze the interest rates on a mortgage? "</em></p>

<p>I don't know, but so far it looks like it will be "voluntary" by the servicers. Maybe not voluntary by the resultant bond holders, but their servicing agreements may give the servicers the ability to change some terms.</p>

<p>There is a rumor on Calculated Risk that the Hope plan will not apply to any mortgages for which the underlying property's value is less than the mortgage. Wouldn't that be a hoot? </p>
 
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