A lot of people have emailed me and a lot of discussion has been going on in the forums and comments about the new mortgage freeze plan that is being announced today. Even Bill Virgin, one of Seattle Bubble’s favorite local editorialists has a column on the subject today:
You were the careful, responsible sort of home buyer. You took out a plain-vanilla, fixed-rate, 30-year mortgage, shunning exotic loans with low teaser rates, coupled it with a substantial down payment, bought only as much house as you could afford with monthly payments that were within your income. Maybe you’re even paying a little extra each month or have converted to a biweekly schedule to get the loan paid off in advance.
Or perhaps you were the careful, responsible sort of banker, one who got nervous over loans in which borrowers put nothing down, or paid so little that the principal owed grew every month, or signed up for loans whose payments they could never afford once the low teaser rates reset. Maybe you even shied away from making such loans, much less buying paper backed by them.
Silly you, too.
Because you, Ms. Prudent Home Buyer, and you, too, Mr. Cautious Banker, sure missed out on the party. While you were playing the role of the ant, everyone else was enjoying the life of the grasshopper.
And now you, directly or indirectly, will get to help pay to rescue those who had the fun — without getting any break as a reward for your frugalness.
As I have made abundantly clear here in the past, I couldn’t be much more strongly against bailouts. The fallout from the housing/credit bubble is not going to be pretty for anyone, including those of us that did not participate in the irresponsible run-up, but the best way to discourage something similar from happening again in a decade or two is to, as Bill says (but doesn’t necessarily advocate) “let people feel, however painfully, the consequences of their screw-ups.”
That being said, I can’t bring myself to be especially concerned about this latest plan. Many other people in the real estate blogging scene have spent far more time than I can afford to studying the plan, and the general consensus seems to be that it amounts to little more than a publicity stunt, designed to give the appearance that something is “being done” about the “housing crisis.”
Relatively few people will qualify for the freeze, and even fewer will bother taking advantage of it. Why would you lock in your payments on a house in which you have little to no equity, and is now worth 20% less than what you paid? Why would an ARM freeze be more appealing than just walking away? (Actually, according to Deejayoh’s forum post, someone in that situation wouldn’t even qualify, so I guess that just reiterates my point that few will qualify at all.)
Here are some good write-ups on the plan from around the web:
- Housing Doom – Most ARMs Not Likely To Be Affected By Reset Freeze
- Bubble Markets Inventory Tracking – Uncle W’s Subprime Freeze: Actual Results May Vary Among Users
- Calculated Risk – The Plan: My Initial Reaction
Also be sure to check out the Seattle Bubble Forum discussions:
- Could industry-wide work-out of subprime mortgages help?
- Banks/Fed Swing to the Rescue.
- Analyzing the Bailout
So is there something wrong with me, that I can’t seem to muster up any rage about this apparently-just-for-show bailout? I’m just not feeling it.
(Bill Virgin, Seattle P-I, 12.05.2007)