Reuters and various other news sources are reporting today that President Bush will outline a 5 year "rate freeze" plan for sub-prime borrowers who took out mortgage loans between Jan 1, 2005 and the end of this past July. The plan is targeted towards sub-prime borrowers who were enticed by teaser rates during the period and who have managed to keep up with payments to date. There are approximately 1.8 Million people who fit into this category who face possible default when the teaser rates are reset to market rates. Those with poorer payment habits are still eligible, but I guess they'll have to beg.
Is it just me, or does this all reek somehow? I'm not sure why the average taxpayer is paying the price for the poor judgement of both banks who should know better and for buyers who obviously overspent and could not have been dumb enough not to realize that a teaser rate is just that. It also reeks of something distinctly anti-capitalist, does it not? Wouldn't it be fair to assume that this "rate freeze" (really sounds like something out of Ann Rand's 'Atlas Shrugged'), will result in banks having to ask for higher rates for people who actually have good credit and are qualified for a mortgage loan? Why should the responsible pay and the irresponsible be bailed out? Won't such a rate freeze just prolong the housing shakeout?
Concurrently, I have not heard of any significant legislation that actually forces mortgage lenders to clean up their practices by law. So, effectively, we have a wound and a band aid, but no stitches or antiseptic. By the same reasoning, how about people that took teaser credit card rates, spent beyond their means, and cannot handle the real rate? Are they and the credit card companies that fronted them the money the next ones to get bailed out? And we joke about France!
Bush To Outline 5 Year Rate Freeze (Reuters)