Brian Louis with Bloomberg recently wrote the following report on some of the skepticism being expressed about the recent rate freeze plan from President Bush. (See and excerpt below and the full article here.) Let’s hope congress comes through with some useful tweaks to the FHA program to further help…
Dec. 7 (Bloomberg) — U.S. Treasury Secretary Henry Paulson’s plan to prevent as many as 1.2 million people from losing their homes by freezing interest rates on subprime adjustable-rate mortgages will bring no benefit to the depreciating housing market.
“At best, it may stop some of the hemorrhaging of the housing market, but it doesn’t necessarily turn things around,” said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts. “The fundamental problem with housing is oversupply.”
Existing home prices may fall as much as 15 percent by 2009 from their peak last year, even if interest rates are frozen on one fifth of 2006 subprime loans resetting next year, said Mark Zandi, chief economist at Moody’s Economy.com, a unit of New York-based Moody’s Corp. About 2.8 million mortgage loan defaults will occur in 2008 and 2009, Zandi said in Dec. 5 testimony before the U.S. Senate Judiciary Committee.
President George W. Bush agreed yesterday to a plan led by Paulson that freezes interest rates on some subprime mortgages for five years. The agreement focuses on borrowers who will fall behind on payments as low rates reset at higher levels.
“It’s long overdue that someone puts something on the table that’s enforceable and real and not just a press release,” said Prentiss Cox, a former assistant Minnesota attorney general who prosecuted predatory lending cases. He’s now an associate professor of clinical law at the University of Minnesota in Minneapolis.