the subprime mortgage aid plan
Mortgage lenders and regulators are working on a plan to aid those caught up in the subprime lending mess. For those of you who don’t know, the word “subprime” refers to the borrower’s credit history or rating– meaning that these loans are, for whatever reason (usually a bad history, but not always), high-risk loans justifying high rates.
I don’t know how I feel about it. Not many details have come to light that I have seen, and Treasury Secretary Henry Paulson told the BBC he’d have something to announce by the end of this week. I am, of course, against a full-on government bailout for anyone.
However, I don’t want to see people whose only home is financed in this manner or those who were honestly preyed upon by unscrupulous lenders hurt.1 I have much less sympathy for those who bought second and third homes hoping to sell them at a huge profit — I see them as having made an incredibly risky investment without an appropriate hedging strategy, and then having lost on that investment. Investments do that sometimes.2
Word is that the compromise plan will be to freeze rates for certain borrowers. As long as the right borrowers are chosen (and to be honest, I doubt an ideal selection of them will be), I can’t say as I have a problem with that.
- Many borrowers, I’m sure, deserve some blame for entering into loans they knew — or should have known — they wouldn’t be able to pay back. But who’s the greater fool — the fool or the fool who lent him the money? [↩]
- Dilbert comic: “The Latin word for “close your eyes and open your mouth” is “prospectus”. [↩]
12.06.2007 @ 14:19
It’s window dressing, no more no less, just a chance for Bush and Paulsen to look like they are doing something. I’d be willing to bet that you will never in your life meet a single person whose house will be saved by it.
But the worst part, and I hate to say this, is that the best thing that can happen to a lot of these people is that they lose their house and get out from under that payment, and for housing prices to fall, maybe a whole lot, before they are able to get back in.
It’s incredibly ironic that the same agencies that are supposed to promote ‘affordable’ housing will do anything they can to keep it from becoming, well, affordable.
12.06.2007 @ 20:20
I’ve thought that too. I’m mostly concerned about the victims of maleficence, but I get that such is probably impossible to prove.
I do agree, however, that any government cure in this case is probably worse than the disease, and in any case won’t help at all. But as long as perfection remains the enemy of progress, I’m sure that’s exactly what government will try.