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Monday, September 03, 2007

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Heather

I heard an announcement of the proposal and I admit to not having researched it, but I believe it was designed to help those with lower incomes and not for speculators or those with jumbo loans.

From other sources I have heard the low income portion of the housing problem is nearly insignificant when it comes to economic impact. Although the social impact of the move may be large.

If I'm off on a tangent forgive me... the baby was up all night and coherency is eluding me.

Daniel

And another thing: The immediate issue that affects all of us, regardless of your current mortgage status, is the health of various financial sectors. Clearly something went wrong in the mortgage industry (I haven't read enough to render an opinion on that), but if anything is getting some kind of a bail-out, it's the industry, not the individual homeowners. Nobody cares about the individual homeowner who can't make a mortgage payment: the concern is what happens to the banking and housing sectors if the sub-prime problem turns into a reactor meltdown.

So it's misleading on two counts: first as a "bail out," second as being focused on the homeowners (even though they would benefit). Or am I missing something here?

Huffman

If I understand Bush's proposal, it's for low-income homeowners with good credit who can no longer afford their house payments because the teaser rates have expired.

This actually seems pretty reasonable to me. In general, I think a contract is a contract, and both parties should be held to it. But mortgages are complicated, and I suspect the sub-prime lenders knew full well what was going on, but the borrowers did not.

Whether or not Bush's proposal is a good thing (and I think it is), Harvard economist David Laibson has an interesting proposal so we don't get into this mess again: make all mortgages prepayable with no penalty. If that were the case, no financial institution would think of offering a low interest teaser rate to someone would could refinance when the rate expires.

I'm sure there are problems with it. For instance, if they can't afford the higher rate, can they afford the fixed costs of refinancing, which generally run into four figures? Still, it's worth considering.

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