The word is out. The Bush Administration has announced a five year mortgage freeze for some subprime borrowers. This five year mortgage freeze would delay the reset of between 1.5 and 2 million mortgages in the coming year or so. The Australian reports on the basics of the plan:

The president’s plan would make it much easier for lenders to freeze the “starter” interest rate for those borrowers for five years, according to a document being circulated by the Treasury Department. The plan applies to loans originated between January 1, 2005, and July 31, 2007, that reset between January 1, 2008, and July 31, 2010. To screen out speculators, owners would have to live in their homes. Office of Thrift Supervision Director John Reich said earlier this week that the plan could help “tens of thousands” of homeowners.

For other borrowers who are in somewhat better shape, the White House also wants to speed up refinancings through the Federal Housing Administration and other sources. For example, the administration wants to allow state and local governments to use more tax-exempt bond programs to fund refinancings.

Proponents of the plan tout the fact that it could result in a “soft landing” for the U.S. economy, mitigating the effects of a recession, and helping Wall Street avoid massive losses.

Others, however, complain that the mortgage freeze doesn’t go far enough. Wisebread points out that if you bought a house you could afford, making the better financial decision, there is no help for you:

Of course, if you were clever enough not to buy a house you can’t afford, nobody wants to help you out.

Even though an adjustable rate mortgage is not the best choice under any circumstance, at least being responsible enough not to get in over your head should count for something. But it doesn’t.

The other issue is that the mortgage freeze does nothing to address the underlying problems of the mortgage industry, and the way our society has come to view debt. The mortgage industry can still peddle poor mortgages, investors can still invest in them (and count on the government to bail them out) and Americans will still be encouraged to spend more than they can afford.

Tags: mortgage freeze, subprime borrowers, home mortgage loan, mortgage industry,
Bush Administration, adjustable rate mortgage, five year mortgage freeze

The stock market made gains last week, rallying toward the end. But starting out this week it has been much slower. The culprit? Yahoo Finance reports that comments on the mortgage mess are to blame:

Fed Bank of Boston President Eric Rosengren said in a speech that he was concerned that home foreclosures might worsen as overall economic growth slows. Meanwhile, San Francisco Fed President Janet Yellen labeled growth in the final three months of the year as being “only very meager” and warned that housing problems could “spill over” into consumer spending.

Right now, mortgage industry related stocks, from banks to brokerages to the financial services industry are being downgraded. Investors are concerned about fundamentals, and even last week’s much-hyped Citigroup deal can’t really hush the worries over the way things in the mortgage industry, and the financial sector in general, work.

Additionally, stocks in home-related products, such as home improvement companies and other consumer spending, are likely to be affected by the mortgage mess. And efforts to fix the problem by the government have resulted, so far, in two solutions that are not wowing many. HR 3915 may be helpful on some levels, but it is aimed more at assuaging the fears of investors. The same is true of information about the mortgage fix that the Treasury Department and the mortgage industry is expected to unveil tomorrow or Thursday.

While these solutions may act as a band-aid on the financial sector, the fact of the matter is that fundamentals may be shifting. So short-term investors may see some benefit, but in the long run, the measures proposed will only cover up the problem until this cycle is over. Then in 5 to 7 years, if nothing changes fundamentally, the issue will come up again.

Tags: mortgage mess, mortgage industry, home mortgage loan, mortgage blog,
mortgage fix, investing, stock market

One of the more interesting bits of information to come out of the mortgage crisis is that the effects move beyond foreclosures. While the news of foreclosures is dire, there is more to the story than homes being sold to avoid foreclosure, and the foreclosures themselves. Indeed, the wider economy is going to be affected, reports the Austin Business Journal:

“The foreclosure crisis is no longer just about mortgages; entire neighborhoods are being negatively affected on several levels,” says Detroit Mayor Kwame Kilpatrick. “This issue is now the No. 1 economic challenge of many major American cities.”

The study projects a $166 billion loss in gross domestic product as a result of the housing crisis, which was prompted by defaults on subprime mortgages. About 524,000 fewer jobs will be created next year as a result of slower growth, and 10 states could lose $6.6 billion in tax revenues, according to the study.

The mortgage crisis has already had some effect on the economy, with major financial companies slashing their mortgage division workforces, as well as drops in spending at home improvement stores. Can’t get your home equity loan? Can’t spend that money at local businesses.

Just another example of how dependent our economy has become too dependent on people being in debt. And not just being in debt, but also being able to make the debt payments. So the economy is built upon a certain level of debt. The problem is that debt spending can be addictive. And at some point it can’t be supported anymore.

Tags: home mortgage, home equity, home mortgage blog, mortgage crisis,
mortgage divisions, debt economy