Bush Administration Moving to Help (?) Subprime Loan Holders

The word on Wall Street is that Treasury Secretary Henry Paulson is crafting a deal to freeze the “teaser” rates of subprime mortgages of borrowers who would otherwise risk foreclosure when the loans reset. (Coverage here through CNBC.com.)

Details are yet to be finalized, but word has it the rates for these mortgages would be frozen for as long as five-to-seven years. According to CNBC, investors who hold these mortgages initially balked, but now are warming to idea as they realize how difficult it will be to renegotiate loan terms with borrowers on a case-by-case basis … and they realize that more costly (punitive) measures may emerge from Congress.

So what do you think? Is this a good idea, or should the government stay out of it and allow banks and credit unions to solve this problem (where possible)?

And is this potentially an opportunity missed for credit unions to step up and help (as some are already doing)?    

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5 Responses

  1. I’m not surprised I’m the first to comment on this. When you heard the words “exotic” and “sub-prime” in the same sentence you know big banks and government are talking. I think most people have just tuned out.

    No one wants to say it – home ownership is the American dream……But this is a nightmare.

    Why?

    Because the dream is to OWN a home. Not just occupy one. That means you save for a down payment and you build equity. You don’t gamble with your family’s future by risking foreclosure because you were betting on everything going up – your home value and your income while interest rates would go DOWN? When they were historically low in the first place??

    I have no doubt that fixing this would be an “exotic” nightmare for the big banks. They don’t want to throw resources at helping people or educating people – they need to focus on making the bloody dollar – the new American dream apparently.

  2. @ Denise – I couldn’t agree more. I have a lot of concerns about what may well end up being a short circuit to the housing market.

    I have some sympathy for the folks who were sold a bill of goods because they did not educate themselves about homeownership. No doubt quite a few were taken advantage of by shady brokers who worked a lax regulatory system.

    But I do feel that the aftermath of this was an opportunity for credit unions and other local/regional financial institutions to step up and help out where possible … and perhaps help people understand how to build equity.

    As it stands, I wonder if this solution is going to end up doing more harm than good.

  3. Jeff,

    I know I’ve said this before but it so bears repeating: We need to promote thrift again.

    Credit union’s would (or should) never engage in these practices or anything similar (some courtesy pay practices come to mind).

    It’s just sad, right?

  4. Denise,

    The struggle will be selling that to a general public who wants what they want when they want it. By not offering a loan that got these people into a house (even temporarily), you would be telling them a word they don’t want to hear – “no”.

    We have to find a way to change this this mindset, but we want to be the source of their financial solutions…tough nut to crack.

    Thankfully, our credit union does not prey on people like this. Nearly all of our loans are fixed rate…and to us a teaser rate is how you’d evaluate someone on speed dating.

  5. @ Denise – I’m with you … it seems like it’s hard to get people’s attention these days. I hope that credit unions are able to help some of the people in these situations.

    @ Matt – Kudos to Members for not going this route. It’s scary to think that even a tiny number of CU boards and/or staff might take a different approach.

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