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REAL ESTATE White House mortgage plan - Freezes ARM rates!

hakrjak

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Sep 15, 2007
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Wow... says it will only apply to "owner occupied" houses, so I wonder if it will apply to all my investment props that are still on owner occupied loans, since I lived in them at one time? :) Should be interesting....

http://news.yahoo.com/s/ap/20071205/ap_on_go_pr_wh/mortgage_crisis

WASHINGTON - The Bush administration has hammered out an agreement with industry to freeze interest rates for certain subprime mortgages for five years in an effort to combat a soaring tide of foreclosures, congressional aides said Wednesday.
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These aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of as much as seven years and industry arguments that the freeze should only last one to two years.
Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.
The administration said that President Bush will speak on the agreement at the White House on Thursday and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with officials of the mortgage industry.
Treasury also announced that there would be a technical briefing to explain more of the details of the proposal.
Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes — as a way to make sure that the break is not granted to real estate speculators.
The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures that are feared as an estimated 2 million subprime mortgages reset from lower introductory rates to higher rates.
The higher rates in many cases will boost monthly payments by as much as 30 percent, making it extremely difficult for many people to keep current with their loans.
The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.
Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year.
The plan represents an about-face for Paulson, who until recently had insisted that the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced that the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed along the lines of a plan put forward in October by Sheila Bair, head of the Federal Deposit Insurance Corp.
Paulson and other federal regulators began holding talks with some of the country's biggest mortgage lenders, mortgage service companies, investors who hold mortgage-backed securities and nonprofit groups that provide counseling for at-risk homeowners.
Under the typical subprime loan, those offered to borrowers with spotty credit histories, the rates for the first two years were at levels around 7 percent to 9 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent.
For a typical $1,200 monthly mortgage payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment.
The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.
The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors.
The administration plan is designed to deal with the crisis by allowing subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is occurring in many parts of the country.

With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.
The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.
Mark Zandi, chief economist for Moody's Economy.com, said while the administration plan is a good first step, eventually the government will have to go further because of the size of the problem and the threat to the economy. "This is the most serious housing downturn we have seen in the post World War II period," he said. "It is a threat to the broader economy. The risks of a recession are very high."
 

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tbsells

Contributor
Jul 27, 2007
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Ohio
Hi Hakrjak
I guess like anything else, the devil is in the details. I read another article this morning that had a little more info. Apparently the law applies only to "subprime" mortgages originated from early 2005 to mid 2007. No definition of "subprime" was given. The plan only applies to those who are now current on their mortgages but are unable to afford the next rate and payment increase. No information was given on who determines or how it will be determined who can afford the next increase and who can't. I don't know of anyone who will raise his hand and say "please raise my payment because I can afford it." The plan applies only to owner occupants. As you alluded to in your post, how are they going to police that? There is more questions than answers. Before its over we will have to develop a whole new government agency to oversee the current agency who might someday oversee this plan. It will be more waste, fraud and abuse. Just like everything else the government touches. I wish they would just leave the marketplace alone and let it take care of itself. The mortgage market has already begun correcting itself. I wish they would just let this natural market correction run its course.

We don't know the details but we know the end result. For every $1 spent actually helping someone in need $10 will be spent in bureaucracy. We also know who will pay for it..........us.

Sorry about the rant. But, the prevalant welfare mentaility in this country is really starting to bother me. Its not only some people thinking they need the government to care for them, its now become the government thinking they need to care for all of us. Scary. I think.
 

Russ H

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Jul 25, 2007
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tbsells said:
We don't know the details but we know the end result. For every $1 spent actually helping someone in need $10 will be spent in bureaucracy. We also know who will pay for it..........us.
tbsells-

Before you start making sweeping, unsubstantiated statements, why not look at how the bail out is being put together?

We've been discussing all this for close to a week now, on this thread:

http://thefastlanetomillions.com/showthread.php?t=5188

Happy reading. :)

-Russ H.
 

tbsells

Contributor
Jul 27, 2007
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Ohio
Russ,
I have followed along on the thread you provided for several days. I have also read a good bit about this issue in various media outlets. Just for fun, I revisited the link you provided and saw that many held in very high esteem around here have made many negative comments about this proposal. Many could be classified as "sweeping and unsubstantiated" as you have labeled my comments. But, you did not dismiss them as uniformed like you have me. I don't appreciate it. This is not the first time you have done this to me. The title "moderator" has apparently gone to your head.
 

Russ H

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Read Millionaire Fastlane
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Jul 25, 2007
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tbsells-

Perhaps it's because I see more potential in you. I think sometimes you let your limiting beliefs hold you back from seeing other things. And I feel like you're *so close* . . .

You're right-- I haven't commented on some of the others' boo-hooing. That's because they are who they are. Their comments reflect their limiting beliefs. I don't feel like I will ever be able to change their perspective. They see the glass half empty.

I don't feel that way about you.

Call it tough love, or trying to wake you up to other ways of seeing things.

I think you're worth it.

-Russ H.
 

tbsells

Contributor
Jul 27, 2007
304
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31
Ohio
RussH,

I appreciate the kind words. Perhaps my reaction to your earlier comments is evidence of my "limiting beliefs." I'm not sure. I do appreciate the explanation and will attempt to evaluate your future comments in the manner which you intended. I do not mind constructive criticism, it is just that I did not interpret what you said as constructive. It felt condescending. Oh well, enough said. Again, thanks for the explanation.
 

Russ H

Gold Contributor
Read Millionaire Fastlane
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Jul 25, 2007
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Yeah, I know about the condescending part. Not something I ever intend, but I realize that my tone comes out that way sometimes.

Comes from the way I was raised, and how I was taught to speak to others.

Weird thing is, I don't feel like I'm trying to be condescending. My words just come out wrong sometimes (too often, actually).

One of those things I'm always working on . . .

Thanks for bringing it up-- I'll try to be more mindful of this. :)

-Russ H.
 

tbsells

Contributor
Jul 27, 2007
304
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31
Ohio
I read more about this today. It sounds as if my dire prediction of another giant government agency was off base. According to President Bush there is no government money in this plan. I'm relieved. What it is at this time is a voluntary arrangement with major loan servicers to freeze subprime ARM rate increases for five years and to encourage refi's to fixed rate loans. Its for owner occupants only and you must be currrent on payments at the time of the scheduled interest rate reset. Also, if you have ever been 60 days late on the loan you don't qualify. What it really sounds like is the President Bush used his position to strongly encourage these loan servicers to do what they should have anyway-work with people.
 

Diane Kennedy

Bronze Contributor
Aug 31, 2007
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I'm late to the party on this plan.

As I understand it, this is just a proposal. Is that correct?

If so, it's hard to say if the House and Senate can agree on a plan anyway. For example, the House plan to allow people who defaulted on mortgages for princ residence to go tax free was supposed to be a slam dunk for the Senate....and still, nothing has happened.
 

tbsells

Contributor
Jul 27, 2007
304
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31
Ohio
Diane,
I think your right-its just a proposal. I saw it called a "voluntary agreement." Anyway, its not legislation so I don't think it involves the house or senate at this point. Reading between the lines it sounds as if the white house may have used the threat of legislation to broker the "voluntary agreement." It really sounds like a broad scale workout plan with most of the large loan servicers agreeing in principle to participate.

I'm a residential real estate broker and investor so this is important to me. I have researched it and seen conflicting reports from reputable sources over the past few days. It doesn't seem like there is a clear handle on the details. I did get a report from a NAR affiliated company yesterday that clearly stated there was no government money in this and that it was a "voluntary agreement" brokered by the white house. I had seen earlier reports comparing it to the great S&L bailout, which sent a chill down my spine. Apparently the early reports were inaccurate. To me, the later reports sounded more practical.
 

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