Friday, December 7, 2007

Bush Mortgage Bail Out: Thin at Best

With great fanfare, President Bush announced yesterday a new program that would freeze adjustable rate mortgage increases on subprime mortgages. Sounds great, until you review the fine print.

The freeze in rate increases is only available for those with subprime mortgages. Further, it is only available for those who are current on their mortgages and only if there has been no increase already.

A number of lenders went to great lengths to lend money, including using artificially lower interest-only adjustable rate mortgages, mortgages with tremendous balloons, and artificially discounted teaser rates.

The Bush plan applies to an estimated 10 to 15 percent of borrowers who are at risk of foreclosure. That's thin, at best.

At the same time, regulation of lending is lax at best. Oregon, for example, sets no legal underwriting standards. Oregon allows lenders to penalize early payment. Oregon allows refinancing even when doing so does not benefit the lender.

For those who qualify, the President's provision may provide some breathing room. On the other hand, it may merely create future problems for those who get the benefit of the freeze. Regardless, you have to wonder what they were intending to do when they created this great bailout for 10 percent of consumers who are at risk.

David F. Sugerman
Paul & Sugerman, PC

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