More Info About the US Mortgage Freeze Plan
Calculatedrisk has some nice insight on the new mortgage freeze plan:
And that, really, is a way to target the “freeze” to start rates that are already pretty high. I think some people are getting a bit misled by the idea of “teaser” rates here. As Bloomberg reports quite correctly, the loans being targeted have a start rate in the 7.00% to 8.00% range. (My back-of-the-envelope calculation is a weighted average of about 7.70%, with a weighted average first adjustment rate of just over 10.00%.) Nobody wants to come out and say that “Hope Now” is all about freezing just the highest initial ARM rates that there are, but that’s in fact what it’s about.
So asking, in essence, why we are “rewarding” people with the worst credit profiles is, really, missing the point. The point is that the cost of this goes directly to investors in asset-backed securities, and those investors are being asked to forgo 10% (the reset rate) and take 7.70% (the current or start rate). They are not being asked, say, to forgo 7.70% and take 5.70%, which is roughly what it would be if this “freeze” were extended to the significantly-over-660 crowd (Alt-A and prime ARMs).
That about nails it on the head. Those with bad credit are getting spoon fed, while those with good credit use their heads to plan a mortgage payoff plan. Life is certainly unfair.
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