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Originally Posted by MarcusMagnus  Bush is freezing interest rates. |
Hardly. The plan is limited in its scope to certain segments of borrowers. According to
CNNMoney,
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It will offer "more relief to more homeowners, more quickly," the president said. And it will include a five-year freeze on interest rates for borrowers current with their monthly payments.
But the freeze is limited. It excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months.
It also only covers borrowers with adjustable rate mortgages (ARMs) resetting beginning in 2008 and leaves out any who are judged capable of continuing to make mortgage payments at the higher reset rates.
Borrowers who can't afford the loan even at low introductory rates also will be ineligible, according to Anne Canfield, executive director of the Consumer Mortgage Coalition, which represents lenders and mortgage servicers. Those borrowers will have to work with servicers on a case-by-case basis to determine if their homes can be saved.
Of the 2.2 million subprime ARMS that are expected to reset through the end of 2008, only 240,000 of those would be covered by the freeze, according to an analysis made by investment bank Barclays Capital as reported in The New York Times.
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Effects on the economy?
Immediate effect will most likely be one of relief that the issue is being addressed at the federal level. Following that will be an examination of the details and a probable dawning of just how difficult this is going to be to put in motion, at which time a bit of the bloom comes off the rose.
On initial reading, the program appears to create a lot of problems with the details of implementation, which perhaps shouldn't be surprising given the number of participants in the marketplace and the complexity of mortgages in the first place.
Nonetheless, on balance and in the short term, it addresses the current problem. The effectiveness over the long term remains to be seen and will most likely be impacted by how successfully (or not) those details can be managed.
In short, for the economy, an immediate sigh of relief, followed by a period of watching and waiting for the effectiveness of the program to be proved or disproved.