The CNBC audience is speaking out on the government's mortgage freeze plans--and the voice is predominantly negative:
"What about homeowners who work hard to pay their mortgages and were wise enough to obtain fixed rates? Shouldn't the government help them instead of those who chose mortgages knowing they couldn't afford the risk (of) a moveable rate?" wrote one reader, Darryl.
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Those words reflected the sentiments of the majority of readers writing into the CNBC.com Web site, various CNBC programs, and the CNBC.com real estate blog, Realty Check. Indeed, the web site's pollon the subject showed nearly three-quarters of respondents were against the plan.
The negative sentiment comes despite the fact that complete details of the plan have yet to be worked out. President Bush is expected to officially announcement the effort 1:40 pm today, followed by a press conference by Treasury Secretary Henry Paulson (both CNBC.com and the CNBC network will carry both live).
But a general outline of the plan is emerging from various congressional and administration sources. It is essentially an agreement between banking regulators and the mortgage lending industry to freeze interest rates for certain subprime mortgages for five years. (Read more about the plan here).
The plan is aimed at stemming a growing wave of foreclosures and containing the ripple effects of a major housing slowdown.
Such a move is good for homeowners who borrowed money during recent periods of low interest rates but may now face increased mortgage payments due to resets of their adjustable rate mortgages. It is also viewed by some as a generally good move for the economy, since it would keep certain businesses and industries tied to the housing industry going.
But the plan is also drawing a backlash from the general public, given feedback received at CNBC.
Below is a sampling of reader feedback. Newer emails posted at the top:
"The exuberance of the financial markets today in response to the Bush/Paulson Bailout plan is frightening. The proposal is an admirable attempt to wave a magic wand to resolve the housing market ills but is not in and of itself the solution to an extremely complex problem. The underlying issues to the US housing crisis such as the lack of equity (in many cases negative equity) the homeowners/borrowers have in their homes, tightening of mortgage underwriting standards, elimination of the proliferation of easy qualification mortgage programs, and concern over rising costs (real estate taxes, insurance, fuel costs, etc.) are just a few of the issues. Yes, freezing interest rates for 5 years will reduce the pressure on a segment of the borrowers that chose ARM's. But many have Payment Rates at below market(such as 1% with significant negative amortization) or Fixed Rates they cannot afford. Freezing the rate does not help the borrower whose ARM payment rate is increasing, not just the interest rate. It also does not address the many borrowers already in foreclosure. Much more needs to be done ASAP to avoid a national financial and housing crisis that will have ripple effects far grater than currently envisioned or acknowledged. At best, this Paulson Plan is window dressing."
"I voted "Maybe" in your poll. I'm sorry that 80% of the repliers voted to let the marketplace sort it all out. I guess that would be the way to go if you wanted to guarantee a recession and the pain to so many of our citizens. Personally, I'm tired of the "screw 'em" attitude that pervades this country and so many business schools. Maybe it's time to realize that our "ism" (capitalism) isn't perfect and that free markets can't solve every problem. Intelligent regulation is necessary in our personal life and that of government. Unfortunately, we can't vote for the regulators so we can only hope that the few people we vote for will do a good job appointing them. I want to see the details before I vote "yes" but I applaud those looking for a solution rather than trying to sweep it under the rug. It's too bad it's taken so long to look for positive resolutions. Speculators should take their lumps but owner-occupied homeowners should get a break. Disclosure: My wife and I are in our '60s and own our home free and clear."
-- Bob in California
"This plan may actually hurt borrowers who have no chance at all of paying back their loans. They'll liquidate their retirement for a few years and then foreclose. It will also prolong the correction. Instead of amputating the gangrenous leg they're going to keep the patient in the hospital for 5 years on antibiotics before the inevitable occurs. Subprime is a drop in the bucket when you consider the amount of people who bought too much house using prime and alt-a loans. This isn't a rate issue it's an affordability issue. Prices are dropping. Free markets work."
"I think the government should step in and assist Americans in need of assistance with their sub-prime loans. When the market was booming, these predatory lenders were giving out mortgages like they were on "sale." At that time, the government never stepped in to let these lenders know they could be creating a bigger problem in the future. Speaking about my own experience, my wife and I were pre-qualified for a $650K loan, something we could not afford. Since we both had FICO scores very close to 800, and the lender felt we would be okay. With that said, I feel the borrower, the banks, and the government all should share the responsibility. Needless to say we did not accept their offer and bought a more affordable home."
-- Bigroad in New Jersey
"The ARM rates and sub prime rates were sold to the customer basically in a fraudulent manor often by advising the customers that the rates would not go up “much” based on history and they could always convert later to a fixed rate. This was in a effort to close as many loans as possible so they could then sell them to someone else. Most of the fault is with the mortgage industry so they should take the fall and make some allowance for extending the ARM or sub prime rates."
"I'm really not surprised that some lending institutions, who have been guilty of hurtful predatory lending practices, are crying foul at the possibility of a freeze. These high risk loans are their bread and butter. And targeting clients whom they suspect may be candidates for foreclosure at some point is their stock in trade. Some voices on "The Street" may feel the recommended freeze to represent too much regulation, but I find myself to be buoyed by the prospect that this measure might, in fact, ease the pain of tens of thousands of honest, hardworking folk who have been caught in the sub-prime trap through no real fault of their own."
"It is not a failure for markets to correct. When a shrub is pruned it temporarily shrinks in size. We seem to be missing one of the key issues. Clearly the invasive political grandstanding and policy intervention is absurd under the guise of being the world's of free market practices. And, yes I empathize with the frustration of all those prudent homeowners who bought only what they could afford under loan conditions that were reasonable and induvidualy affordable who will not be receiving any relief under this plan. But lets peel back the onion and acknowledge that the ultimate reason home prices moved up so far so face was because of the rampant ease with which credit was available to chase these assets in the first place. This excess liquidity is what has driven prices to a point at which prudent investors cannot afford, and prolonging the excess simply insures that home prices will stay overvalued for longer. Let's postpone the repricing until wage growth catchces up? - such is the American way to pay for things before we have the money in the bank. Sometimes we need to take our medicine. Despite the pain, wouldn’t a market system that adjusted prices down 15-20% be best? Those who had been prudent would be in a position of relative strength, and new buyers to the market, who had been too conservative to chase outlandish prices using exotic loans would be in a position to step in and clear the market fairly. Where have you gone Charles Darwin?"
--Alexander in North Carolina
"Mortgage fraud, whether it be a mortgage broker improperly representing a mortgage product, or it be a potential home buyer misrepresenting income or ability to pay, is a crime. What the government should do is GO PROSECUTE these occurrences where they happen. They should not be bailing out those that may have made inappropriate decisions. I made a conscious decision not to buy an ARM because I was uncomfortable with not knowing what our future interest payments would be following the reset. I did not grab the carrot of a low introductory rate. For some reason I am being punished for making a responsible decision."
-- Jim in New York"Anyone who prefers seeing 1.5M foreclosures in the next 1.5 years is nuts.
No one likes the FED involved here, but how do people propose creditors mark to a market that has evaporated? The economy will dis-appear into a blackhole LIQUIDITY LOCKUP while lenders play hot potato with the bad paper, unless the GOV slows the failure of this paper."
"In the real world this won’t make a bit of difference. They have no clue how pervasive this downturn is going to eventually destroy the US housing market. The only way to make a dent is to permanently freeze all rate increases and make it retroactive to ALL mortgages written in the last 3 years regardless of ability to pay, excluding only those with teaser rates substantially below market that should be reset to market rates."
"I’m responsible, you’re responsible…let those who refuse to put in the time, effort, and just plain listening suffer…both individuals and banks. Those banks who create such products, those originators who push such products, those builders who have been padding there wallets by OVER CHARING for building a home…let them all feel the pain of creating, selling, and building such a mess. DO NOT BAIL OUT ANY OF THESE people and companies.
GREED of CEO’s, shareholders, and government are the problem. So a few companies and a few people have to lose money right now…who hasn’t lost money before? Let the value of companies fall…that provides opportunity for the millions of us who were smart and wise over the long haul. Those of us who were smart and wise can actually profit from this. Now it’s our turn to profit from the ethical and moral wrong doing of others!!!"
"While I generally do not support Govt interference in free market practices, the fact of the matter is that the private sector has not stepped up to the plate to find a reasonable solution to this mess. All parties are at fault to some degree – govt regulators; greedy investors, brokers and bankers; irresponsible home buyers/speculators; rating agencies, etc. – and holding out as long as they can for someone else to take the hit. The economy is at serious risk of falling into recession, or even worse stagflation, and it is critically important that the credit markets begin to function normally again and that the cycle of fear of the unknown is broken. It is far less expensive for everyone, including the responsible debtors among us, to come up with some sort of restructuring rather than a panic driven compression of home values and rapid escalation in foreclosures, even if that requires the Govt to “persuade” the players to come to the table and work things out."
-- Keith in California
more reader responses...
"I don't see a problem with it. I've got a 30 year mortgage and I don't feel like I'm paying anymore for the negotiations with others loans than I've been paying, which is not at all. I've got stock in the financials and see the market responding positively and my stock price increasing. I'll make money from the move. Most folks complaining probably don't give to the needy, homeless, charities and are just plain selfish. It's no skin off their backs. The only folks taking a hit are investors that will make money on other investments because the market views this as a positive and the market goes up."
-- F. G.
"Any holder of a subprime loan facing default would be well-advised to work out a solution with the mortgagee which would lose the least amount of money for the lender. If the cost of foreclosure would be more than forbearance of a portion of the principal and/or renegotiation of the mortgage to a fixed rate 30 year loan which could be honored by the borrower, the lender and borrower should work out such a solution. The market can fix the problem more economically and much faster than the government possibly could."
"I live here in Miami, where most of these loans where sold to uneducated buyers who did not understand the mortgage process, who where told that their home would continue to go up and they could refinance later at a lower rate. The opposite has happened to them, they are negative over 100k in most cases and are barely hanging on at the high rate they where sold as it is. If the rate adjust higher it is not good for anyone including the banks!"
"We have a negative savings rate. Real wages are flat, energy has skyrocketed, consumer goods have skyrocketed. The economy has been driven by the combination of hyperinflation in housing and readily available access to the increase in equity through HELOC or refinance. Credit cards maxed out? Refinanace the house. Need a new car? Refinance the house. That is what is this all about - attempting to rescue the US economic engine. What's happening to national credit card debt? SKYROCKETING! What's going to happen when the cards are maxed out? The crash is coming."
"The unintended consequences of today's actions will be staggering. This is tantamount to the creation of a government institution to save people from their own stupidity or greed.
One of the prime consequences of this BAILOUT is that the multi-tiered financial companies will pass on their potential loses to those who can 'afford" to pay, in other words, if their mortgage sections of their company is losing money then their credit card sections will have to make more to cover the loses."
"Please tell the market driven purists and other free market experts to shut up. We all know the answer would be to let the market solve the problem. However, any plan (within reason) that allows people to keep their homes, I believe, is a good one.
Quite Frankly, I am weary of all the pundits who have nothing to lose who are complaining about a plan that at least is an attempt to help those who are trapped by the system whether or not of their own doing. We need a period of transition and this plan provides that. Kudos to Paulson and Bush."
-- Ron in Florida
"Why not adjust the foreclosure time line/process?
Give us a little more time to sell the Homes that are in foreclosure, and for a better price, instead of having to hurry and accept bottom dollar offers and do a Short Sale.
this would help us to keep the values up where they need to be?"
"As a Real Estate Appraiser I can tell you that many more families would be affected if no action was taken. Sure we bailed out the banks and we should have regulated them more closely two years ago. Now home prices have fallen which has directly affected market values. Those who are current on their mortgage obligations currently cannot access any equity they might still have because banks are simply are not making any new mortgage loans regardless of any rate decreases. Without intervention more families who are current now would have problems later. The overall affect would be less money for families to spend on goods and services which really could hurt the economy badly. Who is the big winner here? Not the borrowers who have subprime loans but the banks who charged all those fees on subprime loans when they made them and now save money on the equity losses and costs asscociated with foreclosure. Perhaps now the banking industry will begin to start making mortgage loans again that people can truly afford."
-- Tim in Florida
"Bill and Hilary during their tenure in the Whitehouse, wanted to increase the percentage of people who owned homes. To that end, they "encouraged" the lending industry to develop and market what we now call subprime loans. Since it was goverment intereference that pushed the the market into the situation, I think it proper that the government help resolve the problem. The greed of the financial community made a bad program worse, but the financial community was a big Clinton supporter and still is. So the real genesis of this problem may not be perfectly clear yet."
-- Edward in Colorado
"Just watched Bush playing politics with the credit crisis. He tried to distance himself and his well heeled buddies and blame the problem on Congress. Bush yammered on about "Congress should do this, Congress should do that" as though this issue was created by Congress. Let the banker's and the folks they unloaded these toxic loans on deal with the problem. The lenders can work the problem one loan at a time to avoid preventable foreclosers. This is a crisis that will resolve itself in the best long term interest if nothing is done. Let the markets work."
"Can I call my lender (Wells Fargo) to negotiate a lower rate on my 30-Year Fixed Rate because my taxes, food and energy costs have increased since I purchased my home 4 years ago?"
"Wasn't it the same Prez. Bush who said just a few short years ago "home ownership is at it's highest in history"? His administration should be to blame for the fiasco we're in now. By allowing and even encouraging these teaser rates, Alt-A, and no interest loans, they artificially inflated housing with the intended purpose of increasing tax revenues. It was just another way of increasing tax rates to offset his tax cuts. But there was no way this pyramid scheme could and will be supported. First of all, current income levels can't possibly support this high prices. Secondly, where will the next generation of buyers be to afford this high prices. They will not have had years of home equity to trade-up like this current crop of debtors. I believe we haven't even begun to see the crisis that lies ahead. Another in the debacle known as Bush."
"I have lost a lot of money in the stock market over the years.....do I get a bailout ? I know a lot of people who lost a lot of money gambling over the years.....do they get a bailout ? I know a lot of people with high debt due to medical expenses.....do they get a bailout ? If you want to play you gotta pay.....let the lenders and borrowers pay for their poor decisions everyone else does."
more reader responses...
"Did I hear correctly? That the idea behind this goverment bail out is to freeze or postpone rate hikes for 5 years so that home equity values can possible rise 10% making it affordable for those sub prime borrows to sell out from underneath at a profit? Isn't speculation in the real estate market using sub prime mortagages what got us into this mess??? "
"This plan will raise mortgage rates for future borrowers and home buyers and that is not fair. New home buyers will end up paying a higher mortgage rate for a house that is still overpriced. That is not fair. It is un-American. Where was the government when the stock market crashed earlier this decade? Why don't they do something about credit card companies charging over 20%? Put a much lower cap on credit card rates and the economy will be better for it. But I guess that doesn't get you enough votes."
"Letting sub prime borrowers feel the full effect of their irresponsible decisions will teach them (maybe) valuable lessons for their future. The government shouldn't play indulgent parent by bailing misguided adults out of trouble."
"There are serious issues with the US economy that need to be worked out. Stop government intervention. Let things get worked out, and everyone will learn a lesson and become better people because of it."
"I am a home owner that last year fell into hard times so in order to pay for my mortgage and keep my credit in good standing I moved into my basement and rented my house. I think that in the past 2 or 3 years people have been irresponsible and I don’t think responsible tax payers like me should pay for other's mistakes."
-- Mariza in New York.
"When I purchased my house, I made sure I could afford it. It seems that only the irresponsible get help. Who wouldn’t like their rates frozen? I pay my bills how about freezing my rates."
-- John Piccoli
"In 1987, Paul Volcker was out voted on the Fed board about easing Glass-Steagall regulations. Everyone was influenced by Citicorp, JP Morgan and Bankers Trust. Volcker was fearful that lenders would lower loan standards for lucrative securities and market bad loans to the public.Guess What? This is exactly what happened. Anyone that bought a house that they knew in their own mind they could not afford, I say " too bad!" I lost some money in the market several years ago can I get it back?"
-- Bill Scantlen
"I'm an executive at an Internet company and my wife is a lawyer. Together we both generate over $300k and I can not afford (with a reasonable loan) a home in LA. I HATE the fact that the government is stepping in to postpone the inevitable fact that most sub-prime loans were offered irresponsibly to people that can not afford them. As you point out, everyone and their mother will try to get in this free ride. I'm being punished for being responsible and sacrificing my lifestyle in order to save money to buy a home responsibly. The worst of all is that my tax money will now go to support those who allowed prices to get to this heights. Who can I contact to try to stop this? Is there a petition or organization that we can support to stop this madness? Well paid yet homeless."
"Why should the government bail out anyone. Arent we a free economy. Why cannot some one on CNBC talk about this. Govt helped Airlines, Execs got rich and ground employees took a pay cut. Whats the difference between Chavez govt and our govt if we meddle with economy. Thanks."
"It would be so unfair for people like myself if the government put a freeze on the interest rates for those who should never have gotten a loan to begin with. I wish two years ago I threw out my common sense and took on a mortgage I couldn't afford! If this happens I don't see any reason why the housing prices would come down. Am I wrong?"
But not all replies have been negative on the mortgatge plan as you can see in this reply from Megan in Colorado:
"I bought my home at the age of 21 in 2005 with an adjustable rate mortgage. Because of my age, both banks and mortgage brokers suggested an ARM. The advice was that by the time my rate was scheduled to adjust I could refinance because of a longer credit history and the fact that my home’s value would increase. This would have worked fine except that my home value has decreased substantially. I guess buying a home at the age of 21, always paying my payments on time, and taking the advice of lenders is considered irresponsible and I’m disappointed in those who describe everyone in this situation as such. The only people who don’t deserve any help are those who are so cruel as to want to leave the rest of us out in the cold."
-- Megan in Colorado
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