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.
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