I make no claim to being all that swift with economics, but...

[Javaman]

what if and this is a big IF, all interest rates were frozen on the ARMs, then they were reset to the original interest rate and kept there.

What would happen?

[Subdivisions]

1. I think maybe many people who are losing their homes

would be able to keep them. The banks are fucked anyway what with all the write-offs. Seems like keeping people in their homes and paying there loans w/interest could only be helpful.

[David__77]

2. It would ultimately lead to higher rates on new mortgages.

Investors would demand a higher premium for mortgages since the contracts are being arbitrarily rewritten, and this would put homeownership out of reach for some home market entrants.

[Occulus]

11. Given the current crisis, won't that happen if things remain as they are? n/t

[MNDemNY]

3. Some very wealthy corporations would lose some money.

[DJ13]

4. They will lose more money by foreclosing and being stuck with declining values...

....on those homes.

[MNDemNY]

5. But that can be reconciled on paper.

[DJ13]

6. So can a feeze on interest rates

These financial institutions would look like a more secure and safer investment to potential investors if they created work arounds (rate freeze) on these adjustable mortgages than if they end up taking another round of billion dollar writeoffs.

[flvegan]

10. No, they just wouldn't make as MUCH money.

The issue is still greed, though.

[sinkingfeeling]

7. I, along with millions of others, who elected to fore-go 'lower rates' and take out fixed mortgages ...

would file suit against our mortgage holders to return the 'excessive' interest we have been paying without fail.

[Javaman]

8. Interesting.

how about then a freeze and a rate cut across the board?

There would be a huge loss of revenue for the banks, but as it is, they are going to lose that money anyway if nothing is done.

I would then think that such a move would then stabilize the industry, abet poorer, but over time, I'm sure they will think of newer and creative ways to screw the people, ahem, make the money back. lol

[sinkingfeeling]

15. I'm not opposed to freezing the existing ARM rates, but am against resetting them back to the

original 'teaser' rates. Some ARMs started out with 1.5% or even 0%. I have a 6.375% 15-yr. fixed mortgage that I refinanced to in 2001. And I make an additional principle payment every month, with a payoff date of 2012. If you add that up, I've paid tens of thousands of dollars more in interest than someone with a low-interest ARM. Why should financially responsible people be penalized?

[Javaman]

17. Ahh, I wasn't aware of those bizarrely low rates.

Perhaps the reset rate would be something that is both manageable by the home owner and satisfying for the lender.

This way, the banks continue to make money and the borrower can stay in the home.

[taught_me_patience]

9. Why don't we just shower everybody that has an arm

with cash? Screw all people who are renting or who are paying more interest on a fixed rate. All hell would break loose in the financial market.

[Toallwhoshallsee]

18. Thank God someone gets it!

Government caused the sub prim fiasco in the first place, by a few weasels in Congress who after calling for Michael Lomax {then the head of the Fulton county commission} to testify before them, on charges that the lending industry was using “red lining” for not financing unqualified applicants. This happened around fifteen years ago. The problem really was, that Michael built a McMansion in low income area, banks in general, do not loan more than the appraisal rate in a particular area. He was pissed and played the race card, so then the lending industry, fearing government intervention and binding legislation, capitulated and lowered the standards where unqualified people were loaned money that everybody new would never be paid back....Oh did I mention that if you are one of the idiots that were stupid enough to sign an adjustable mortgage agreement, then went out and did it again, on another arm in order to get pretty new furniture and a fancy car in the garage.....Then you deserve to lose everything.........I am a union worker who owns a small house with a fixed mortgage and drive an eight year old car....But I also have a savings account and took to heart civics class in public high school some years ago...Yes I used government loans for college and paid them back...That is what government is for....Unfortunately the chickens have come home to roost for some very stupid people and piss poor lenders to boot.

The solution: let the industry correct itself under the careful eye of the government, who should remember that they caused the disaster to begin with.

Before anyone jumps down my throat; There are just as many wannabe Republicans that are in this same boat with this stupid sub prime lending. Here in Atlanta they are repossessing Yachts, Italian sports cars, million dollar gated homes by the dozens every day...The AJC just had an article on it last week. Democrats are in general smarter, thriftier, greener, and usually end up fixing the blunders of the other party....Lets just hope Obama aligns some very smart people in his cabinet that know when, and when not, to stick their fingers in wall street.

[flvegan]

12. They should offer a freeze/reset as part of default resolution.

If a mortgagor goes into default and hits the usual 90 "time to start foreclosing" mark, if the default can be remedied by resetting the interest rate, then it should be done, then modify the mortgage to take on maybe another 6 months of payments to make up for some of the lost unrealized profit.

[Warpy]

13. Institutions that bought a bunch of iffy paper laundered into

exotic investments would feel a real pinch as the returns on those investments went from double digits to single digits. That would be the first effect and one that they'd love to avoid.

However, the alternative is making those investments worthless as the property is foreclosed and allowed to sink into disrepair.

Eventually some compromise with ARM increases is going to have to be reached as banks and brokerages begin to see the wisdom of keeping properties occupied, preferably by owners.

[DCKit]

14. Agreed, but the corporations would be looking for Government cash...

to minimize their "pain".

Freezing, lowering and re-setting the interest rates is anathema to the lenders, but it makes more sense than anything else. Even if it takes years for the lenders to "recover", it's better than the instant bankruptcies that are sure to follow if every single ARM and sub-prime loan goes in the toilet and they are left holding the bag. The benefit to keeping people in their homes and paying their mortgages far outweighs any reasonable concern about corporate profits.

[heidler1]

16. Some states like California have no deficiency judgment law on the books.

This allows homeowners the option of walking away when the sales value becomes less than the amount owed. In order to gain title control the loan company still has to go through the foreclosure procedure. Any solution would have to deal with this reality this is not easy. People may be pretty foolish, but paying on a negative equity is beyond foolish and more like being plain stupid. There have been several gov. spokesmen who have recommended doing it to home owners.








































+