When Hell Freezes Over for Five Years

When you sign a mortgage it can feel like you’re signing your life away. You carefully read through all the papers because it’s a binding contract and the stakes are high. Once you throw down your John Hancock you’re committed. But suddenly a binding contract doesn’t mean much anymore. Homeowners with subprimes will be spared from the impending hell of foreclosure and bankruptcy by Bush, but just for five years. Hopefully that will be long enough for people to get their act together. But this reprieve doesn’t come for free, so who pays? It’s not a tax payer bailout. It’s the banks and investors that will bear the brunt of this one.  

U.S. officials have been negotiating the voluntary deal with lenders, mortgage servicing firms and other companies. The sources who disclosed details of the plan were not authorized to speak on the record before the official announcement.

Treasury Secretary Henry Paulson has insisted that taxpayer money will not be used in the deal. Rather, investors who bought mortgage-backed securities that included subprime loans, expecting a high return, will bear the brunt. USA Today

Some people believe “the planned freeze on interest rates on various subprime loans doesn’t help the vast majority of those hurt by the crisis” and others are worried the government should meddle in the market this way. The Bush Administration doesn’t exactly have a track record of excellent planning and thinking things through so my concern is the unforeseen consequences of this manuever that could seriously bite us down the road.