The mortgage rate freeze for subprime borrowers is not a bail out

December 7, 2007 at 5:51 pm 1 comment

I’m getting continually irritated by the media presenting the Bush Administration’s decision to keep lenders from hiking rates on subprime mortgages above a certain percentage. What the media has failed to do is write an accurate representation of what the freeze is and how it has no affect, whatsoever, on borrowers with conventional mortgages.

Firstly, anyone who calls Bush’s plan a bail out is incorrect. A bail out would infer that the government is going to take action, financially, to help subprime borrowers get out of the mess they are in. From what the plan has outlined, the government will do no such thing. There is no discussion about money, specifically, tax payers money, being used to bail anyone out. So, it is not going to affect conventional, or responsible, mortgage holders. Let me repeat that, Bush’s plan to freeze rate hikes on qualifying subprime mortgages will not affect other borrowers.

Secondly, and according to the AP, Bush’s plan “includes a rate freeze for certain subprime mortgages for 5 years, in an effort to combat a soaring tide of foreclosures.” There is no bail out in that discussion. What the administration has done in effect, is convinced the subprime lending industry to not raise interest rates, thereby reducing some of their profit, to slow down the foreclosure rate.

Quoting Dave Ramsey: “This is only on the subprime loans. There is no government money involved. There is no bail out…It doesn’t cost anybody else any money. It doesn’t harm the market. It is not government interference. There is no legislation passed demanding that the banks do something.”

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Entry filed under: Real Estate and Mortgages, Soap Box.

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1 Comment Add your own

  • 1. Smart Equity  |  July 10, 2008 at 2:40 am

    Dave Ramsey has got a valid point over here and it is simply shocking to see how the bush administration has handled this situation.

    Reply

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