Today, the Bush Administration announced a plan to freeze mortgage rates.
Basically, if you have a mortgage and a weak credit score, you get to keep your teaser rate for 5 years before it resets again. These borrowers took loans they couldn't afford. Why are they most deserving of lower rates? If a borrower loses his home, they can always find a place to rent. Actually, they should have been renting in the first place! Renting a place will provide the shelter as a home would.
If I buy a car, and stopped making payments, the bank will take the car away from me. Does anyone care? It's the same situation here. Someone bought a home, and they can't afford the payments. The bank should foreclose on the property! The government should not intervene. Yes, I understand the potential impact to the overall economy. But for every boom, there is a bust, and now we're just prolonging the bust. So much for buying my condo in 2009.
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4 comments:
I think I understand what you are trying to say. The government is giving benefits to people who made a bad decision, they bought a house they couldn't afford. However, the government isn't doing it to be nice, it's doing it to stem a downward economy.
It seems to me, that the "right" thing to do is let those homeowner who can't pay, lose their homes. They weren't tricked or cheated, they just made a bad decision about a loan to buy a house, or whatever. That what we would say under normal circumstances.
However, in an overall picture, the government wants to prevent a downturn in the economy. That is a noble goal, I must admit. But to do it, they have to go against what I would normally think is the right thing to do. But, does it become the right thing to do, if by the gonverment's action, it helps more people. If freezing the rates helps the economy recover quicker, than doing the wrong thing of helping out people making bad decisions, could turn out to be the right choice of action.
It's like the data about incentives to drug addicts to stay off drugs. Basically, studies show that it is pretty effective to pay people to change their behaviors. It works, and some say, more cost effective than the free treatment of drug addicts / jail time / medical care we are now currently paying for them. But most people don't like the idea of paying drug addicts not to do something. It strikes them as fundamentally wrong.
It's a tough issue, with many sides.
No, freezing rates is not going to help the economy. It's going to prolong the time we are actually in the downturn. Why? Because in when the rate freeze is over, guess what's going to happen? That's right, these borrowers are going to default again. (They are subprime for a reason) So is the government going to freeze the rate again? So really, what good does it do? (Well, it's really nice if you are on the receiving end)
Also, I don't mind if the government pays people to stay off drugs, as long as they decide to pay EVERYONE, and not just the addicts.
I don't know if paying everybody would work, that's not what the studies really look at, I don't believe. But does it need to be fair to all, or offered to all? Or does it only need to target people who have the problem that needs to be addressed (not saying that addiction is a disease) but have a positive impact on society as a whole?
Well, because the president wants to look good for the history books, it is a good idea to postpone anything that would mar his last days in office until after he is long gone. Do you think it is likely that maybe less people will default in 5 years time? Isn't the good it is doing is delaying the impact. I'm sure the president has some economist saying that this course of action will be benefitcal in some way. I'm taking you don't give much credence to that point of view. I think without follow up to this plan, that is, in some way helping these defaulter, that you are correct and they are most likely to default again.
In the words of Captain Kirk, "Let them die!". I agree with Eric; why is a house any different than a car? I would never buy a house that I couldn't afford. That strikes me as a bad decision. The economy will balance out, but it needs to do so naturally. These temporary fast solutions seem to cause problems down the line, and that's how we got to where we are now.
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