Long Beach Real Estate-Long Beach Condos

LONG BEACH REAL ESTATE

President Bush announced an agreement with the mortgage industry today regarding the mortgage rate freeze plan.  He put the plan forth as a voluntary private-sector arrangement that involves no government money.  He further stated that lenders, real estate speculators or those who made reckless decisions when buying a home they knew they could not afford should not be bailed out. 

Well I happen to agree with him.  Many of the stated income loans made in the last several years, never should have been made.   The buyers never should have accepted those adjustable rate mortgages when they were going into the loan maxed out, there was never room for the eventual increase in payments.  The lenders knew this when they issued those loans and they are supposed to be the professionals, I don't feel sorry for any of them.  It's time to accept some responsibility here. 

Bush claims that 1.2 million people could be eligible for help but that only a fraction will be subject to the rate freeze.  So why does that not surprise me?  What fraction, 1%?  He has effectively pushed the responsibility to the lenders stating that others would get assistance in refinancing through their lenders or moving into loans secured by the FHA. 

Well the lenders have stockholders and investors to answer to, the question is do they want to take and report the losses that foreclosures would bring them or do they want to bail out the homeowners and suffer the wrath of the stockholders and investors for not performing by increasing the rates as dictated by the terms of the loans?  Those loans, complete with the terms of those loans, were purchased in good faith by investors.  When the government steps in and interferes in the investment process what are the chances that those investors will back future loans?  Are we witnessing the potential demise of the loan industry here?  The Federal Reserve is supposed to announce stronger lending standards later this month.  HUD and federal banking regulators are trying to improve disclosure requirements. 

The strongest part of this proposed plan will freeze introductory teaser rates on some sub-prime mortgages and would prevent the rate from jumping up for 5 years.

This offer only applies to buyers using their property as a primary residence who have not missed any payments.  It also would only apply to loans taken out between 2005 and 7/30/07 with rates scheduled to rise in 2008 and 2009. 

Bush said that Congress has not sent him a single bill to help homeowners.  Sounds like Congress understands that the money for those loans didn't materialize out of thin air.  Those loans, each and every one of them, is funded by an investor who is about to be screwed.  While the focus right now is on keeping families in their homes, lets not forget some of the basic principles here.  When you need a loan, the money has to come from somewhere. 

So where the heck was everybody when these loans were being made?  We, in the real estate industry, knew this situation was inevitable.  I personally advised many clients who wanted more home than they could afford not to move up from fixed loans into adjustable rate mortgages that they could ill afford.  These cycles keep repeating themselves.  My question is what is going to be done going into the future to stop this cycle?

My take on this is that few homeowners will actually benefit from this freeze.  Homeowners who are already in trouble have late payments, or are already behind in their payments, and are making a valiant effort to keep their homes against detrimental odds.  The rate increases they are facing inevitably will send them into short sale or foreclosure.  All this freeze will accomplish is to minimize the tremendous losses to the lenders who never should have made most of these loans in the first place.