Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Minyan Mailbag: Another Adverse Impact of the Planned Rate Freeze


The freeze on rates will also affect those lower-to-middle income households who might still actually want to buy a house one day.



Regarding your discussion in today's Five Things of the plan to freeze rates on certain subprime loans, yes, it is true that the investors holding the mortgage backed securities will get screwed. Another class who will be adversely impacted (okay, your word is better) by this are those lower-to-middle income households who might still actually want to buy a house one day.

To the extent that freezing rates does keep people in their homes, it either prevents or at least limits the price correction that is badly needed to restore affordability to the levels that prevailed before the housing boom began. With a higher threshold for down payments and tighter mortgage lending standards in general, what will be artificially high prices will make it that much harder for such households to purchase homes. (This of course leaves aside the whole issue that, to the extent that house prices have already fallen, it is likely that a large share of those homeowners who do have their interest rates frozen will continue to struggle to pay for an asset that is worth less than what they owe on it.)

Combine this plan with other proposed legislation, such as eliminating early payment penalties, raising the legal threshold for foreclosures, and holding purchasers of mortgage backed securities liable for the actions of the mortgage brokers, and what you've basically done is dry up the secondary market, which in turn means even fewer funds for mortgage originations, which again will be felt the most by lower-to-middle income households.

I summed this up yesterday in my release on the home sales data by saying that the policy makers have "evolved" from being blind, i.e., somehow managing to miss the worst of the mortgage lending excesses while they were going on, to simply being shortsighted, i.e., being unable to understand the impact of today's policy changes on tomorrow's home sales. Not clear which is worse.

Richard Moody
Chief Economist/Director of Research
Mission Residential

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos