CNN is reporting that there will soon be an agreement to help thousands of homeowners avoid mortgage defaults by temporarily freezing interest rates.
Paulson told a national housing conference that this effort involved a “pragmatic response” to current realities as the economy goes through the worst housing slump in more than two decades. The number of homeowners struggling to meet higher payments because their initial introductory rates are resetting is currently soaring.
Why didn’t anyone see this coming? The biggest housing boom in history is now being followed by the ‘worst housing slump in more than two decades.‘
“We are working aggressively and quickly, utilizing available tools and creating new ones, to help financially responsible but struggling homeowners,” Paulson said in a speech to a national housing conference sponsored by the Office of Thrift Supervision.
A financially responsible person shouldn’t be a “struggling homeowner”. There are exceptions, however in most cases a financially responsible individual knows better than to take a mortgage that he can’t pay off. Don’t buy what you can’t afford, and don’t pay ridiculous asking prices just to ‘get in the market before it’s too late.’
- Q: “But what about the financially responsible individual with an interest only loan, who is now stuck with rising rates?”
- A: That’s the risk you take when you get an adjustable rate loan. A financially responsible individual should have enough sense to consider that risk when making a decision.
Will a Fed interest rate freeze cut really save the housing market? The short answer is no, with the reason being that banks are worried with under-performing mortgage backed securities, and they need to charge a premium on the rates they’re offering to mitigate their risk.