Friday, August 31, 2007

Bush Announces Subprime Loan Relief, Bernanke Sort Of Announces a Rate Cut

President Bush today announced a plan to give homeowners with mounting mortgage debt a chance to refinance their adjustable rate, subprime loans. Estimates are that 80,000 homeowners would be helped by this program.

An hour before the President's speech, Fed Chairman Ben Bernanke spoke in Jackson Hole, Wyoming. He said, "Obviously, if current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the rest of the economy" and "We are following these developments closely." In Fed-speak, this almost certainly means a rate cut is coming at the Sept 18 meeting.

The web & traditional media is chock-full of commentary about this issue already. My take? Bush & Bernanke put a Band-Aid on a gunshot wound.band aid

Today's plan lets 80,000 homeowners refinance under expanded FHA lending rules, provided they have good credit and at least 3% equity in their homes. The plan begins in early 2008. What's not good about that, right?

But, it's commonly thought that 2 million people might be in trouble in the coming 12-18 months due to a softening housing market (read, "falling prices") and re-setting adjustable rate mortgages (read, "your payment's going waaaaaay up").

The people really hurting in this mess are those who (1) can't afford their payments post rate-reset, and (2) live in a house that's not worth what they owe on it because local housing values dropped. To put salt in the wound, these folks often ruined their credit by missing payments.

And the President's plan leaves 1.9 million of them out in the cold. 

One hopes that the talking heads on tonight's news are right when they say that more relief is likely to come in months ahead.