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It may be a little late for this, but the government and some banks want to freeze subprime rates for some lenders. For those who have already been through foreclosures, it is a lot late.
According to The Wall Street Journal, "the administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans." Among the financial institutions that will probably participate are Citigroup (NYSE: C), Washington Mutual (NYSE: WM) and Countrywide (NYSE: CFC).
The financial paper adds that "interest rates are set to reset next year on $362 billion worth of adjustable-rate subprime mortgages, according to Banc of America Securities."
Some investors in mortgage-backed vehicles don't like the plan because when interest rates are set higher, they make more money. But, at this point, it looks like the government and banks will "out-vote" them.
The idea may be good in principle, but it could be a nightmare to implement. Who will get their mortgage rates frozen? Who won't? Will the borrowers who get passed by file a class action suit to get in on the deal? Why just subprime borrowers? A lot of the people with decent credit claim to have been suckered in by adjustable-rate mortgages, which will move to much higher rates in the next two years.
Discrimination works until those discriminated against start to revolt. The idea of helping the most troubled mortgage owners may make some sense. But what about everyone else?
Douglas A. McIntyre can be reached at 247wallst.com.
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