Today, the U.S. Treasury Department is tapping into a $50 billion housing rescue fund in order to pay off some mortgage investors and cut monthly payments for millions of borrowers. Mortgage firms owning a small stake in second lien mortgages will receive a cash payment that will either ease or reduce the debt, and people paying the loans will get lower interest rates.
What kind of mortgages are these? Second lien mortgages were used to help some borrowers buy a house with no down payment by adding a second lien. This type of loan usually has a higher interest rate than a primary mortgage, and many people paying these loans are now struggling and will benefit from lower rates. According to a department official, "The second lien holder, as is appropriate in the junior position, is taking more of a reduction in interest rate . . . The interest rate will go at least as low as the interest rate on the first and it will (fall) much further to get there."
My question is, will this plan reward the bad decisions previously made by the mortgage companies? These second lien loans were risky, and I am guessing that the lenders knew they were risky -- so is this plan just a way of helping out the companies that made bad decisions? I am not sure how many Americans have these second lien mortgages, but is it more than those that have a more traditional plan? If not, then only a handful of Americans will benefit from this plan. According to a CNNMoney article, the announcement builds on President Obama's housing rescue plan (announced in February) that helps to reduce the cost of homeownership for up to nine million borrowers.
Simple math (using the Census Bureau's U.S. population statistic of 306,308,833) tells me that this is a massive three percent of the population. Perhaps it is time to buy that "Honk if I am paying your mortgage" bumper sticker that my brother suggested. It seems that we are being led to believe that this administration is helping a larger percentage of homeowners than it really is. Please don't get me wrong, I am not angry at the homeowners. If you were offered a home with no down payment, what would you have done? My issues lie with the mortgage firms who engaged in predatory lending, and are now being bailed out by the government. This is the government helping out the companies that made bad lending decisions.
To be fair, the government is going to try and take steps to help more homeowners in danger of default. In addition, second lien loans were a major stumbling block for officials and lawmakers -- so now one hurdle has been cleared. But the question of fairness remains.
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