Will the Bush administration's freeze really help resolve the country's home mortgage meltdown?

There are five reasons to worry about the U.S. Treasury Department's plan, developed with private financial institutions, that would lock in current interest rates on some subprime home mortgages for five years:

» It might not solve anything. If mortgage holders barely can make their payments now, this probably would just postpone eventual foreclosures.

» It's an issue of fairness. The Bush plan helps borrowers with risky credit histories who obtained loans they couldn't afford. Those who have maintained good credit records but are struggling to keep up with escalating payments don't qualify. They still would have to refinance their loans.

» It addresses only part of the problem. Eligibility issues involving the bailout likely will lead to lawsuits.

» It's disingenuous and will have negligible impact. The Bush plan, announced on Dec. 6, is too little, too late. While 800,000 foreclosures were initiated during the second half of this year, only an estimated 250,000 of those loans will qualify for the interest rate freeze.

» It's being motivated by the concerns of mortgage service companies, which bundle loans and sell them to investors. They're hesitant to modify at-risk loans because they could be sued for breach of contract by the investors, many of whom are foreign.

Government intervention in the housing market - however necessary it might be in such a calamitous situation - has become politically expedient as the 2008 presidential campaign unfolds.

Leaders of both major political parties want to act like they're doing something to help as the mortgage crisis threatens the stability of the U.S. economy.

Sen. Hillary Clinton, D-N.Y., a leading presidential candidate, has proposed a more aggressive intervention that would include a 90-day moratorium on all housing foreclosures.

Government efforts to reverse the meltdown have less to do with actually keeping people in their homes than protecting U.S. banks and lending institutions, many of whom helped create the problem and enable the process.

Lending, appraisal, real estate fraud and predatory practices also might become the targets of federal prosecution.

Regulatory oversight of the home mortgage industry must be strengthened.

However, once the government starts interfering in the terms of private home mortgage contracts, it could end up rewarding badly flawed or predatory lending instead of allowing appropriate free-market forces to deal out suitable punishments.

Free-market adjustments shouldn't be negated by government bailouts, however seemingly expedient or well-intentioned.

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source: recordnet.com