Mortgage Rescue: Hope for Sinking Borrowers

Dec 6th, 2007 @ 4:41 AM by MortgageMentor

Today we’ll find out what is in store for the mortgage industry according to the President. There is a plan, an agreement made by the Bush administration in conjunction with the mortgage industry that will limit changes in borrowers’ rate increases. If they are not able to afford the increase, the payments can be frozen at today’s level for five years. Most politicians agree with this freeze, as they say it will help keep foreclosures down over the next couple of years.

Detractors say that there are two problems with the plan. First, it does nothing for the mortgagees who are already behind on payments. these people are just out of luck they will simply have to find their own way out of the mess. It also does not help people who lenders determine can afford the higher payment. These borrowers in a certain sense are being penalized; because they are more responsible and have higher credit scores, they are less likely to qualify for the freeze.

The other problem is that this is only a temporary reprieve. It buys the borrowers some time, but it does not give them a plan for change. Changing the way that people spend, save, and budget is probably a better key to solving the crisis than anything the government or lenders could do. If borrowers had seen the risk associated with their loans instead of wearing rose-colored glasses, they might not have gotten into this mess in the first place. Who’s to say that, with their payment frozen for five years, they will make any changes that cause them to be in a better position to pay the higher rates at the end of the term?

At the end of the day, bailing consumers out is good — but only if those consumers become better buyers through awareness, education, and careful spending.