Mortgage help from "W"
BUSH ANNOUNCES FIVE-YEAR FREEZE
WASHINGTON (Associated Press, Real Estate Center) – President Bush announced this week plans for a five-year freeze on interest rates for subprime mortgages.
"We should not bail out lenders, real estate speculators or those who made the reckless decision to buy a home they knew they could never afford," Bush said. "But there are some responsible homeowners who could avoid foreclosure with some assistance."
Bush said 1.2 million people could be eligible for help. But only a fraction will be subject to the rate freeze. Others, he said, would get assistance in refinancing with their lenders and moving into loans secured by the Federal Housing Administration.
Dr. James Gaines, research economist with the Real Estate Center at Texas A&M University, calls the plan a noble effort to find a way to keep homeowners in their homes but says the basic premise is shaky, and the details are sketchy.
“For the most part, the homeowners and borrowers likely to benefit from the interest rate freeze are the very same people who would have the best chance of renegotiating their loans with the lender in the first place — a borrower with a relatively sound credit rating and a history of making payments who simply needs a little help to keep from going into full default,” Gaines said.
Bush’s announcement followed news from the Mortgage Bankers Association that the percentage of mortgages that started the foreclosure process during the third quarter jumped to 0.78 percent, a record high. In addition, the delinquency rate for all mortgages climbed to 5.59 percent during the third quarter, the highest since 1986.
Gaines said Texas borrowers — even subprime borrowers — are in better shape than those in the seven states dominating the delinquency and foreclosure statistics, because home prices here continue to rise, making selling or refinancing a viable alternative.
Here's a fact sheet from The White House.
posted by Peter @ 12:19 PM
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Credit 101 to bankers
Gamblers should not be allowed to work for banks. Central banks ought to institute a qualifying psychological test to bar people with gambling tendencies from wheeling and dealing in shareholders equity and customers deposits. Until that happens, a code of common sense lending might help.
In December 1863, Hugh McCulloch, then Comptroller of the Currency of the United States and later Secretary of the Treasury, addressed a letter to all national banks. Here are some of the paragraphs.
“Let no loans be made that are not secured beyond a reasonable contingency. Do nothing to foster and encourage speculation. Give facilities only to legitimate and prudent transactions. Never renew a note or bill merely because you may not know where to place the money with equal advantage if the paper is paid.
“Distribute your loans rather than concentrate them in a few hands. Large loans to a single individual or firm, although sometimes proper and necessary, are generally injudicious, and frequently unsafe. Large borrowers are apt to control the bank; and when this is the relation between a bank and its customers, it is not difficult to decide which in the end will suffer.
“If you doubt the propriety of discounting an offering, give the bank the benefit of the doubt and decline it; never make a discount if you doubt the propriety of doing so. If you have reasons to distrust the integrity of a customer, close his account. Never deal with a rascal under the impression that you can prevent him from cheating you. The risk in such cases is greater than the profit.
“Pay your officers such salaries as will enable them to live comfortably and respectably without stealing; and require of them their entire services. If an officer lives beyond his income, dismiss him; even if his excess of expenditures can be explained consistently with his integrity, still dismiss him. Extravagance, if not a crime, very naturally leads to crime.
“The capital of a bank should be reality, not a fiction; and it should be owned by those who have money to lend, and not by borrowers.
“Pursue a straightforward, upright, legitimate banking business. ‘Splendid financing’ is not legitimate banking, and ‘splendid financiers’ in banking are generally either humbugs or rascals.”
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