I’ve been struggling to understand the real point of the Administration’s headline-grabbing plan to deal with subprime mortgages. Now that I’ve read the plan (thanks to Bob Lawless at Creditslips), it seems to be nothing more than a guideline for when some lenders or servicers might let some borrowers extend lower interest payments for a while before the interest jumps up later. The loan on the house stays the same, even the family owes much more than the house is now worth — a circumstance that will cut off any refinancing option and any real resolution of the problem. The plan doesn’t require any new laws or government intervention because no one is bound to anything. I can’t quite figure out what the plan accomplishes that the lenders couldn’t do without the plan–if they were in a mood to deal fairly with borrowers, acknowledge their losses, and start cleaning up the mess before it takes down the whole economy.
This is a companion discussion topic for the original entry at https://talkingpointsmemo.com/?p=1250691