The financial services industry applauded the administration for negotiating a plan that will allow free-market forces to operate. The hope is that the five-year freeze will buy time for the housing industry to work down record levels of unsold homes and for sales and prices to start rising again.
The financial services industry has chosen an interesting definition of "free-market forces." If they are to be believed, the free market only works when prices are rising. Obviously, all the money being spent on K Street lobbying is starting to reap dividends. Though technically this is not a tax payer-funded bailout (not yet at least), due to the amount of government intervention involved, I will chalk this up as another one of the increasing number of federal subsidy programs currently in existence.
Back in the days when one would save enough money for a 20% down payment then go down to the local bank to take out a mortgage from a loan officer who knew they were going to keep the loan in their books--and thus be motivated to do their due diligence--working to renegotiate the terms of a mortgage with a homeowner who had fallen on hard times was in the best interests of all involved. However, in the current era where mortgages are tranched up and sold off as Wall St. structured derivative products, it is hard not to view this or any other mortgage "bailout" scheme as a ruse for delaying all of the afflicted their castor oil moment.
As my friend Tony summed it up perfectly last night, "I wish I was dumb enough to have taken out a mortgage I couldn't afford."
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