Links and Minifeatures 12 06 Thursday

Carnival of Debt Management

Rate Freeze agreement reached

The Bush administration has developed a plan to freeze interest rates for five years for thousands of strapped homeowners whose mortgages were scheduled to rise in the coming months.

The proposal was developed in negotiations led by Treasury Secretary Henry Paulson with the mortgage industry. It would freeze introductory "teaser" rates on subprime mortgages, preventing them from resetting to higher rates for five years.

This is a good plan, and about as far as I think the government should go - a voluntary agreement with lenders that gives those lenders public cover for doing something en masse that they were going to have to do for basically all of the people it covers individually.

For negative amortization loans, it's no help. The real rates on those were always in the sevens or higher, so people who fooled themselves into thinking they had 1% loans, or whatever it was the lender dangled out there to make the low payment look legit, have no affordability objection coming. They might have a legal objection for fraud, but that's another story. People who got those were fooling themselves from the start.

For those people who got something with at least an introductory fixed rate they could handle, it will give them up to five years of breathing room, at levels they could afford - and we're talking interest rates, the real cost of the money they've borrowed, not nominal payments. Furthermore, five years of breathing room translates into plenty of time for the markets to recover, so at that point in time, they are not likely to be upside down on their mortgage, which means they'll likely be able to refinance or sell for a profit.

For the lenders and investors, they are making money now, at the rates people have been paying. As I said on Monday, it has become obvious that if they insist upon getting the higher rates and payments, they'll end up with defaults and losses. This allows them to behave as if they did people a favor.

Finally, it doesn't cost people who didn't sign up for mortgages they couldn't afford didn't any money. The federal government doesn't get money from thin air, and a bailout would cost the people who didn't make stupid, avoidable mistakes large amounts of money.

And for those who were using "a coming tidal wave of foreclosures" for thinking real estate markets are going to decline further, I think you need to seriously re-evaluate your position.

Today would have been my father's birthday, were he still with us.

I'm planning to take the family to the Zoo on Saturday, agent or not. My brother and I spent a lot of days there with my father, so it's a good place to go to remember him, even if we can't feed the elephants any longer.

This also gives my girls a place to have memories of us, for when we're no longer around. It will happen, eventually. One generation into another, the activities and time we spend together and the way we treat others - that's what really sticks with kids, not the teddy bear or Game Console or computer we give them for Christmas or their birthday. By this standard, I'm wealthier than a lot of billionaire's kids, and will try to make certain my girls are just as well provided for.