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Saturday, December 29, 2007

Hillary Brings Her Rate Freeze to Georgia

A hat tip goes to my cohort at Georgia Unfilitered for bringing this local story to my attention.

Hillary Clinton has outlined a bold plan to combat the housing crisis that is plaguing Georgia, which has the 7th -highest rate of foreclosure filings in the country, according to the latest available data.

Georgia has about 26,800 mortgages in some state of foreclosure right now, 45% of which are subprime (even though subprime composes less than 12% of all the mortgages in the state). According to reports earlier this year, Georgia has the 7th-highest rate of foreclosure filings in the country.


Nationally, more than 1.8 million foreclosure notices have been sent out this year, an increase of 74% from last year. And with the monthly payments set to rise on more than 1 million subprime loans next year, the situation is likely to worsen unless something is done. Experts now say that the foreclosure crisis is weakening the economic outlook, hurting industries from construction to autos, and making banks reluctant to lend companies the capital they need to expand and create jobs. Cities face the prospect of vacant properties marring neighborhoods, cutting tax receipts, and dragging down property values. With the decline in property values, home equity is also falling, and in the process families are losing a major source of wealth (home equity makes up 60% of the wealth of the middle class) and disposable income (in 2005, home equity withdrawals were 8% of families’ disposable income). Hillary’s three-step plan to address the foreclosure crisis includes:

Observing a foreclosure moratorium of at least 90 days on subprime, owner-occupied homes

Freezing the monthly rate on subprime adjustable rate mortgages, with the freeze lasting at least 5 years or until the mortgages have been converted into affordable, fixed-rate loans.

Providing status reports on the number of mortgages being modified.In addition, Hillary will establish a one-time $5 billion Community Support Fund to help hard-hit communities and distressed homeowners weather the foreclosure crisis.

This plan is very little different than the one she has proposed nationally...

Democratic presidential candidate Hillary Clinton called for a 90-day moratorium on foreclosures for homeowners who default on subprime mortgages.

The New York senator, is also seeking a five-year freeze on the monthly rate for subprime adjustable mortgages and a requirement that the industry report how many mortgages have been modified. In a letter to Treasury Secretary Hank Paulson, Clinton said she may consider legislation to protect lenders from lawsuits and let them convert certain mortgages into ``stable, affordable loans.''...

Clinton also proposed a fund of as much as $5 billion to help communities suffering from high rates of foreclosures. The moratorium on foreclosures would be at least 90 days and only apply to owner-occupied homes.

First off, we should all be weary of any national politician that isolates one region and develops a bailout for them. It is one thing for the President to declare a state of emergency, however once Presidential candidates come up with financial bailouts isolated to certain geographic areas, they have begun to use power they should not be using.

That said everything I said before about the faults of the plan apply today...

It seems that Hillary Clinton has forgotten several simple business rules. The first rule is that contracts have stipulations and each party must meet their end of the contract or face consequences (no matter how sympathetic each party is). ...

Despite what Hillary Clinton believes, changing any contract in a wholesale manner, as she wants with mortgages, is neither good policy, nor good for the economy. Banks paid out hundreds of thousands of dollars up front with the intention of receiving that money back one month at a time. If that money wasn't received, the banks would take the collateral, the property


Second, Hillary Clinton wants to freeze ARM's (Adjustable Rate Mortgages). This is ludicrous. The reason that any loan has the rate that it has is ALL the factors that went into that loan, including the fact that the rate on that loan would move later. (In other words an ARM almost always has a lower rate than a fixed rate everything else being equal) Hillary Clinton wants to freeze rates even though banks offered a lower rate with the intention of having that rate move in a future period.


Finally, and here is the worst part, the people that Hillary wants to save from foreclosure, for 90 days at least, are almost entirely in over their heads. They bought property they simply can't afford. I don't care if her moratorium is 900 days, this dynamic isn't going to change. If you can only afford a home that is 200K and you buy one for 250k, no moratorium is going to save you from yourself.

This plan is no better for the state of Georgia than it is for America...

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