Subprime Bailout? Not!

In the deal President Bush’s team brokered with the mortgage lenders, to qualify according to the Mortgage Bankers Assoc:

- Borrowers must live in their homes and be deemed as not able to afford their payment as they begin to rise

- Have less than 3% equity in their homes

- Have taken out subprime ARMs between 1/05 and 6/07

It reports that almost 16% of subprime borrowers were at least one payment behind (30 days) in the first quarter of quarter of ’07. Few if any will qualify for the plan.

THERE IS NO GOVERNMENT BAIL-OUT!  The lenders making these bad lending decisions are the ones carrying the brunt. None of us as taxpayers will be paying a dime of this, including seeing any increases in interest rates. In fact, we’ve recently seen drops in the lending rate to 2-year lows. Banks aren’t going up on rates to responsible borrowers.

The meltdown in the mortgage market made many major lenders pull back from making subprime mortgage loans, which in turn helped send home sales, prices and new construction sharply lower, raising the risk of a recession. Countrywide Financial, the nation's largest mortgage lender, was one of the banks to pull back from making subprime loans.

In addition to the effect on homeowners and mortgage lenders, many of the top firms on Wall Street, including No. 1 bank Citigroup and No. 1 brokerage firm Merrill Lynch, have been hit by the mortgage meltdown. Both took billions in writedowns from subprime losses as their chief executives were forced to resign.

The two government-sponsored mortgage finance firms, Fannie Mae and Freddie Mac, have also both been hit with losses from problems in the mortgage market that have left them scrambling to raise cash.

So let me clear this up: we’ve got a bunch of “really intelligent folks” making highly speculative risky investment decisions by making mortgage loans to broke people at high interest rates, now taking a bath in their own dirty water. Sounds like credit card companies who’ve been moaning for years for the same reasons, doesn’t it?

Absolutely, there are issues out there affecting thousands of home-owners and I know they’re hurting and feel badly for them, but I think it’s been dramatically overstated. 

Let me walk you through why I believe this to help you understand.

The Mortgage Bankers Assoc reports that almost 80% of all mortgages are regular, traditional mortgages, not subprime, and therefore not affected by any of this. Subprime loans make up about 15% of all mortgages, and subprime adjustable mortgages make up about half of all the subprime loans. 

They also tell us that 15.75% of the adjustable subprime mortgages are 30 days or more behind. Keep in mind that it takes about 6 months of no payments to be foreclosed on.

If we understand that only the subprime ARMs are the ones getting all the headlines and supposedly causing our economy to begin crashing down upon us, then we have to realize that only 15.75% of the adjustable subprime loans are involved. Keep in mind that only 7.5% of all mortgages are subprime adjustable rate mortgages. If we take 15.75% that are at least 30 days late of 7.5% of all mortgages we get 1.18% of all mortgage loans in the US. 

1.18% of all the mortgages in America are adjustable rate, subprime mortgages 30 days or more behind. And all of these are not in foreclosure yet since that takes about 6 months to happen. 

Foreclosures are reaching record highs. Let me help you understand what that means.

The Mortgage Bankers Association reported that 0.78 percent of all mortgages entered the foreclosure process in the three months ended Sept. 30. Homeowners entering foreclosure brought the total percentage of loans in the foreclosure process to a record high of 1.69 percent.

So, less than 2% of all mortgage loans in the US are the reason for the meltdown.  And they're are primarily concentrated in California and Florida.  Go figure ...

Homeowners who are more than 30 days late in their payment, or who were 60 days or more late during the last 12 months would not be eligible for help under the plan. Consumer advocates said the administration's plan would provide only limited help for the problem, but that it's a step in the right direction.

So only 1.2% of all loans made in America are being addressed here, and less than 1% of all loans are actually in foreclosure due to the subprime screw-up. 97.4% of mortgages made to borrowers with good credit are current. Translation: 2.6% of traditional mortgages are in trouble. Yes, that’s a little higher than normal but only slightly. 85% of subprime borrowers are on time. 

Chicken Little is banging at the door. The sky is not falling. This not going to cost taxpayers a penny.

The government isn’t responsible for saving our butts whenever we do dumb stuff, nor should they. That’s up to you and I. The less government in our lives the better.

Headlines will change whenever folks find something better to worry about. It won’t take long. It’s always been that way and it’s not changing anytime soon.

Live on less than you make. Don’t try to borrow your way out of debt or into a better lifestyle. Clean up your own mess and amazingly the sun begins to shine again!

Get and keep your ducks in line. After all, they’re cuter than chickens anyway.