Fed to Unveil Mortgage Help Plan with Six US Mortgage Lenders: Finance Trading Times

Fed to Unveil Mortgage Help Plan with Six US Mortgage Lenders

The mortgage markets in US are on the verge of a complete collapse. Due to the subprime mortgage crisis, the home prices are falling, so even some people with good credit ratings are having tough times as they have been left behind on their mortgage payments. Similar to many subprime mortgage borrowers, these people with good credit ratings signed up for adjustable-rate mortgages that allowed them to make smaller initial payments for first few years and later a fluctuating interest rate. Unfortunately, the “later part” that has come in now, is having a HIGH and fluctuating interest rates, which are translating into a higher repayment each month for the mortgage.

Some other “smart” borrowers borrowed mortgage loans against their rising share holding - believing that they will be able to keep up with the mortgage repayments with the “ever rising” shares prices before the higher payments began. Even in the worst case, they had assumed that the prices of the house they have bought will be sufficient enough for repaying the mortgage. But as prices have plummeted, many homeowners now owe more than their home is worth, and banks have tightened their lending practices, leaving even people with good credit ratings struggling with higher payments.

This is what happens when we thing that the entire picture is looking very rosy and goody-goody, so let’s dive in. Everyone else is taking a loan, so should I. Everyone else is buying a house, so should I. My salary will continue forever, I work for MNC.

Highly costly assumptions – leading to tremendous debacles.

“You don’t mind making a $2,000 payment when the house is going up” in value, said Steve Walsh, a mortgage broker in Scottsdale, Arizona, who has seen several clients walk away from their homes because they couldn’t refinance or sell. “When it’s going down, it becomes a weight around your neck, it becomes an anchor.”

Fortunately, the government in US is working on this issue. Just yesterday, it had declared a Tax Rebate or Tax Refund. The Hope Now alliance, which includes lenders, investors and nonprofit groups, has helped around 8 percent of subprime borrowers in the last 2 quarters of 2007 — more than its original estimate. Bank of America, Citigroup, Countrywide Financial, JPMorgan Chase, Washington Mutual and Wells Fargo, which form the Hope New Alliance are expected to announce on Tuesday at the Treasury Department that they will offer both prime and subprime borrowers who are more than three months behind a chance to halt foreclosure proceedings for 30 days and work out new loan terms. The same is cited under the name “Project Lifeline”, where the above mentioned six US banks are willing to help possible mortgage defaulters.

I wonder if something similar collapses in India – what will happen?
Will the Left backed Indian government running on the support of so many parties come to the rescue of its citizens? Table of Contents
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1 Comment: Post your Comments

Anonymous said...(on 12 February 2008 at 09:03 )  

Shobhit,
Well written article.
I live in Boston and has observed that US government and officials REALLY do work for the sake of the citizens.
In this year alone, they have already done the tax cutes (going to do so again in this week), the Help Plan by Feds, the stimulus package to help the individuals with certain level of AGI etc.

On the top of that, I just read the news about Billionaire Warren Buffet coming to the rescue of US economy by offering re-insruance to $800 billion municipal Bonds.
Kindly go through this blog
http://stanleybing.blogs.fortune.cnn.com/2008/02/12/thanks-mr-buffett/

After his declaration on the TV Channel, the Dow Jones is 190 points up, Nasdaq is 22 points up.
This shows that americans really care for their country and when in times of crisis, they really stand tall and lend a helping hand in the best possible ways to bring the things to normalcy.
Most of the richest US persons do some charity, philanthropist work to help the society/country.

I wonder as how many richest Indian persons would help/lend support/help/capital to even think which can prove beneficial to the society? As far as my memory serves me, I found none!(I could be wrong too).

I really feel ashamed sometimes when I think that as an Indian, none of the persons with huge capital assets and financial powers, ever came out and tried to help resolve the urgency.

As far as current government goes, I have 100% faith that they won't even bulge from their seats in the time of crisis. The best example was the stock market crash in January, when Mr. Honorable Finance Minister didn't even came out of his office till 3 PM and that too after protests from stock investors.
After such experiences, one can only hope and pray that these kind of crisis don't ever happen in India.

rgds,
Mital

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