Tackling the Sub-Prime Mortgage Crisis

The Bush administration this week announced a plan for tackling the growing mess in the financial industry and the US housing market in particular. The foreclosure relief plan claims to bring relief to about 1.2 million troubled home owners by putting a freeze on their interest rate for five years.
On the surface this seems like a good idea and the right thing to do. But this plan comes with a lot of caveats attached. The plan applies only to loans taken out between 2005 and July 31, 2007, and are scheduled for rate boosts between January 1, 2008 and July 31, 2010. Also the home owners must be current on their payments. But the most important caveat is that participation from the lenders is voluntary and not mandatory. Also according to analysis by The Center for Responsible Lending, a group that promotes homeownership and works to curb predatory lending, estimates that only 145,000 households will qualify for the rate freeze. In addition there is the issue of investors. Since these mortgages were repackaged and sold to investors, getting the investors to accept a lower return on their investment would be a challenge.
These are some of the issues and concerns that this plan raises. As we move forward, other issues will crop up and will need to addressed. Though the plan could have been stronger, it is definitely a start at providing relief to some if not all the affected people. And that is a good thing.