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Freezing Adjustable Rates is Like Rent Control: A Disaster Waiting to Happen

By
Mortgage and Lending with Platinum Home Mortgage Company NMLS #238304

 Hey, I have an idea. Let's freeze all those adjustable rate mortgages for seven years at those low rates we had 2 years ago. Don't you agree those people "deserve" to keep their lower payment? Don't you think the lending industry somehow stuck it to those poor souls and "deserves" to be punished? Wouldn't the whole world just be a nicer place if we made this whole mortgage mess JUST GO AWAY?

Well, that's what the politicians want you to believe, anyway. Let's tinker until we get it right. Why wait for the free market to take care of things? People are suffering!

If you want to know the answer to this question, just look at any area that has ever tried RENT CONTROL. You know, that's when the GOVERNMENT sticks its nose into the business of being a landlord because those poor tenants "deserve" not to have any rent increases.

Does rent control work? No. Here in Northern California, several of our cities have rent control. In every case, it has been a disaster. Why can't we just admit that "price fixing" in any format, for any commodity completely convolutes a free market economy?  (but it sure sounds good when spewed out as a solution when those that are "deserving" are forced to pay higher prices, now doesn't it?)

What happens with rent control will happen if we freeze adjustable rates. It should be obvious to all that people with frozen rents/rates ARE JUST NOT GOING TO MOVE. Do you think this helps or hurts the economy?

In the case of rent control, apartments are passed on for years among friends and relatives, illegally I might add (since landlord can raise rent when the original tenant on lease moves out). When rents are $2000 a month, there is still a 35 year old paying $650 for his college apartment, and using it as a party place. Why not?

Investors who buy rental properties don't buy in that city. Why would they, when their costs to operate are not frozen while their ability to raise the rent is?

Net result?

  1. Rent in the area soars, because those coming in new to the market must subsidize those who are already there paying lower rents that have been frozen (landlord charges a higher rent to make up for the lower rents that are frozen in the building)
  2. Investors flee and are no longer providing new rental units (thus creating an ever greater shortgage of housing)
  3. Landlords who are stuck with rent control units must let repairs go undone, and the properties in the area deteriorate.
  4. Those that have the unfair advantage find ways to use it (abuse it?) in ways that go against the original intent
  5. Those who rent are perhaps hurt the most. By paying an artificially low rate on a property owned by someone else, they are deferring the price hike they will eventually pay for housing. Do you think they are using this advantage to SAVE money?

Okay, back to my idea. If adjustable rate payments are frozen, there will definitely be fewer foreclosures. But will this solve the mortgage crisis, prolong it, or simply create another set of problems?

  1. What will lenders do to compensate for this huge loss? Could they raise prices (rates) to the rest of us?
  2. What will this do to the prices of real estate? Will it drop further as a result of the huge number of buyers who will simply NOT MOVE?
  3. What kind of statement does this make to the Americans who paid more for the fixed rate mortgage? Who adjusted their lives and paid to refinance into a fixed rate? Should those who took responsibility subsidize those who did not?
  4. And what becomes of those who "deserved" to have that frozen rate when that old adjustable thaws out and they must finally pay the REAL PRICE? Have we helped them?
  5. And what about the carnage in the real estate industry? Is Brian Brady's prediction true? Will half of us be gone next year because PRICE FIXING has created a stagnant market, both in real estate AND mortgage lending?

What do you think?

 

 

 

 

 

 

 

 

Brad Andersohn
Retired Executive Director of Education at eXp - Boulder Creek, CA
ActiveBrad - 707.646.1876
So where did Ruthmarie go?  I was really getting into this thread!  Is she coming back?  Is there a part duex?  Did we break for station identification here? ROFL!   Please don't leave me hanging now! OMG!!  :-O
Dec 04, 2007 11:05 AM
R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

Janet, I just wrote a post criticizing Secretary of the Treasury, Henry Paulson's so called plan.  I did, however, offer a rescue plan that operates in a free market environment.... drop me a note and if you give me permission, I'll edit my comment and post the link.

 

Bob Mitchell

ValueList Real Estate Services, Inc. 

Dec 04, 2007 03:34 PM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

I don't like to advertise my own blogs on another forum...but I'll put the link here  in case you thought I just disappeared...

http://activerain.com/blogsview/297039/Laissez-Faire-Economic-Policy

Dec 05, 2007 07:21 AM
Joey Remondino
RE/MAX Preferred Properties - Vienna, VA
Broker, GRI, E-Pro
The Market needs to work it out on its own without any hands in it.  Will anyone learn a lesson?
Dec 05, 2007 07:25 AM
R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

Hi Janet, thanks for getting back to me.  Here's the link that I promised about my problems with Secretary of the Treasury Paulson's "plan". My post, "I'm Here From The Government And I'm Here To Help You", explains how Secretary Paulson's plan is going to turn into a feeding frenzy at the government tit for the big Wall Street Institutions.  It also outlines a "market based" solution on to how we can work our way out of this mess in the most efficient way possible without it turning into a  welfare for the rich scheme.

Let me know what you think.

 

Bob Mitchell

ValueList Real Estate Services, Inc. 

Dec 05, 2007 08:14 AM
Jim Lee, REALTOR, CRS, ABR
RE/MAX Shoreline - Portsmouth, NH
Buying or Selling? Ann & Jim are the local experts
A rate freeze won't solve the problem but it will defer it until the next administration takes over. ;->
Dec 05, 2007 08:35 AM
Kerry Jenkins
Prime Properties - Crestline, CA

When I first became a Realtor in early 05, I kept wondering how people were affording a $3000/month and up payment for a huge home in my area that I lived in(Riverside county, Temecula/Murrieta,Menifee). I didn't understand how anyone would want to pay that much for these types of homes. Now I understand that they were reaching to the edge of what they could afford, or beyond.

Dec 07, 2007 05:15 AM
Karen Kruschka
RE/MAX Executives - Woodbridge, VA
- "My Experience Isn't Expensive - It's PRICELESS"
Janet  This whole idea is a farce to make it look like the politicians are doing something to help.  What about the more than 1 million who have already lost their home?  While I feel sorry for the folks that are about to lose their home they were not made to sign at gunpoint.  If they were misled put the misleaders "away" for awhile - it will give the others religion,  Karen Kruschka www.e-virginiarealestate.com
Dec 07, 2007 05:24 AM
Brian Brady
Matthews Capital Markets - Tampa, FL
858-699-4590

I don't like to advertise my own blogs on another forum...but I'll put the link here  in case you thought I just disappeared...

Selective manners, then?   The advertiser has made it clear that she feels morally superior to those of us who have committed our careers to this business...so why be polite about it now?

Ma'am, you need an etiquette lesson. 

 

Dec 08, 2007 07:10 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

This is all too funny...  as many have said, we need to let the market run it's own course. And not trying to jump on the band wagon, but Ruth, most that are in these comments didn't just choose the mortgage profession 2 to 5 years ago.  Just talking about 4 of the loan officers commenting in here, I know for a fact that there is over 55 years of experience here. One main thing that Janet pointed out is, as much as we don't like to see people lose their jobs in regards to the mortgage business, we need a correction. Just way too many, many of whom did not know what they were doing or were looking out for their clients best interest. 

On another note, then there was greed amongst the lenders and Wall Street, opening up 1,000's of doors to homeownership. And yes, the foreclosure numbers are running rampant, but because of some of these programs, it still gave many homeowners to chance for the American dream, homeownership.

Anyhoo.....  opinions are great, but facing the facts is a reality that not too many seem to be handling. And yes, politicians are reaching out, but more so to look good in the consumers eyes. Why do you think that some of these bailout programs won't help as many as one would think. Read the requirements and guidelines.....  sure, it will help a few, but that's about it. So who is looking out for who?  The market correction should happen on it's own.

Lastly... I just had to say this again. Ruth, if you don't like to advertise your own links here, then why do it. If anyone wants to read it, they can click onto your name, right?  Now, this sounds like the same from a consumer that has been paying their mortgage and will now say, "since the gov't is bailing out a few, I might as well not make my payments then also."   

jeff belonger
Dec 09, 2007 10:47 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender
Damn Jeff, you are just so right on. Like a velvet hammer. I really love your response here. Anyhoo (I just had to write that,...I love it!)...the controversy continues to rage. I am so encouraged that there are so many who agree to let the market correct itself. Thank you for standing up for all of us.
Dec 09, 2007 12:56 PM
Anonymous
Mike O'Riley

As a lawyer in Ohio who has handled many foreclosures from the borrower's side, what has struck me is how disorganized the lenders are and how they blindly pursue foreclosure when it would be better for both them and society to restructure their loans so that borrowers who have lost jobs or gotten a little behind can get out of default.  Certainly there are a lot of cases of individual foolishness, but it is government's job to intervene when markets fail and chaos results.  The last thing a rational lender ought to want right now is to own more real estate but the major loan servicers are not staffing their loss mitigation departments with intelligent business people who are in charge of a file from start to finish and have authority to deal.  Too often, what I encounter is a different staffer every time I call, none of whom have any authority.  There's always some unknown investor, who literally may be located in China or Switzerland and not care a bit that there are neighborhood in Cleveland with more homes in foreclosure than not, that supposedly has to approve any forebearance.  It may or may not be necessary for government to dictate a rate freeze, but there is a crying need for the adoption of regulations that force whoever actually owns each troubled loan to identify a real person who is continuously responsible for the file and has real authority to negotiate. 

Feb 11, 2008 06:54 AM
#65
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

Thank you Mike, I could not agree more. I think I will write about this because we mortgage brokers are frustrated with trying to close loans when the seller is some big bank who is not paying some listing agent enought to care about getting the property sold.

They are disorganzied!!

Feb 11, 2008 08:01 AM
Anonymous
Lin Ennis

OK, I thought I was in favor of rent control (having lived in Los Angeles a decade and a half), but you make excellent points. I'm definitely "agin" those of us who save, pay off debt, buy a home sensibly, etc., bailing out greedy investors, greedy lenders, and greedy buyers who weren't looking long-term.

Or is it stupidity that such fixes reward?

Maybe if the folks in New Orleans had deliberately breached the levees and seeded the winds and clouds that brought hurricane Katrina, New Orleans and adjacent Southern cities would all have been rebuilt by now, since it seems bringing disaster upon onesself gains more succor than does following the rules.

Apr 08, 2008 08:36 AM
#67
Anonymous
Lin Ennis

And by the way, it is adjustable rates, especially low-teaser rates , not subprime lending, that fed this debacle. Beginning a loan at 8%, if you can afford it, is not the problem. Being forced to continue it at 12% - the surprise - is the problem.

Lin Ennis, writer
<a href="http://www.letyourmortgagemakeyourich.com"><i>Let Your Mortgage Make You Rich!</i></a>

Apr 08, 2008 08:43 AM
#68
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

Lin: Good point about New Orleans. You made me laugh with that one.

I am happy you read this and have a different perspective. Rent control hurts, does not help.

Apr 08, 2008 08:48 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

Lin: I agree that it was not subprime. However, adjustable rate mortgages are not the reason either. If that was the case, we would be out of the woods. Rates that now adjust actually are going lower than the original teaser rates. If you read other things I have written you will the lethal 3. When in combo, disaster is likely:

Stated income loan, 100% financing, adjustable rate mortgage.

By the way, I object to your use of the word surprise. It was a risk the borrower assumed, and if they were "surprised" then they didn't understand or look at what they signed.

When people choose a risk they do so because they expect a reward. They got their teaser rate (reward) but want to blame someone else when the risk does not go their way.

Apr 08, 2008 08:58 AM
Pam Pugmire
Silvercreek Realty Group - Meridian, ID
Meridian Idaho Real Estate

Janet, I agree that letting the market correct itself is the only way this mess will get fixed.  Anything else is like a sliver in your finger-if allowed to stay it will just fester and get infected.  One question though.  Didn't the Federal Government already bail out many banks?  (That's what I thought all the Bear Stearns stuff was about)  I don't see how it's "fair" for the government to bail out the banks, but not the homeowners.  They should let the whole market correct itself.  The banks and the borrowers contributed to the mess. 

Jun 11, 2008 06:34 PM
Anonymous
Maxine Kilpatrick

It sounds more like a bandaid than anything.  I spent more than 2 years dealing with my adjustable rate on my mortgage.  I had over a dozen mortgage companies try to refinance me.  I found a company that helped me when I was reading another discussion forum.  www.proloanmods.com did what over a dozen loan officers couldn't.  I was at 11.125% when they started working on my loan.  I am now at 5.0% fixed for 2 years.  The terms of my mortgage say that after two years, my rate goes up to 6.5% and stayed fixed for the remaining portion of my mortgage.  I don't want to sound like a commercial or anything, but the people at Proloanmods were professional and listened to me.  My neighbor had received a foreclosure notice and I gave her the phone number for Proloanmods too.  I don't know what rate she ended up at, but I know she is no longer in foreclosure and was crying on the phone with me the other day because she is so happy that she's keeping her house now.

Aug 22, 2008 10:53 PM
#72
Jeff Stinson
Kasteel Property Management - Property Manager - Springville, UT

Good post.  The government should stay out of it.  One thing I don't understand is why people are freeking out about adjustable rates.  I've got an adjustable rate, based on the LIBOR, a common index for ARMs and my rate has adjusted down 3 times in the last 18 months.  ARM's adjust in the direction of the market and markets are down.  When someones rate starts to adjust it'll probably go down from what it was fixed at.

Why is that not talked about?

Jeff Stinson - Property Manager

www.kasteelproperty.com

 

Nov 04, 2009 05:28 AM