So last night on ABC Nightly News, they had a family that was going to lose their home. Apparently they had gotten a new home with zero money down. The introductory rate was 9% a year, and had gone up every 6 months as it was allowed, and was now 14% a year.
They had struggled and worked to make every payment but were about to fall behind. Their lender wouldn't refinance or freeze their rate (their lender was "Countrysomething" but not CountryWide.) The lender had not responded to their last 4 letters or to calls to talk about the loan. If there were problems, the lender was going to foreclose. They had paid these rate hikes for like 2 1/2 years, and were now getting late.
ABC News called and the lender agreed to refinance at 7% - where the lender made money and where this family was more than able to make all the payments. Ta Da! Everyone happy, no one foreclosed,.
But, as ABC noted, this wouldn't have happened if ABC News didn't call. And the ABC News "investment experts" explained that they would have told the family - without a new loan the family should default. As the house wasn't worth the mortgage and they were essentially over paying rent. (Their words.)
But the family didn't want to default, they loved the house and are happy to pay 7% (would have agreed to 9% easily). And this wasn't a mansion. It was a $140,000 house and they have 3 teenage boys. One of which dropped out of Junior College to help with the bills.
So here's the rub in my brain. I don't want people to lose their homes, but I don't want the government to bail out greedy banks who are forcing this issue either. And, by government in the previous sentence, I mean tax dollars. And yes, I know the irony that I work for a greedy bank.
It seems to me that the proposed government bailouts that have been floated have the rates frozen in place with government guarantees to pay them back. That would have frozen this couple at 14%. They either barely make the payments (which were about $2,100 at 14%) or the government pays - and by "government I mean you and I . However the fix of a refi at 7% dropped the payment to $1,300 a month. They make the payments, the kid goes back to school. The bank borrows the money from the fed at 3.75% and lends it at 7%. Everyone makes out.
Those people who were paying 14% were getting fleeced. What "benchmark" loan rate would continue to rise 1% every 6 months to 14% now? What was it tied to? And I understand that banks would rather foreclose on a middling percentage of expensive loans instead of having to freeze or refinance all expensive loans - and lose lose some vast profits in the process . But it seems wrong to me.
I don't want a "fix" that is a handout of my money to banks and a screwing of the people in trouble.