Mortgage reforms: Good news or bad news?

December 11, 2007

Mortgage is still somewhat distant in my plans since I’m still renting. But I knew how my mom struggled to pay our mortgage when I was still under her care. She called me two hours after President Bush announced reforms in subprime mortgage, she almost screamed or at least that’s what she sounded like, saying that why wasn’t this done years ago.

Why only now?

His administration’s rationale was that this is a way to make the financial markets “sober” due to the crazy paranoia over credit issues. In English? They want to show that they are doing something to ease the growing worries of American mortgage payers. Let me show you the mortgage rates playing in the market right now:

Loan type

30-yr fixed –> 5.65%

15-yr fixed –> 5.25%

3/1 ARM –> 5.40%

5/1 ARM –> 5.62%

30 yr fixed jumbo –> 6.4 8%


These rates are at their all-time highs. And if the U.S. economy will continue to splurge, then these will go sky-rocket and the time may come that more than half of the mortgage payments, including me, in the future, will be late in making payments. That is not a good site, we may all be stripped off the roof above our heads.

Good news or bad news?

A welcomed change

Financial experts remarked that this move freeze the mortgage rates for subprime payers is a good step. Approximately 50,000 to 60,000 payers who are behind due to reset, will be able to do a refinancing with Federal Housing Administration (FHA) insured loans. Definitely a welcomed change because in the past, FHA does not insure refinanced loans from delinquent borrowers.

What gives?

In order to take advantage of this reform, you must be able to show documentation that your original loan was subsequently paid until the reset to the rates above and should have approximately 3% home equity. Clarifying the gray skies, the FHA will guarantee the mortgage to the banks and lenders.

Take the cap off

But critics are saying that this is just a short-sighted remedy for an acute disease. Quoting from a report from Fox News, they say that the taking off the “current cap on how many home loans mortgage giants Fannie Mae and Freddie Mac can hold in their portfolios and by lifting the current cap on the so-called jumbo loans that these two mortgage giants would be able to purchase.”

Good news, at least on the face of it

I feel that this is a good news for all of us. One of the main reasons why I am hesitant to but a house is because of the high mortgage rates.If this measure wasn’t laid out, the rates will be higher as they will reset again by the end of next year. But there should be more. The government should be able to have a stronger grip of the privately-owned home mortgage loans agencies.

Mortgage and gas are the two main things that almost all of us worry before we go to sleep at night. Hopefully, more measures will be implemented so that our hard-earned money will be enough for us to have a solid crib to go home to.