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news updated: 02/04/2008 |
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Government Involvement and The Sub Prime Mortgage Crisis |
Article Details |
The Bush administration is working with major US financial organizations to come out with a plan to temporarily freeze interest rates on the troubled sub prime mortgage market. If enacted, the plan might provide a temporarily relief to both the troubled US mortgage sector and homeowners facing foreclosures.
This is a great departure from the administration’s market-oriented philosophy, which typically opposes any type of government meddling with markets. However, hard times require drastic measures, and today few administration officials can deny the now all-familiar mortgage trend: fewer home sales, falling prices, and higher foreclosures. The “necessary evil” is now the savior of the world.
So for now the negotiations continue around the clock, and the plan could be announced as early as next week. If an agreement is reached, this will be the biggest commitment yet by the White House to tackle the strengthening mortgage problem.
Even though the federal government can’t force mortgage companies to reduce their mortgage rates, it’s in their best interest to do so; Treasury Secretary Henry Paulson has been quoted as saying.
The only potential set back could have come from investors, who typically hold securities backed by mortgages. If interest rates are held down, they might lose the potential benefits of higher payment profits. However, with the prospect of a housing market bubble crash, their options are narrowing drastically. Nobody really likes foreclosures as most parties will lose money.
It’s not a choice of corporate social responsibility or an example of business altruism what we’ll see next. All actions and business decisions are taken in the name of self-preservation.
The reality has also struck the average homeowner too. The money they have invested in their homes, called equity, is now vanishing. Those who bought a home as an investment and now trying desperately to sell them. As part of the American dream, home ownership at one time used to be the single biggest investment the average person could ever make. Now current markets conditions make it almost impossible to sell what is left of their once-called dream homes.
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