I try to keep politics away from this site, but reading this editorial on Hillary Clinton’s plans for fixing the forclosure problem made my skin crawl. Populist idea’s that will save a small part of the population tend to punish everyone else. That is the law of unintended consequences.
Well Hillary’s plan is so dangerous that the pro Clinton Fortune Magazine wrote this editorial.
I have a plan – a moratorium on foreclosures for 90 days [and] freezing interest rates for five years, which I think we should do immediately,” Clinton announced at what was the last Democratic debate before the Nevada Caucus on Jan. 19. A 90-day moratorium on foreclosures would throw a lifeline to some deserving homeowners, though I suspect it would only delay the inevitable for most. That’s not my beef.
Where Clinton goes awry is her proposal to freeze mortgage rates for five years, which is essentially a much broader version of a deal President Bush recently hammered out with lenders to assist some subprime borrowers. If Clinton’s only goal were to bail out homeowners facing steep rate resets on adjustable mortgages, her plan would work just fine.
For everyone else though, such a freeze would be disastrous. Interest rates on new mortgages would skyrocket – perhaps past 8 percent, as the mutual funds, pension funds and other investors who typically provide capital to the mortgage market shift their money into other investments where the government isn’t impairing returns. With higher mortgage rates eroding buying power, the downward pressure on home prices would only increase. Lower home prices would lead to even more defaults, as more folks who’d lost the equity in their homes choose to walk away from their mortgages.