Financial Analyst says Bush Mortgage Proposal is “Subprime”

Daytona Beach, FL – December 7, 2007 – Jim Paris, author of over 20 books on personal finance and the Editor-in-Chief of Christian Money.com, says that the plan announced today by President Bush to help struggling homeowners is no plan at all. “Frankly, this proposal is a waste of time. It represents the classic case of politicians wanting to do just enough to be able to say they’re doing something, without doing what is really required for fear it will be unpopular. What is needed here is a decision to either do nothing, and let the natural market forces take their toll, or do a LOT more than that which is being proposed in order to make a real difference.”

The centerpiece of the plan is the freezing of interest rate increases on adjustable rate mortgages for a period of five years. However, many people, including Paris, are critical of the plan’s terms that would exclude large numbers of homeowners from program eligibility. Says Paris, “This plan is fraught with problems. First of all, the plan excludes borrowers who have a credit score of 660 or above. Why? People with good credit scores are no less at risk from rate resets than those with lower scores. The ability to handle a higher payment is rooted in income, and there are lots of people with great credit who have modest incomes. Why are they excluded?”

Another problem, according to Paris, is that the plan excludes investment properties. “Many Americans have, for years, been investing in real estate as a means to help finance their retirements and simultaneously provide a place to live for people aspiring to become homeowners themselves one day. By excluding investors, you run the risk of unnecessarily jeopardizing the security of large numbers of individual investment portfolios, as well as risking putting countless numbers of existing renters on the street.” How big is the foreclosure problem within the real estate investment community? Replies Paris, “More than half of the increase we’re seeing in foreclosures now is related to investment properties. That’s huge.”

According to Paris, there are other problems, as well, including the fact that the program excludes people who have already fallen behind on their payments. “If we’re not going to be able to help those folks who are, as we speak, on the verge of foreclosure, then what are we doing? For any program like this to have an effective impact, we need to think in terms of helping as many people as reasonably possible, not as few.”

Paris has his own plan, which would involve the FHA making available 30 year fixed rate loans to homeowners facing foreclosure.