There are obviously three types of adjustable-rate mortgage holders out there: those who are able to make their payments both before and after a reset, those who can't make their payments either before or after the reset, and those who can make their payments at the lower rates but would be pushed over the edge by the reset. Obviously, any sort of federal program — call it a bailout if you must — would be aimed solely at the last of the three types.
And while I've even written for Foolish consumption that I couldn't recall special financing being formulated for me, such that I could buy a 120-foot yacht I couldn't afford otherwise, unlike my Foolish colleague Seth Jayson, I'm a proponent of Merthiolate. Simply put, bad mortgages and resulting foreclosures are seriously infecting the housing industry. And beyond that, gangrenous housing has long since begun to rot our entire economy and the economies of much of the developed world.
Free-market lover that I am, I would be hard to convince that maintaining initial interest-rate levels on adjustable-rate loans — something already being called a "teaser freezer" — constitutes a bailout. Going further would be, and it would be inappropriate. Indeed, those who can't even afford to make payments with low teaser rates made bad decisions that should remain in their laps and in those of their lenders.
But for those folks who fall into the third of the classes of ARM holders listed above, keeping them from being disrupted (and, more importantly, from disrupting the rest of us) — at whatever small cost this nascent program might carry — seems well worth the price.
It also just might help us to finally locate that bottom to the housing cycle that so many of us have been searching for.
For related Foolishness:
The Credit Crunch on Housing
The World's Most Dangerous Bubble
Where's the Consumer Credit Crunch?
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