The mortgage deal coordinated by the White House initially seemed to be to be a good idea. Freezing rates for several years might strike a balance which would be cheaper to home lenders and borrowers, and also reduce the potential spillover to the macroeconomy.

However, as details emerge on the specifics, I'm not so sure this will have a sizeable impact. The odd restrictions on who would qualify would seem to undermine macro-stabilization. (This is especially of concern when you consider that the risk to the economy is not just from foreclosures, but also from reduced consumer spending that would result from higher payments).

It looks like there is a squeeze in who qualifies. If you are struggling to get by (or had a temporary financial issue which caused you to miss a payment or two): no help. If you were cautious and can afford (by industry's definition) higher payments and/or have a good credit score: no help.

Only those in the middle would seem to gain.

I'm afraid this will impact too few people to impact the macroeconomy.

On Mortgage Relief, Who Gains the Most? - New York Times

One of the financial industry's lead negotiators estimated that at most 20 percent of subprime borrowers whose payments will increase sharply over the next 18 months -- 360,000 out of 1.8 million people -- would qualify for rapid consideration of a special five-year freeze on interest rates.

The number of people who actually obtain help would be smaller, because each borrower would face tests aimed at weeding out those considered too hopelessly in debt and those who make too much money to justify relief.

In one curious twist, the plan could eliminate many who have good credit scores or managed to improve their credit scores, because the good ratings would be a sign they do not need help.

Yummm, donuts. | Posted December 7, 2007 09:08 AM by John Irons