Trust Your Government Redux

I think the best thing I can say about this plan to freeze rates for some mortgages is that, for the time being, Congress isn't sticking its head in this mess. It seems to be a huge leap, and a blind one at that, to thing that this will stabilize home prices. It remains to be seen whether this helps anyone. Many of these loans were on houses where the buyer's equity investment was zero to start. Freezing the rates on loans on properties where there is a negative equity situation may keep the payments manageable, but why as a borrower would you want to do so? The best thing would be A) restructure and refinance the loans to reflect reality and B) streamline the foreclosure process to allow property values to adjust to the appropriate (read: lower) level more quickly to the country and markets can move beyond this crisis. I understand the political expediencies behind this move, but, in the long term, the borrowers won't be helped. Using history as a guide, these homeowners will be stuck in their houses for an extended period, waiting for the time when their home equity will turn positive. Look at the late Eighties. If you bought a house in 1986, you would have had to wait until at least 1996, on a nationwide average, to get back to the 1986 (absolute, not inflation adjusted) level. People at the margin, the sub prime borrower in trouble, are just locking themselves into a situation they probably shouldn't have bought into in the first place. The Band-Aid approach is better. It hurts a lot to rip it off, but it's over with quickly.