Subprime is bandied about so much these days one could get the idea 60% of homeowners have subprime mortgages. NOT! Still, President Bush announced a plan on December 6, 2007, that will offer an interest rate freeze to some borrowers and government-backed guarantees as well. Though I'd hoped the government would put some pressure on lenders to "correct" the riskiest owner-occupied (read "don't help greedy investors!) home loans by lowering rates, converting adjustable to fixed, etc., I did not imagine it would fall back on taxpayers to pay off their own mortgages and pay more in taxes to help companies survive who lent money to people who couldn't afford to buy homes…

Let me lower my blood pressure by quoting the stalwart and enthusiastic Shannon Hubbard:

I just don't get how helping (risky) borrowers to refinance loans they couldn't afford to begin with is going to help anybody…except the subprime lenders who get to pass these risky loans off to the taxpayers.  You see, when these loans get refinanced as FHA loans, they'll be government insured and then the taxpayers will eat the losses when these borrowers foreclose.  And many of these borrowers will foreclose eventually - FHA Secure will simply prolong the agony and shift the financial burden of these foreclosures from the subprime lender, to the American taxpayer.

Bloomberg.com's investor discussion puts a little different spin on it, per Caroline Salas and Jody Shenn. Two different points from their blog are worth mentioning, and you should probably pop over there and read the whole thing. First is the issue of government interference with contracts:

"If the government goes in and changes contracts it will definitely have a chilling effect on the securitization of mortgages," said Milton Ezrati, senior economist and market strategist at Lord Abbett & Co…."When the government comes in and says you have contracted to have this arrangement and you can no longer have it, I think it opens the door for lawsuits."

You hadn't thought of that yet, had you? I hadn't. But it opens the door for any sort of contract being invalidated. I've heard people speak of potential martial law under the totalitarian Bush administration. (I may not be using that word correctly…I am commenting on having seen the reduction of our civil liberties and freedoms while simultaneously seeing the president declare a war on terrorism, even though he isn't supposed to be able to declare war without Congress. Don't even get me started on the Geneva Convention!)

Imagine a military state running our home ownership and the mortgage lending business. Imagine SWAT teams storming the streets to take over the payment plans and budgets of subprime borrowers. OK, I've gone off the deep end. If this doesn't bother you, sign up for my mailing list:

Back to Salas and Shenn's other interesting point. It's really all about the investors:

As part of a typical bond contract, servicers are required to modify loans only when it would yield more cash to debtholders than a foreclosure. Agreements also state that loans can't be modified unless a default is "reasonably foreseeable."

So there. The real reason people facing foreclosure will get help is so the guys who bought their mortgages won't be left holding a bunch of empty, cold houses. They want cash and they want more than they would have gotten had the president not stepped in to protect their interests.

Now what happens? Does the federal government–which already suggests interest rates…sort of–now step in and suggest resale pricing? And do we need more paperwork when signing papers to buy a house–or signing a second set two years later to refinance the very same house?