Big Shitpile Update

by David Dayen [courtesy of Calitics - Front Page]

With home prices sinking, and expected to drop another 20% after already falling 12% in just a few months, I think this deal between Arnold Schwarzenegger and mortgage lenders smacks of desperation more than anything.

Four major subprime lenders promised to give a break to California homeowners who cannot afford escalating mortgage payments, under a plan announced Tuesday by the lenders and Gov. Arnold Schwarzenegger.

Countrywide, GMAC, Litton and HomeEq - which collectively service more than one quarter of subprime loans to people with poor credit - agreed to maintain the initial, lower interest rate for some subprime borrowers whose rates are scheduled to jump significantly higher. To qualify, borrowers must occupy their homes, have made their payments on time and prove they cannot afford payments with the higher interest rate.

These lenders obviously think that they would rather get less money than no money at all.  Of course, we've substituted "subprime mortgages" for "mortgages that people can't afford."  Actually the problem is as widespread in million-dollar-plus mortgages, which aren't subprime at all.  The lending companies basically offered lots and lots of money to anyone who was able to sign their name, and are now feeling the sting of consequences.  Will they offer the same relief to homeowners with million-dollar homes?  That seems unlikely.

So while I applaud any effort to keep people in their homes, somehow this deal makes me more worried about the long-term consequences of this runaway mortgage crisis than ever.