Hillary Wants to Freeze Foreclosures and ARM Adjustments

Seen at the Wall Street Journal (subscriber link):

In a sign that the housing crunch is increasingly resonating on the campaign trail, Sen. Hillary Clinton is expected to call Monday for a 90-day moratorium on home foreclosures, as well as a five-year freeze on the rates of adjustable mortgages—an idea the Bush administration is already considering.[...]

But the plan she is about to announce is striking on two levels. Calling as it does for a 90-day moratorium on foreclosures and a five-year freeze on interest rate adjustments for existing mortgages, the Clinton plan goes further than those of her colleagues. More striking is that the centerpiece of her proposal—a freeze on interest rate hikes for adjustable-rate mortgages—is similar to a plan being concocted by Mr. Bush’s Treasury secretary, Henry Paulson. Indeed, news reports over the weekend about his plans, disclosed by The Wall Street Journal on Friday, are what prompted Mrs. Clinton to float her own proposal, which she is doing in the form of a letter to the Treasury secretary.

I have to say that one thing that has been refreshing about the Bush Jr. Presidency is that the administration has shown remarkable resiliency against being swayed significantly by polling data. I had almost forgotten what it was like to have a President (or President-wannabe) shift opinions and tempt the voting public as commanded by the pollsters.

Also…you know, if I had known that ARM rates would be federally frozen if the credit market turned tough, I’d have gotten one too. We opted to have a higher monthly payment for the protection of a traditional, rather than gamble against an ill-timed rise in interest rates.

I can’t help but wonder what the mid-to-long term effects would be of an ARM rate freeze. For example, I’d assume that for a significant period of time, ARM’s would either be difficult to find on the market or would contain a very significant risk load to reflect the potential cost of future federal intervention. That, and other reforms, would likely aggravate the real estate market cool-down, from which there would presumably be many ripple effects in the larger economy.