A bank teller dispenses cash Joe Raedle/Getty Images

New loans may help subprime, may not

Stacey Vanek Smith Dec 19, 2007
A bank teller dispenses cash Joe Raedle/Getty Images


Scott Jagow: There just isn’t an easy solution to the subprime mess. And they’re probably shouldn’t be. No pain, no gain, as they say.

But let’s talk about some of the proposed “solutions.” We’ll start in New England, where five banks are pledging $100 million to help some people refinance their loans. Here’s Stacey Vanek-Smith.

Stacey Vanek-Smith: The New England banks are hoping to help one group of struggling homeowners. That is, people who can afford their loan payments now, but who won’t be able to afford them when their rates adjust and their loan payments jump. The banks would offer new, more affordable loans to borrowers.

Analyst Christopher Thornberg says the plan doesn’t go far enough:

Christopher Thornberg: Most of the people who look for this kind of help actually don’t qualify for the help, because they cannot be refinanced. When you actually look at their income, look at how much they borrowed. It’s clear that these people can’t afford these houses, period.

Thornberg says for homeowners whose loans can be made manageable, there could be a whole different problem:

Thornberg: You’ve saved this person from being foreclosed on, and as a result of that, they lost 20 percent of their equity and they’re in a deeply underwater position. Have we really helped this person?

Thornberg says we can expect to see up to $3 trillion of home equity disappear over the next few years.

I’m Stacey Vanek-Smith for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.