I told you someone would propose an ARM rate freeze

Senator Hillary Clinton has presented her plan for America’s “mortgage crisis.”  In a move that should surprise no one, she “wants to “freeze” interest rates on hundreds of thousands of adjustable-rate mortgages, which would prevent them from resetting to higher rates over the next five years” (National Review Online).

Stephen Spruiell, who wrote the NRO piece, focuses on a glaring hypocrisy on Clinton’s behalf:

Mortgage servicers that go along with her plan would in many cases be breaching their contracts with investors in mortgage-backed securities, so Clinton proposed legislation that would shield them from any resulting lawsuits.

Just a few weeks ago, Clinton was in the news for opposing legal immunity for telecommunications companies that cooperated with the Bush administration’s terrorist-surveillance program. If you needed to illustrate the Democrats’ priorities right now, it would be hard to find a better example.

That is an excellent point, but it’s not the first one that crossed my mind.

I’m guessing that Spruiell, Clinton, et al don’t know anyone with an ARM these days.  That isn’t so surprising; less than 7% of all American households have an ARM.  More importantly, of those who do, far fewer actually have an idea where their rate is headed.  Most simply assume it will go up - as will nearly everyone who doesn’t have an ARM.  However, the main index used to set the adjustable rate from year to year has plummeted over the last six months.  In fact, it has fallen so far that a large number of ARMs still at the “teaser rate” will likely have their rates fall this year; those ARMs which have already adjusted to the market will certainly have lower rates this year than last.

Therefore, Clinton hadto get this out early - if she waited until fall, the majority of ARMs slated for a reset would have already shifted, and the average American’s confidence in their finances may very well be soaring by then (existing home sales were up - yes, up - last month, Virginia-Pilot).  Meanwhile, don’t be surprised if at least one of the big mortgage service providers jumps on board this thing; they know more than anyone else just what the ARMs will do over the next few months.

Supporters of the free market must be ready to beat this back.  It will help that most homeowners will actually benefit from lack of government interference; they just don’t know it, yet.  It’s time to inform them.