Readers suggested a topic around the latest proposal to freeze interest rate resets. "Banks, U.S. near deal to freeze subprime rates: report. Now this is a new twist."

One posted. "A continued attempt to reward bad behavior on the borrowers part. However a freeze will do nothing more than prolong the inevitable. Of course that’s what we do best."

Another wrote, "What a country! Raise fixed interest rates on prime borrowers while lower income interest rates on savers while simultaneously destroying the dollar — AND — try to freeze the interest rate (which predicts the rate of default in theory) of the risky loans!"

One saw fallout, "So if they can/do freeze rates, I guess we will find out how many these homeowners were speculators. Speculators make money on increased value of the homes, otherwise they will bail. Also, what will do to the holders of these mortgages, such as the Florida state fund which had a run on the deposits?"

"Again, Washington DC is not thinking about the unintended consequences of their actions."

Another wants details, "I have a question about this meme. All this talk about teaser rates; do they in fact exist in any significant numbers?"

"I know neg-ams have teaser payments, but that just means the interest gets capitalised into the principal balance. So if they freeze the rate on a neg-am (or to a lesser extent a 5/1 ARM), you’re still going to see payment shock when the loan resets or recasts to full amortisation."

As did this poster, "What are the mechanics of this deal. As we all know, mortgages are put into large packages (CDO’s) and sold to investors. These bond holders are expecting a specific return on their notes. The banks may not have the right to alter the terms of these mortgages once they are sold."

"If they pass a law altering the nature of these bonds, then it would create more instability in the financial markets. If they monkey with mortgage bonds today - they may toy with credit card bonds tomorrow. Why would anyone invest in a US bank bond when the terms can be changed at will?"

"Even if the banks are just working with the mortgages on their books, it seems like a bad deal. As everybody knows, the first few years of a mortgage, you pay mostly interest. Massively rolling payments to the back to the note is not really a great solution. Extending the note only adds interest to the front."

"Eventually, they have to get their principal back. Also, banks are short on cash right now and really can’t afford to be a reformed Scrooge this Christmas. They need money not kind spirits. It also seems very unfair that some people would get their rates frozen while others would not based on whether a bank sold their mortgage or not."

"I still do not see this slowing down price drops. There’s just too many empty houses. The problem currently is oversupply. These people can either stay in their current houses, or rent some other house. Either way, they are using exactly the same amount of supply."

One had some answers, "They can NOT pass a statute altering the terms of contracts in existence. Such the a thing would be an ex post facto law - ex post facto means 'after the fact' - and it is explicitly prohibited by that thing called the US Constitution."

"The best they can do is to beg the financial institutions to delay the rate increases (a freeze) if the institution can. And therein lies the catch. If the institution only services the loan and does not own, they can not alter to the terms of the loan UNLESS every single investor/owner of the loan agrees."

"Given that the servicing companies can not even figure out who owns the loan to file the foreclosure case properly (ex: getting kicked out of Federal Ct in Ohio), it is highly doubtful that they could find the owners of the loans to get their agreement to changing the terms of the resets."

"If the servicing companies do not have the agreement of the owner’s of the loans and fail to reset the rates per the loan requirement, then they get sued by the loan owners for the lost interest income."

One was skeptical, "I think this will have minimal impact as it will only affect a small portion of the toxic loans out there. Banks can only adjust the terms on loans they originated and control - basically what they got stuck with in the SIVs before they could dump them on some poor unsuspecting schmuck. But I don’t believe they can adjust any of the terms on the junk sold on wall street, heck the investors are having a hard time even proving in court that they hold title on properties they are trying to repo."

"To me it just looks like an attempt to save the bacon of the big national banks who are likely to go under if they can’t resolve their SIV dilema quickly."

The Wall Street Journal. "A government-led plan to freeze interest rates on certain troubled subprime home loans drew criticism both from investors who foresee losses and from some analysts warning that it will merely prolong the pain of the mortgage crisis."

"As much as $362 billion in U.S. subprime home mortgages with adjustable interest rates are due to reset at potentially higher rates in the coming year, according to Banc of America Securities, risking a wave of defaults by borrowers unable to afford the new monthly payments. That in turn could exacerbate a wave of write-offs by investors who now own those mortgages."

"Fund manager Alan Fournier predicted that the plan being pushed by the Treasury Department will prolong the pain of the housing slump. He said it would merely delay inevitable foreclosures for some people who can't afford their homes, while allowing holders of mortgage-backed securities to put off marking down their assets."

"'This reduces the pressure short-term to bring everything to a clearing price,' Mr. Fournier says. 'We really just need to let it wash through.'"

The Boston Herald. "Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said that while the freeze plan sounds interesting on paper, it may be very difficult to implement in reality."

"Many subprime mortgages were packaged up in huge investment vehicles and sold to investors across the world, he said."

"Treasury might be able to get large mortgage-related companies like Citigroup, Wells Fargo, Washington Mutual Inc. and Countrywide to go along with a freeze - but then those firms have to sift through a massive morass of investment vehicles to determine which mortgages can legally have their reset rates frozen, he said."

The Star Tribune. "Why would lenders agree to pass up the billions that they're set to collect on rising mortgage rates? 'What they want to avoid is customers mailing in their keys and walking away," said banking analyst Mark A. Morgan. The value of houses is falling so fast as to wipe out the equity that many subprime owners have in their houses, he said."

"'If you look at delinquency loss curves, everything is going straight up,' Morgan said. 'That's the uncertainty that's motivating them to freeze' rates in the hope the borrowers can keep paying. As one former Wall Street banker once said, 'A rolling loan gathers no loss.'"

"In a statement, Michael Heid, co-president of Wells Fargo Home Mortgage, said the bank will keep in mind contractual obligations to investors who provided the cash for home mortgages, as well as the needs of customers."

"Some critics are wondering whether lenders are simply postponing a day of reckoning for themselves and for financially distressed homeowners."

"'Everyone is pretending,' said Prentiss Cox, associate professor of law at the University of Minnesota. 'Nobody's accepting the loss that's out there. Nobody's recognizing the loss and booking it.'"

From Forbes. "The mayhem in the global markets is the fault of 'snooty' financiers who thought they were cleverer than everyone else, said Germany's finance minister, Peer Steinbrueck."

"He said that the credit crisis, triggered by the collapse of the U.S. housing market, also raised serious questions about transparency, and whether market participants really have enough information to evaluate risks."

"'Of course, this crisis did not originate in the hedge funds, but it raises the question of transparency because we are having to deal with so much packaging, securitization, impenetrable jargon,' he told the Financial Times. 'The truth is, nobody knows where the risks are.'"