So it was that Henry Paulson came up with an idea… the ‘teaser freezer‘ plan. The ARM teaser freezer is being sold to the public as a way to protect homeowners. But it has another purpose, says a reporter from the San Francisco Gate, to help save the banks from their own bad judgment.
“The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates,” says an article at SF Gate about the ARM teaser freezer plan. “The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
“And, to be sure, fraud is everywhere. It’s in the loan application documents, and it’s in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies – all the way up to senior management – knew about it.