Deal Reached To Ease Mortgage Crisis

Bush Mortgage Plan Will Freeze Certain Subprime Interest Rates For 5 Years

(CBS/AP)  The Bush administration has hammered out an agreement with industry to freeze interest rates for certain subprime mortgages for five years in an effort to combat a soaring tide of foreclosures, congressional aides said Wednesday.

These aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of as much as seven years and industry arguments that the freeze should only last one to two years.

Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

CBS News correspondent Anthony Mason reports that this plan is designed to help a very specific group of borrowers with adjustable rate mortgages, or ARMs. The plan is targeting people who are current - that is up-to-date - with payments on their loan, but would fall behind and risk foreclosure when the loan resets in the coming year.

Of the six and a half million subprime borrowers out there, Mason reports, estimates are about 12 percent, or 750,000, could be helped by this.

The administration said that President Bush will speak on the agreement at the White House on Thursday afternoon.

CBS News White House correspondent Mark Knoller reports that President Bush expressed caution in his news conference Tuesday about offering excessive government aid to overextended mortgage banks. He was emphatic in stating that "we shouldn't bail out lenders."

"In other words," said Mr. Bush, "we shouldn't be using taxpayers' money and say, okay, you made a lousy loan, therefore we're going to subsidize you."

Mr. Bush knows it's a big political issue, Knoller said, and though he's not on any ballot next year, many Republicans are, and they want to be seen addressing the subprime mortgage crisis.

It was on August 31st that Mr. Bush first went public with his directives to his Treasury and Housing Secretaries to come up with a plan to "make it easier for qualified home buyers to stay in the homes."

The Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with officials of the mortgage industry.

Treasury also announced that there would be a technical briefing to explain more of the details of the proposal.

Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes - as a way to make sure that the break is not granted to real estate speculators.

The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures that are feared as an estimated 2 million subprime mortgages reset from lower introductory rates to higher rates.

The higher rates in many cases will boost monthly payments by as much as 30 percent, making it extremely difficult for many people to keep current with their loans.

The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.

Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year.

"The question right now," said Mike McHugh, a mortgage banker with Continental Home loans, "is who is going to take the hit?"

McHugh told CBS News that if investors are the ones who ulimately absorb the cost, it may discourage them from underwriting mortgages and make it harder for everyone to get loans.

"This will have a repercussion and be felt for years to come," McHugh said.

The plan represents an about-face for Paulson, who until recently had insisted that the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced that the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed along the lines of a plan put forward in October by Sheila Bair, head of the Federal Deposit Insurance Corp.

Paulson and other federal regulators began holding talks with some of the country's biggest mortgage lenders, mortgage service companies, investors who hold mortgage-backed securities and nonprofit groups that provide counseling for at-risk homeowners.

Under the typical subprime loan, those offered to borrowers with spotty credit histories, the rates for the first two years were at levels around 7 percent to 9 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent.

For a typical $1,200 monthly mortgage payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment.

The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.

The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors.

The administration plan is designed to deal with the crisis by allowing subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is occurring in many parts of the country.

With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.

"House prices have doubled since 2000," says Jack Hough, author and Columnist for SmartMoney.com. "The thing that caused it was eleven consecutive interest rate cuts by the federal reserve... The government said, 'Let's help people out with the tumbling tech stock prices so the economy doesn't go into a recession.' They cut interest rates so low that they created another bubble in house prices. Now they're getting involved in the same game all over again."

The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.

Mark Zandi, chief economist for Moody's Economy.com, said while the administration plan is a good first step, eventually the government will have to go further because of the size of the problem and the threat to the economy.

"This is the most serious housing downturn we have seen in the post World War II period," he said. "It is a threat to the broader economy. The risks of a recession are very high."

[kenhamlett]

This bailout is simple and has nothing to do with protecting consumers. The newest loans typically have not had time for the borrower to build equity. The lenders do not want those homes so there will be a freeze. Older loans have had time for equity to build through payments and appreciation. These are the ones that the lenders would like since there is a built in financial cushion. These older loans do not seem to be part of the freeze.
Thus it appears that this is a do nothing plan that makes it look like a bailout but simply allows lenders to sidestep the unprofitable foreclosures and focus on foreclosing on those with the potential for greater equity.
Simple plan, worthless plan.

[mominok]

This relief package isn''t just for Losers & Moochers. I know because I happen to be eligible! First, paying on time is a must which I do & moochers & losers don''t! Second, we bought our home for 94000. It was affordable & we work hard to pay it! Then, I lost a son & had to pay hospital bills & a burial in which I was forced to refinance for 120000. a price I couldn''t afford! I put both my daughters at 16-18 to work while still in school, I took on a second job, my husband works 2 extra days for the overtime & we bust our butts to get it paid! Because it took us longer than we''d wanted to pay the medical bills, we were forced to get sub prime lending in which Feb 2008 our mortgage will go up 350+ a month! My NOW 19 and 17 year olds would like to go to college, my 6 year old would like her mommy to go to school functions, my husband would love to have a day off work! Those of you FORTUNATE enough to not have emergencies arise that cost thousands of dollars, are just that - FORTUNATE! I''d much rather be in your shoes than my own! But, one thing I wouldn''t do is sit back and JUDGE someone else when you have no earthly idea what may have put them in this position in the first place! I am sure there are people out there that abuse the system, but don''t judge everyone because of a few that do! I''m PROUD of my accomplishments and my sacrifices and today, I''m thankful that for once the government seems to be helping me out as opposed to the rich or the poor.

[countyboy21]

This stuff ads up fast!
thanks 4 shedding some light on the subject!
I was absolutely in the dark on this whole financial scope! It doesn''t take very long before finances like these can become an overwhelming longterm burden!
I think alot of Americans are in the dark about what really goes on, behind the scenes"closed doors"in the financial industry.I know I have been left out in the cold several times before, on issues like this one.

Well, I just hope & pray that someone will bring us home on this one!"It''s dinner time already"!

[catjazes222]

Too little too late. The banking industry got most of these people in this position. I worked in the mortgage industry and was told to process mortgages that shouldn''t have been completed 4 years ago. We saw this coming as soon as all those adj. rates matured. Meanwhile I as a single woman was struggling to keep my duplex after a car accident that strapped me while in litigation and forced me to refi into an adjustable rate. Then the house wouldn''t appraise out, the interest rate started jumping faster than I could keep up. I had to file bankruptcy and foreclose. I was doing everything I could just to keep a modest house and we are now bailing out people that bought houses that they never should have gotten approval for. When will the gap between those who have everything, those who think they need to have everything (and are in debt because of it) and those who are barely making a living close?

[nottellin1]

If I had only known the government would bail out subprime borroweres, I would have bought a house too!

Silly me, I was afraid to do that because I thought I would actually have to pay as promised.


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Posted by random_radar at 04:02 PM : Dec 05, 2007

I am hearing your comment repeated more than any other. Once again, it is the good, honest people that will suffer and all the idiots that bought with a sub-prime mortgage will get to continue being idiots.

[infidel_us]

For years and years, blacks like Jesse and Al ran around weeping that banks an S&L''s were not making enough loans to ''minorities''. It didn''t matter that they were poor financial risks.....

So, the financial folks relaxed the requirements, they made bad loans, and you now see the result.

This is 80% of the issue. Thank you, ''reverands''.

[gheemaster38]

dumped Geico for an incident with them that was JUST like that - split hairs.
The best one was when my property insurer told me after a major Ice storm that the tree branch through the roof WASN''''T covered because it wasn''''t "hail damage" but if it was any consolation my property out in the country WAS covered for damage from RIOTS!



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Posted by homespunlady at 12:07 PM : Dec 06, 2007

that is a good one. I had the insurance company (The good nieghbor people) after the Katrina fiasco concerning the wind blowing roofs off and then the house gets flooded not, being covered because thre were no flood insurance policy-I had my insurance company go line by line and explain to me what the exact definition of coverage was on all items. Then I had them give that to me in writing. Not just the boko pamphlet they passout that states general coverage.

[irritated132]

This makes me sick. I borrowed what I could afford. I read my contract with the bank, and when I did not understand something--I ASKED QUESTIONS. Am I going to get a break? Noooooooo. I don''t care one iota if, "...tax money will not be used to bail out...." All of us good people, who live within their means, will pay for this in the long run somehow, some way. Damned stupid people. Damned illegals. Damned stupid government. Do we have a presidential (U.S.) candidate with a flying f--k in 2008? Sure ain''t a Democrat, and I can''t find any Republicans either.

[homespunlady]

This is what comes from our public schools dumping any REAL Life-Skills training in favor of "standardized tests" on TRIVIA!

We''ve become a nation of FINANCIAL IDIOTS!!

The BEST is yet to come folks. The people you entrusted with our national finances are either totally clueless or part of the wealth shifting ripoff of our national assets.

Pension funds and Social Security have been emptied.

Insurance pools have been emptied.

Our national debt has left us a nation of indentured servants to foreign countries.

Our national infrastructure is being SOLD OFF to foreign countries and corporations. Wait until your water becomes as expensive as GAS.

Those of us prudent enough to have paid off mortgages are facing skyrocketing NEW taxes that will "have to" be put in place to service the ARM style lending made to cover our national debt.

All while the multinationals are paying off our politicians to SELL OUT our national Sovereignty in favor of "free" (for them) trade and lower wages and living standards for us.

The faith in the Dollar world-wide had diminished to the point that Bin Laden''s plan to destroy the US by wrecking the economy is looking like a BRILLIANT TACTIC.
Bush either was the world''s BIGGEST SUCKER or was in on it.

WAKE-UP folks. The rats have ALL been buying "vacation property" overseas and telling the common citizen that it''s "too dangerous" outside the US.

We''re being played for FOOLS.

[homespunlady]

"freeze interest rates for certain sub-prime mortgages"

This may be like the Geico Car Insurance commercial where a tree falls on the guys car but his insurance only covers his car if it was a Ficus tree.

Posted by Oscarez at 03:58 PM : Dec 05, 2007

I dumped Geico for an incident with them that was JUST like that - split hairs.
The best one was when my property insurer told me after a major Ice storm that the tree branch through the roof WASN''T covered because it wasn''t "hail damage" but if it was any consolation my property out in the country WAS covered for damage from RIOTS!

[wheezel3]

Makes me sick. Losers get off scot free and don''t pay what they owe and are bailed out. In FIVE YEARS, guess what? They won''t have saved a penny and it will be deja vu with another bail-out. But in the meantime, they are running around in their new SUVs and prissing their a$$es all over town with their $500 Coach handbags, while good people pay what they owe. F*ck the morons who thought up the bail-out. The market can CERTAINLY bear a correction and this is no more than a way for the greedy to keep the game all to themselves. In the meantime, this keeps housing prices artificially high and squeezes out the little guy. Big surprise.

[p121457]

I sit and read some of the stupidist comments I''ve ever read. You know people make mistakes and either way regardless whether they do this, each of us will feel the effects. Can the economy stand more houses foreclosed? I don''t think so. This is a bad situation and no I don''t like my tax dollars bailing out the banks. The banks knew better to lend money to people that could not afford them. I guess that''s the difference in a Christian and whatever. It''s a mess but something has to be done. Remember Bush didn''t make those loans, the bank did.

[gheemaster38]

This may be prolonging the inevitable. The problem is that some people need to work on there credit worthiness to fix this issue. Some buy the house then finance new furniture and fixtures and accessories and even finance a new car with high interest They are told they can refi and a few years but later find that their credit is still substandard. Some buy the house then finance new furniture and fixtures and accessories and even finance a new car with high interest rate instead of working on the credit they have so they could have refinanced to a fixed rate. My suggestion to anyone that find themselves in this situation is to take the reminder of your time to pay off your credit debt. Get the scores up and the debt down. WORK ON YOUR CREDIT BECAUSE THIS BAILOUT IS JUST AN ILLUSION AND remember:

This bailout is really meant for those who got rich "flipping" houses and are now stuck.. with homes or contract on homes they intended to flip but cant find anyone to buy them

[barbaraf4]

I''m just tired of the taxpayers having to bail out other citizens who need to be protected from themselves.

[mbcsmith]

I often wonder how Jesus would have reacted to people like that, who only care for themselves and no one else.
SIG HEIL, BUSH!!!!! Posted by walt1944 at 09:12 AM : Dec 06, 2007

I think Jesus would want you to be kind to your fellow man and not cast aspersions.

[mudrose-2009]

Disasters hit everyone, no matter who you are and how well off you think you are, and everyone gets "blind-sighted" by either losing their jobs, having their identity stolen, or unexpected sickness or death, so for people to be so smug and over-confident makes me say to myself: YOUR DAY WILL COME, AND WHEN IT DOES AND YOU ARE AT THE END OF YOUR OPTIONS, LETS SEE IF THE "HERD SLOWS DOWN FOR YOU"!!!!!!!!!!!!

SIG HEIL, BUSH!!!!!
Posted by walt1944

Good point but unfortunately, the herd has to slow down here because they will drag everyone and I mean everyone down with them. I''m sure in the future there will be tighter controls.

[dragonmouse-2009]

I just can''t feel sorry for these people. Regardless of their credit history. Flexible interest stinks. If you want to put $100-400 thousand into a home you really need to do your research. If their credit stinks...well this is part of the WHY. If they got themselves into the mess they need to figure out how to get out. I was a first time home buyer too and I even refinanced later on but I knew better than to get into this eventual snakepit.

[mythoughtsr]

The ridiculous people who bought into their stupid mansions with 5-1/2 bathrooms deserve what they get! If people would have bought into modest homes that were affordable they wouldn''t be in that mess. I have enough common sense not to get into an ARM. What did these people think they were going to do when the loan reset? If they didn''t refinance or sell, that is their problem. The lenders get NO sympathy from me.

[walt1944-2009]

Reading most of the comments written on this subject, apparently, mostly by people who couldn''t care less about "the other guy", I often wonder how Jesus would have reacted to people like that, who only care for themselves and no one else.

True, life is tough and the Fascist Republicans and cowardly Democrats, together with the Great Emperor Bush II have made it a lot tougher and made us all fearful, so does that mean we all have to turn into "Greed is good! Greed is GOD!" neocons and neoliberals?

Disasters hit everyone, no matter who you are and how well off you think you are, and everyone gets "blind-sighted" by either losing their jobs, having their identity stolen, or unexpected sickness or death, so for people to be so smug and over-confident makes me say to myself: YOUR DAY WILL COME, AND WHEN IT DOES AND YOU ARE AT THE END OF YOUR OPTIONS, LETS SEE IF THE "HERD SLOWS DOWN FOR YOU"!!!!!!!!!!!!

SIG HEIL, BUSH!!!!!

[brianbwb-2009]

Posted by Maxify55

Remember your words, soon they will come back to haunt you when you start to limp.

If the "law of the land" is nothing more than survival of the fittest, then we have no need for government, police, courts, or any regulators of civilization, because then there is no civilization.