Bush Plan Would Freeze Subprime Rates

Mortgage Industry OKs Proposal To Prevent Resetting Of "Teaser" Rates; Plan May Help 1M Homeowners

(CBS/AP)  President Bush announced on Thursday a plan to freeze interest rates for hundreds of thousands of strapped American homeowners whose mortgages are scheduled to rise in the coming months.

"The steps I outlined today are a sensible response to a serious challenge," Bush said.

The help is aimed at homeowners with subprime adjustable mortgages with those low "teaser" interest rates, reports CBS News chief White House correspondent Jim Axelrod. They would be frozen for five years.

The White House says the freeze and other refinancing programs would help more than a million homeowners stave off foreclosure.

Seeking to counter criticism he is violating his free-market principles, Bush said the private-sector plan does not represent the imposition of a government solution to the mortgage crisis.

"We should not bail out lenders, real estate speculators or those who made the reckless decision to buy a home they knew they could not afford," he said.

The proposal was developed in negotiations led by Treasury Secretary Henry Paulson with the mortgage industry. It would freeze introductory "teaser" rates on subprime mortgages, preventing them from resetting to higher rates for five years.

CBS News correspondent Anthony Mason said the plan targets only those borrowers who can afford their introductory rates and are up-to-date on their payments, but are at risk of default when rates reset and payments rise sharply.

Mr. Bush said the plan was developed in negotiations with the mortgage industry led by Treasury Secretary Henry Paulson. But only a small fraction of that number will be subject to the rate freeze.

It's estimated that some 600,000 others with subprime mortgages would not be eligible, including those already in foreclosure.

CBS News White House correspondent Mark Knoller says that in addition to a rate freeze, the plan offers other options for borrowers, including refinancing of troubled loans into new private mortgages, or moving them into the FHA Secure loan program.

Release of the plan came after news earlier Thursday that home foreclosures surged to an all-time high in the July-September period. The Mortgage Bankers Association reported that the percentage of all mortgages that started the foreclosure process in the third quarter jumped to a record 0.78 percent, surpassing the previous record of 0.65 percent of all mortgages in the second quarter.

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Homeowners who may be eligible are requested to call 1-888-995-HOPE, a counseling hotline to get information on the FHA Secure mortgages.

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At his appearance at the White House today, President Bush said, while the economy has proved to be highly resilient, the rise in foreclosures gone unchecked would have negative consequences for the economy, including enormous losses for lenders and investors, and the prospect of millions of homeowners with adjustable rate mortgages losing their homes.

"The holidays are fast approaching and unfortunately it will be a time of anxiety for Americans worrying about their mortgages and their homes," he said.

During his appearance, Mr. Bush chastised Congress several times for not passing legislation to reform lending practices. "In the past three months Congress has not sent a single bill to help homeowners," he said.

Among the issues he said were facing delay in the Senate were bills to modernize the FHA, change the tax code to benefit homeowners who lose equity, and reform Freddie Mac and Frannie Mae.

The administration's effort is aimed at stemming a further tidal wave of foreclosures in coming years as 2 million subprime mortgages - loans provided to borrowers with spotty credit histories - reset from their introductory rates of around 7 percent to 8 percent to levels as high as 11 percent, adding hundreds of dollars to the typical monthly payment.

The mortgage companies will offer to freeze the loans at the lower introductory rates as long as the borrowers did not miss any payments at the lower rate.

The program is the biggest effort yet to deal with the surge in mortgage defaults, which have piled up billions of dollars in losses for big banks, hedge funds and other investors while roiling financial markets worldwide. The defaults are the latest economic blow from the worst housing slump in more than two decades. Some economists think the housing bust may become severe enough to push the U.S. into recession.

Mike McHugh, chief executive of Continental Home Loans, told CBS News that if investors are the ones who ultimately absorb the cost, it may discourage them from underwriting mortgages, thus making it harder for everyone to get loans.

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

Administration claims that this was not a bailout, were rebuffed by some. John Taylor, President & CEO of the National Community Reinvestment Coalition, said, "The administration's aggressive focus on this problem should dispel once and for all the notion that the borrower is to blame. This is not a homeowner bailout, this is a bailout for failed regulatory oversight.

"Infectious greed and malfeasance by lending institutions is the overwhelming culprit, not consumer misbehavior," he said.

Two Democratic presidential contenders, Hillary Rodham Clinton and John Edwards, complained Wednesday that, given the risks to the economy, Bush's proposal did not go far enough. They proposed their own plans that would not only freeze mortgage payment rates but also declare moratoriums on further foreclosures to pressure lenders to reach at-risk homeowners.

The financial services industry applauded the administration for negotiating a plan that will allow free-market forces to operate. The hope is that the five-year freeze will buy time for the housing industry to work down record levels of unsold homes and for sales and prices to start rising again.

A housing rebound would enable homeowners to refinance their current adjustable rate mortgages into fixed-rate loans with more affordable monthly payments.

The big sticking point in the lengthy negotiations was getting investors who have purchased the mortgages after they were bundled into mortgage-backed securities to agree to accept lower interest payments. Critics have said even with a deal, there are likely to be lawsuits.

"The (big) question remains: 'Will investors who might balk at going along with this be able to maintain legal roadblocks and prevent the plan from going into effect?'" asked Sen. Charles Schumer, a New York Democrat.

But officials representing major players in the mortgage industry said they believed the plan would withstand any legal challenges and would help at-risk homeowners avoid defaulting on their mortgages.

Steve Bartlett, president of the Financial Services Round-table, a trade group representing the country's largest financial service firms, said the deal would benefit banks, investors and homeowners since there is a significant cost when a mortgage is foreclosed.

Under the administration plan, the rate freeze will apply to loans made at the start of 2005 through July 30 of this year and will cover loans that had been scheduled to rise to higher rates between Jan. 1, 2008, and July 31, 2010.

The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed.

"It will make a difference," Paulson said of the plan. "It will reduce the number of avoidable foreclosures," which he said were no benefit to no one.

"This is not a silver bullet. We can’t put together an industry-wide initiative and suddenly make the excesses and bad lending practices of the past several years go away."

Mr. Bush said he had a message for every home owner: "The best you can for your family is to call 1-800-995-HOPE," a counseling hotline to get information on the FHA Secure mortgages.

Shortly afterwards, the White House Press Office announced that the phone number Mr. Bush read was wrong. The real number is 1-888-995-HOPE.

[standlee5]

What about all the people who have gone bankrupt the past decade due to medical bills. What kind of bailout did they get? How many lost homes due to cancer, accident,heartattack? What do they get? These are people who did everything right and played by the rules and most HAD health insurance and still went bankrupt.

[standlee5]

The lenders should eat this mess. Here''s an idea stop printing loan papers in Spanish or other foreign languages and maybe they''d have a better chance of being paid off.

[variant_530]

Did Bush sign your loan docs? Did republicans sign your loan docs? The person who signed your loan docs should be held accountable for knowing exactly what they were signing.

[jetranger7]

GO SEE THIS VIDEO "SHOCKING" : WWW.WARONGREED.ORG

[tbweb]

Its very unusual for Republicans to intervene in this way. Some see this as a political investment hoping those saved will Vote Republican next election, it might work, the states affected most are key states in next years election! If Democrats cry foul then Republicans have ready made campaign ads stating Democrats are against helping troubled home owners, if Democrats go along they help Republicans, the old catch-22, slick!

[shanev137]

Bush''s "plan" is not about avoiding foreclosures, it''s about when they happen and who takes the big hit.

It''s about a secret war between US banks and the investors they defrauded with these junk bonds and it''s no surprise the US Treasury Department is the one pushing the repeated bailout attempts.

The first attempt was the Master-Liquidity Enhancement Conduit or "Super SIV" that was crafted to hide the true value of the bonds. The second was Bernanke''s advice to Senator Charles Schumer in October for Congress to pass a law raising the loan limits of Fannie and Freddie and providing a government guarantee of their mortgage bonds, so that Fannie and Freddie could refinance EVERYBODY...which would move the liability from the banks to the US taxpayers. Not even a week later Fannie had a new accounting scandal and Freddie announced a $2.5 billion loss which made a bailout of those insolvent institutions impossible. That was the only ideal solution because bond investors and banks would have been off the hook.

The plan now is to "rework" the original loans and insert intervening factors that block investors from suing the banks into buying back the junk bonds at face value.

[ubrew12]

To balance this, they''ll let Credit Card lenders increase interest rates to 50%.

Someones gotta pay... and you know it ain''t the big boys (irresponsible mortgage lenders)...

[kissamaarse]

Don''t worry fellow Republicans, Bush is merely working to guarantee BIG BANKS that they will at least provide some investment return, and some income, against the 250,00 most qualified out of this pool of mortgagees. You didn''t really think he was taking up a cause for everyday Americans, did you?

[ghij8976]

It seems that hardly anyone will qualify for a rate freeze:

See details of the plan here:

http://www.smartmoney.com/consumer/index.cfm?story=20071206

To qualify for a rate freeze, the loan-to-value ratio on your home must be 97% or higher, which means you must have no more than 3% equity in your home. (This is the loan-to-value ratio during the origination of the loan, so the recent decline in housing values doesn''t come into play here.) Then, mortgage servicers will apply a newly-created FICO test.

Then this report that gives a great amount of detail of composition of the subprime market (as of December 2006):

http://www.responsiblelending.org/pdfs/foreclosure-paper-report-2-17.pdf


Page 47 of the PDF file, Appendix 3 it shows for 1998 - 2004 how much of each type of subprime loan was made. So using the latest year, 2004 as the guide:

-Only 5% of subprime had an LTV greater than 97%.

So for the 5% who pass that hurdle, I would have to imagine these were not likely to be the under 660 FICO''s.

Then suppose:
-About 60% had a FICO less than 660.

So, we''re down to about 3% who might qualify (5% x .6).

And then, 3/4 of those who were not fixed rate:

So we''re down to about 2%.

Best case we''re looking at maybe 2% who qualify based on the info in this report. And maybe even less if you assume only the higher FICO''s could get 97%+ LTV.

[ofbyfor1]

ALL of our property values will fall if there are multiple foreclosures in our areas. Don''t be "penny wise and pound foolish". The sleazy lenders who lied to these people (at least some) are really the ones to blame, scamming people into ARM''s when they knew that they qualified for stable fixed-rate terms. Hang them high, the greedy baztards, because they''ve F''d us ALL!!! And I have no sympathy for flippers or people who wanted "McMansions" when they could have bought something smaller.

[rowdytexan2]

"including enormous losses for lenders and investors..." This is a HUGE lie! These people aren''t losing a thing. They are making money on those loans just the way they are. Besides the payments that were almost totally interest, they got down payment money from these homeowners. It''s a total racket. They make these loans, to people they know are at risk, get their down payment money, get a few years of payments, raise the interst knowing they pro''bly can''t pay. And when they can''t pay at the higher rate, they basically steal the house back and sell it to somebody else. Getting another big down payment, and higher interst from the next one.

I watched my father in law do this for years selling houses on contract.

These whiney crooked bustwards MIGHT be able to say that they lost some ''potential'' money, but in fact, they haven''t lost a dime!

[conllo]

This new relief the %u201CFreeze on sub prime rates%u201D and the qualifiers for it, sounds a whole lot like it serves the interest of the top 5% money earners in this country, once again it benefits those people who in the grand picture of things don%u2019t need it.

GW you are by far the worst president this country has eve had, you are a total disgrace to your party,
Even with the mistakes that Regan made during his presidency , it was at least obvious that he really did care for the people for the US and when he was wrong he admitted it.

Jimmy Carter was a better president than you, at least he cared about his people, he cared about our humanity, I for one was also against a lot of the actions that were taken by the Clintons, but I really do hope this Democratic party find just cause and reason to Impeach you.

And any that may think %u201CLOL this guy is not a republican%u201D, Oh yes I am, I am just like so many American%u2019s that are

SICK OF THE CANDIDATE BASHING!!
SICK OF THE BUSINESS AS USUALL!!
SICK OF HAVING PEOPLE SERVE THEM SELVES!!
SICK OF TAKING CARE OF OTHER COUNTRIES AND NOT TENDING TO ARE OWN PEOPLE!!
SICK OF BEING IN THE TOP 10 MOST HATED COUNTRIES IN THE WORLD BECAUSE OF ANTIQUATED BELIEFS THAT ARE MIGHT WILL SOLVE ALL!!!
SICK OF POLICING OTHER COUNTRIES!!!

[stirringitup]

Why are resposible Americans so despised by our goverment?? I am tired of playing by the rules and falling further behind!
If a ARM can be frozen for 5 years at less than a fixed rate loan then the people paying on a fix rate a supplementing the banks and the lendees.
Screw them - Americans should quit paying on all mortages today!
As with the illegal immigration deabte - the numbers prevent any action from being taken.
They cannot foreclose on 10s of millions of homeowners - the logistics prevent such a thing from happening. Everone should quit paying on thier loans today and see what happens and what deal we are all offered. The dollar is plummeting on the world market so there really is not much to lose.

[shanev137]

Loan servicers, who collect payments from homeowners on behalf of investors who hold the mortgages, will not freeze rates. They have too much liability from investors who would have to accept lower returns on their bonds.

The investors won''t take the hit on this. If the rates freeze they will file lawsuits...and then you''ll see the huge government bail out.

[kissamaarse]

For those naive enough to believe this is a bail-out for consumers, guess again. It is another bone for the Big Banks. They would never have agreed to this if there was not a chance to recover some investment and make some income. That is why only the lowest risk and most credit-worthy out of this population of mortgagees meet the tight criteria for acceptance. if you think otherwise please let me sell you the ownership rights and the copyright to a very nice star in the neighboring galaxy. Great price!

[j-whitman]

dzapple,,,, In 5 years they can blame the democrat administration & get the White House back,,,, Actually if you''ve already started forclosure, it doesn''t help at all.

[dzapple]

SO I CAN FORCLOSE IN 5 YEARS INSTEAD OF THIS YEAR

[j-whitman]

Bush lighting the National Christmas Tree --- "Hope for Peace this Christmas Season" ------ Somebody jail that dishonest SOB

[downtowner97]

The entire goal of this administration has been to run the country as if the world will end January 29, 2009. The problem is, I don''t think we''re going to make it.

[excoachken]

The Cowardly Cowboy strikes again in his own unique style: Too showy to be true, too little thought to work, too late to be effective.