December 14, 2007
Last week, the Bush Administration, mortgage lenders, and investors together agreed on a plan to freeze certain subprime rates for 5 years. The negotiations, between Treasury Secretary Henry Paulson, and mortgage industry executives, came in the face of 2 million looming mortgage adjustments.
The plan, proponents say, will help avoid some future mortgage defaults, which have so far led to billions of dollars in losses for big banks, hedge funds, and other investors (not to mention homeowners who have lost their homes).
The plan applies to:
- Subprime mortgage loans made between January, 2005 and July 30, 2007 and scheduled to reset between January, 2008 and July, 2010
- But not to investors or speculators
- And not to people whose mortgages have already reset
- Not to people who have missed payments already
- Not to people who the lender deems able to afford the mortgage reset (whatever that means)
If you’re concerned about a mortgage reset and you meet the qualifications, call 1-888-995-HOPE (4673).
The plan would freeze interest rates at their pre-adjustment level for five years. The hope is that in those five years, housing prices will rebound and homeowners will be able to refinance their mortgages into reasonable fixed-rate loans. (Right now, homeowners who bought at the peak of the market may find themselves owing more on their mortgage than the appraised value of their home – which makes it difficult if not impossible to refinance.)
NPR did a story last week on criticism surrounding the plan. Here’s what they said:
“The biggest criticism of the plan is that it doesn't go far enough. The Bush administration says 1.2 million people could be eligible for a rate freeze, but Barclays Capital has estimated that only a fraction of those—about 240,000 homeowners—would actually get relief. More will be eligible for refinancing assistance.”
Columnist Peter Miller, writing in Realty Times, was much more blunt in his criticism:
“The new foreclosure effort in Washington has nothing to do with saving homeowners on that list in Detroit. It has nothing to do with saving homeowners in Michigan, California, Texas, Nevada, Florida, Ohio, Georgia or anywhere else. The Bush plan has nothing to do with saving homeowners in your community or down your street.
Treasury Secretary Henry Paulson explained what's going with surprising candor when he said that the ‘industry standards announced today do not change the nature of the responsibilities in the servicing industry -- servicers will continue to modify loans when it is in the best interests of the investors. Indeed, these industry standards announced today are the product of discussions among investors and servicers.’”
Announcing the plan last week, Treasury Secretary Paulson said:
“HOPE NOW estimates that under this streamlined approach up to 1.2 million subprime ARM borrowers will be eligible for fast-tracking into consideration for affordable refinanced or modified mortgages. Servicers have committed to reporting progress, and we all look forward to transparent and monthly reports on the results of these efforts.”
As for me, the jury is still out. I’ll look to the “transparent and monthly reports” to see who the plan really helps.
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