Bush freezes interest rates on subprime home loans

Bush freezes interest rates on subprime home loans
Dec 7, 2007 02:27
guestestate	US President George W. Bush yesterday formally unveiled a plan to freeze interest rates on some subprime home loans for five years, setting up potential showdowns with mortgage security investors who could see their returns decline and Democrats who say the plan does not go far enough to help troubled homeowners. The plan, negotiated over a series of meetings with industry executives, is intended to forestall a wave of foreclosures over the next two years as nearly $400bn worth of home loans made to risky subprime borrowers reset at higher interest rates. The introduction of the plan came as the Mortgage Bankers Association said US home foreclosures reached a record high in the third quarter, with 1.7 per cent of outstanding loans in the foreclosure process. Under the plan, mortgage servicers would agree to the five-year rate freeze voluntarily. The plan would apply to subprime adjustable mortgage loans taken out between January 2005 and July 2007, with rates to rise between January of 2008 and July of 2010. It would apply only to borrowers who had less than 3 per cent equity in their homes and were either current on their payments or no more than 60 days behind. The rate freeze would not include borrowers able to handle higher payments or those unable to make payments even under their current lower rate. A Barclays analysis suggested that only 12 per cent of subprime borrowers, or 240,000 homeowners, would he helped by the freeze. Mark Zandi, chief economist for Moody's Economy.com, also put the number at about 250,000. The plan would also seek to switch as many borrowers as possible with subprime adjustable rate mortgages into more sustainable loans. Mr Bush's proposal would identify borrowers eligible for refinancing and fast-track them into new loans offered by the Federal Housing Association and private lenders.

Dec 7, 2007 02:27

guestestate

US President George W. Bush yesterday formally unveiled a plan to freeze interest rates on some subprime home loans for five years, setting up potential showdowns with mortgage security investors who could see their returns decline and Democrats who say the plan does not go far enough to help troubled homeowners.

The plan, negotiated over a series of meetings with industry executives, is intended to forestall a wave of foreclosures over the next two years as nearly $400bn worth of home loans made to risky subprime borrowers reset at higher interest rates.

The introduction of the plan came as the Mortgage Bankers Association said US home foreclosures reached a record high in the third quarter, with 1.7 per cent of outstanding loans in the foreclosure process.

Under the plan, mortgage servicers would agree to the five-year rate freeze voluntarily. The plan would apply to subprime adjustable mortgage loans taken out between January 2005 and July 2007, with rates to rise between January of 2008 and July of 2010.

It would apply only to borrowers who had less than 3 per cent equity in their homes and were either current on their payments or no more than 60 days behind. The rate freeze would not include borrowers able to handle higher payments or those unable to make payments even under their current lower rate.

A Barclays analysis suggested that only 12 per cent of subprime borrowers, or 240,000 homeowners, would he helped by the freeze. Mark Zandi, chief economist for Moody's Economy.com, also put the number at about 250,000.

The plan would also seek to switch as many borrowers as possible with subprime adjustable rate mortgages into more sustainable loans.

Mr Bush's proposal would identify borrowers eligible for refinancing and fast-track them into new loans offered by the Federal Housing Association and private lenders.

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