Government-Backed Mortgage Rescue Plan Announced
- Dec 06, 2007
President Bush today announced the highly anticipated interest rate freeze program, designed to help prevent further waves of home foreclosures.
The voluntary, private-sector arrangement involves no government funding and will only affect mortgages for owner-occupied homes. You can’t have missed any payments, and the loan has to have been taken out between 2005 and July 30, 2007 and be set to reset in 2008 or 2009, according to MSNBC.
“There is no perfect solution,” President Bush said during the announcement. “The homeowners deserve our help. The steps I’ve outlined today are a sensible response to a serious challenge.” (Watch the announcement here and news coverage about it here.)
The steps include:
- Buying homeowners with good credit extra time. The FHA now has more flexibility help homeowners with good credit histories refinance, which could help 300,000 families.
- Changing lending standards. The Federal Reserve will announce stronger lending standards this month. The Housing and Urban Development Department and federal banking regulators are working to increase disclosure requirements.
- Freezing some rates. Introductory “teaser” rates that were offered on select subprime mortgages will be frozen so that rates can’t rapidly increase up for five years.
Reactions, as the Chicago Tribune reported, to the plan were mixed. Some said investors would never buy into it. Others felt it was just what the industry needed because solving the problem on a case-by-case basis was simply too impractical.
The plan is supposed to give the housing market a chance to rebound so that homeowners can refinance their current ARMs into fixed-rate loans with more reasonable monthly payments.
And, of course, once again, it was made very clear that the government is *not* doing this to bail out any flippers, lenders or poor planners. Bush stressed the plan was designed to help " responsible homeowners who could avoid foreclosure with some assistance.”
The 1.2 million people who the government said could qualify for the plan might agree. And the others? They’re being redirected to their lenders to refinance and switch to loans secured by the Federal Housing Administration–which may prove easier said than done.
They’ve set up a new hot line for troubled homeowners–1-888-995-HOPE (which Bush first gave the incorrect number for, and was later corrected, so if you were watching the newscast but turned the channel, write the above number down.)
According to the Bush administration, there are 2 million subprime mortgage holders due for trouble in the next few years–so even if all 1.2 million people who the plan could help make use of it, many U.S. homeowners will still default and fall into foreclosure.
Was today’s plan enough of a fix? Or do we need a better solution to reach out to those who have fallen behind on payments already and may not have good credit?
Is it fair to penalize and push aside those who, possibly due to our slowing economy, can’t keep up financially with their home payments as they are about to really not be able to keep up with home payments? What are your thoughts?