Subprime Aid Plan Speculation Starts Off the Week

Today’s news contained a number of stories speculating on what the proposed bailout system would be (and it should be noted almost all stressed no government official feels this is a true bailout–those able to afford higher payments and homeowners seriously at risk likely won’t be helped.)

Here’s what we knew this morning about the plan:

  • It Has Tentative Support. Office of Thrift Supervision Director John Reich said on Monday that U.S. banking regulators are in agreement about a plan to modify subprime mortgages, Reuters reports. Reich said he’s up for freezing the rates for at least three years.
  • The Government Backs It, But Not Financially. The Bush Administration is now behind such a plan, AP reports. The mortgage industry will finalize the plan and the government isn’t paying for it, according to the LA Times.
  • Not Everybody Will Be Helped. Who will get the rate break? Details haven’t been released, but certainly not everybody. We did know the proposal has been targeted to help owner-occupied homes and not flippers or other investors. You must also be current with your payments to qualify–those already defaulting may be out of luck.

Treasury Secretary Henry Paulson, speaking this morning at the Office of Thrift Supervision conference, revealed a bit more about the plan. It would affect borrowers "with steady incomes and relatively clean payment histories."

Paulson also suggested giving state and local governments a temporary exemption on taxes on bonds issued to help refinance subprime borrowers, according to Bloomberg.

Interestingly, the plan isn’t the only thing under debate. The number of people in trouble due to mortgage resets is also unclear: Accounts vary from 1 to more than 2 million. According to the Federal Reserve, 500,000 are in danger of losing their homes, Reuters reported Monday. (Paulson wouldn’t comment on the amount.)

One million or two million, it’s more than enough to cause havoc (well, more havoc) in our economy–and more than enough reason to address the issue before the foreclosure rate gets any higher. We’ve read in recent weeks about crime increasing in suburban neighborhoods with high foreclosure-induced vacancy rates and about banks becoming unwilling owners of far too many properties to quickly sell. Waiting to see what the next bad byproduct of the housing decline will be is not an advisable position.

The only real question left to ask isn’t whether or not we need to try to correct the subprime situation–it’s when this plan will be announced.

Many are speculating that will happen this week, possibly Thursday. Stay tuned to Out and About for full coverage this week.