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It appears President Bush has everything under control, hell, he just might decide to declare yet another war, this time against “Falling Home Prices” or maybe he will just pen one of those famous signing statements freezing house prices at 2005 levels. Regardless nothing to see here move on, adults are in control.
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By EDMUND L. ANDREWS and VIKAS BAJAJ
WASHINGTON, Dec. 6 —
President Bush announced an agreement with the mortgage industry today to freeze interest rates for up to five years for some of the two million homeowners who bought houses recently with subprime loans.
The president described the accord, hammered out after weeks of talks among Treasury Department officials, mortgage lenders and Wall Street firms, as a way to help deserving homeowners while keeping the housing slump from further affecting an economy that is basically sound.
But far from being a sweeping remedy, the agreement would help only some of the most strapped homeowners, and as homeowners become familiar with terms of the accord, many are bound to be disappointed.
“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,” Mr. Bush said at a White House appearance.
The president urged those homeowners distressed by rising mortgage payments to call a federal hot line for advice. The number is 1-888-995-HOPE .
The agreement would allow distressed borrowers who are current on their payments to keep their low introductory rates and escape an increase of 30 percent or more in their monthly payments when those rates expire.
“The housing market is moving through a period of change,” Mr. Bush said. “In recent years, innovative mortgage products have helped millions of Americans afford their own homes, and that’s good. Unfortunately, some of these products were used irresponsibly.”
“Some lenders made loans that borrowers did not understand, especially in the subprime sector,” Mr. Bush went on. “Some borrowers took out loans they knew they could not afford. And to compound the problem, many mortgages are packaged into securities and sold to investors around the world.”
As the terms of the agreement were becoming known this week, Democratic lawmakers and presidential contenders criticized it as too timid, and promoted more ambitious proposals of their own.
The agreement contains numerous limitations that would exclude many — if not most — subprime borrowers. It would apply to loans taken out between Jan. 1, 2005, and July 30, 2007, and scheduled to rise in 2008 and 2009. It would exclude those who are delinquent on their payments — about 22 percent of all subprime borrowers, according to First American Loan Performance, an industry research firm.
Among those sure to be disappointed are borrowers whose introductory rates expire before Jan. 1. About $57 billion in subprime loans were scheduled to be reset at higher rates in the final three months of this year, according to estimates by First American Loan Performance.
Mortgage companies could also exclude borrowers who they conclude are making enough money to afford higher monthly payments. Barclays Capital — extrapolating from a similar program recently unveiled in California — estimates that only about 12 percent of all subprime borrowers, or 240,000 homeowners, would get relief.
The plan is emerging as fallout from the mortgage crisis is seeping into the political sphere. Until recently, few candidates talked about subprime loans, and few bankers and traders on Wall Street paid much attention to mortgage-crisis declarations on the campaign trail. But with the meltdown growing worse, housing prices still plunging and many economists worrying about a recession, President Bush and his Democratic opponents are now racing to come up with answers.
Mr. Bush said the Justice Department “will continue to pursue wrongdoing in the banking and housing industries, so we can help ensure that those who defraud American consumers face justice.” He also prodded Congress to enact legislation to make more loan assistance available through the Federal Housing Administration.
Democratic presidential candidates have complained that the White House plan was overly narrow.
“It seems that President Bush is going to give struggling homeowners far less than they need,” Senator Hillary Rodham Clinton of New York said in a statement on Monday. “With news accounts using terms like ‘whittled down’ and ‘limited’ to describe the scope of the Bush plan, it appears that the president is pushing a freeze for a very narrow group of borrowers.”
Mrs. Clinton visited the Nasdaq stock market in New York on Wednesday and assailed Wall Street firms for the mortgage mess. She called for a 90-day moratorium on subprime foreclosures and a rate freeze that would apply to all borrowers current on payments and some who have fallen behind.
Despite the criticism, the Bush plan is a significant change in an initial reluctance to impose solutions. As recently as a month ago, Treasury Secretary Henry M. Paulson Jr. argued that lenders should try to work out new terms on a case-by-case basis.
But Mr. Paulson and federal banking regulators became increasingly impatient with the industry’s failure to produce a systematic, rapid approach to evaluating borrowers.
Sheila C. Bair, chairman of the Federal Deposit Insurance Corporation, proposed a comparatively radical plan to permanently freeze rates on all subprime loans. Mr. Paulson rejected that idea, but began to push for a standardized approach that would temporarily freeze rates for many borrowers facing upward adjustments on their monthly payments.
Administration officials emphasized that the rate freeze was only one part of a broader plan. Mr. Bush will also ask Congress to temporarily expand the authority of states and localities to issue tax-exempt mortgage-revenue bonds to help people refinance their mortgages.
Treasury officials are also pushing the industry to come up with a streamlined way to help subprime borrowers refinance with a more conventional, lower-rate mortgage.
Subprime loans typically come with high interest rates, and were originally intended for people with poor credit histories. But some analysts say that more than a third of all subprime borrowers could have qualified for cheaper conventional loans at the outset.
Republican presidential candidates have seemed reluctant to propose government rescue plans, seeing them as a bailout. But they are feeling the heat nonetheless, and some are joining Mr. Paulson’s effort to help people in danger of losing their homes.
“You don’t want to reward speculators,” said Senator John McCain of Arizona, who is running for the Republican nomination. “You’d like to take each individual case on its own, but there’s no time to do that. What’s important is to stop the bleeding.”
John Edwards, the Democratic presidential candidate and former senator from North Carolina, on Wednesday proposed a seven-year freeze in subprime interest rates, as well as a new fund to help distressed borrowers. Mr. Edwards also called for a change in bankruptcy laws that would give homeowners far more bargaining power in negotiating new terms.
Senator Barack Obama of Illinois jumped ahead of many of his Democratic presidential rivals in September with detailed recommendations that included a government rescue fund, changes in bankruptcy law and a new tax credit on mortgage interest for people who do not itemize their taxes and cannot currently deduct their interest payments.
Adding to the political pressure, many of the states that are hardest hit by mortgage defaults and falling home prices are important election swing states. They include Florida, Michigan, Ohio and Pennsylvania.
The first two voting states, Iowa and New Hampshire, have not been particularly hard hit by the housing crisis, but two of the states with early nominating contests — Florida and Nevada — have among the worst problems in the country.
“Even though foreign policy has been dominating the election for the past year, economics will pay a bigger role next year,” said Howard Glaser, a mortgage industry consultant who worked in the Clinton administration and is an adviser to Mrs. Clinton’s campaign. “Not only will the specific mortgage and housing problems intensify, the ripple effects on the economy will also magnify.”
Conrad D. Mulcahy contributed reporting from New York, and David Stout contributed reporting from Washington.
Joe,
I think the pols in both parties are just trying to delay the inevitable.
This will take severals years to correct if the pols do nothing.
It will take even longer if they insist on doing anything but letting the market work itself out. IMHO
Don’t worry, the Dems are taking over very soon. There will be free homes to everyone. Correction, only the people who lie, cheat, steal, don’t work and aren’t supposed to own a property will be receiving the free homes. The rest of us schmucks, (97.2% of the mortgage holders), will just have to continue making the mortgage payment on time as usual.
Socialism, you gotta love it, no?
Merry Christmas All…