Dec. 3, 2007 - Deal close to help stave foreclosures

The administration's plan won't help all

US Treasury Secretary, Henry Paulson, said today that the Bush administration is very close to finding a way to help borrowers who can afford their mortgages at the lower initial 'teaser' rate, but who are unlikely to be able to afford their mortgages at the soon to be implemented higher rates.

According to Secretary Paulson, many borrowers that will not be able to meet higher rates after teaser rates expire still have 'steady incomes' and clean payment histories. Paulson wants lenders to freeze the "teaser" rates on large numbers of adjustable-rate mortgage (ARM) loans, if the borrowers holding those loans would otherwise end up in foreclosure.

A Boston Fed research shows that 20% of borrowers with subprime ARMs nationwide should be able to refinance "relatively easily" into a prime mortgage or get into a loan-guarantee program. It was found that at the time they took out their original loans, this 20% of subprime borrowers had relatively good credit scores, held at least 10% equity in their homes, provided full documentation of their income and assets and said they planned to live in the home. This is the group that stands to gain most from any proposed government effort to keep people in their homes.

The plan envisions members of an administration backed HOPE NOW coalition -- including mortgage servicers, counselors and investors will work together to contact borrowers facing interest rate resets, and provide relief for many who are facing foreclosure. The media reported that executives with Countrywide Financial Corp., Washington Mutual Inc. and Fannie Mae attended the forum and expressed support for the plan.

Another part of Paulson's solution is to allow state and local governments to temporarily expand their tax-exempt bond programs to include mortgage refinancings. If enacted, it is projected that this will reduce the cost of innovative mortgage programs and allow these programs to reach more struggling homeowners,' Paulson said. Read Paulson's remarks

Source: US Treasury, Inman News, WSJ, Forbes