U.S., Banks Near A Plan to Freeze Subprime Rates
WASHINGTON — The Bush administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans, according to people familiar with the negotiations.
An accord could reassure investors and strapped homeowners, both of whom are anxious as interest rates on more than two million adjustable mortgages are scheduled to jump over the next two years. It could also give a boost to the Bush administration, which is facing criticism for inaction amid the recent housing turmoil.
The plan is being negotiated between regulators including the Treasury Department and a coalition of mortgage-related companies including Citigroup Inc., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. People familiar with the talks say the individual members have agreed to follow any agreement reached by the coalition, which is called the Hope Now Alliance.
Details of the plan, which could be announced as early as next week, are still being worked out. In general, the government and the coalition have largely agreed to extend the lower introductory rate on home loans for certain borrowers who will have trouble making payments once their mortgages increase…
Exactly which borrowers will qualify for the freeze and how long the freeze would last are yet to be determined. Under one scenario, the freeze could run as long as seven years. The parties are developing standard criteria that would determine eligibility. The criteria should be finalized by the end of year.
Read the whole thing, it’s very educational.
The Treasury proposal seems similar to the agreement with four big lenders announced by California Governor Schwartzenegger on Wednesday. It also bears a resemblance to the proposal laid out a month ago by FDIC Chairman Sheila Bair.
Unfortunately, none of these plans will help anyone who’s already in the foreclosure process, whose payments are already in default, or even (apparently) whose ARM has already reset, Like the bill passed by the House two weeks ago, the Treasury proposal is all about preventing future subprime foreclosures.
This is an important objective. Maybe if it works, in a year we’ll be down to just a hundred new foreclosures a week in Cuyahoga County, instead of the two to three hundred we’re seeing now.
But for Cleveland, it’s very much like rebuilding the dikes after Katrina has passed through.