Not that helpful

December 7, 2007

Atrios summarizes the Bush plan to prevent more mortgage defaults due to “exploding ARMS” (adjustable rate mortgage resets):

People who qualify:
— have an income and live in their homes
— are currently making their payments on time
— would default if their interest went up

Also:
— ARM mortgage has to have been taken between 1/05 and 7/7
— Has a rate reset between 1/8-1/10

And you don’t qualify if:
— have missed payment
[not exactly accurate, see Bloomberg below]
— can afford mortgage rate increase
— don’t have an income
— own homes which are worth less than their mortgage

The last one is the kicker, as it kicks out the class of people who might actually be able to refinance on their own.

I’m not sure what that last line means, but the general point — that this plan is only for a limited class of people with spotless payment records whose sole problem is that they were deceived (or oblivious) about the interest rate they bought into — seems pretty accurate. I don’t think it’s going to accomplish much in Cleveland. Hope I’m wrong.

Update: Bloomberg

More than 30 percent of borrowers with subprime adjustable- rate mortgages are behind on their payments before their loans reset at a higher rate, according to estimates from analysts at Credit Suisse Group. The bank projects 775,000 homes with $143 billion of mortgage debt will go into foreclosure in the next two years…

To be eligible [for the Bush-Paulson plan], borrowers must not be more than 60 days behind in their payments, have less than 3 percent equity in their property…

House Financial Services Committee Chairman Barney Frank said he told Paulson today that he opposed the agreement’s cut- off of borrowers with credit scores above 660 out of a possible 850.

Update 12/7: A small correction — “spotless credit record” is not a requirement, though “almost spotless payment record” is. As the quote from Barney Frank makes clear (Atrios as well, though in a confusing way), one of the criticisms of the “New Hope” plan is that it excludes borrowers with credit scores above 660. If you’re interested in the deep technicalities of why this might be (via a thrilling descent into the securitization twilight zone of REMICs and Pooling and Service Agreements), see Calculated Risk.

A more important criticism is that it’s going to help very few people who actually need help, especially in northeast Ohio. The NY Times this morning:

Although Mr. Bush unveiled the plan at the White House on Thursday, its terms were set by the mortgage industry and Wall Street firms. The effort is voluntary and it leaves plenty of wiggle room for lenders. Moreover, it would affect only a small number of subprime borrowers…

The heart of Mr. Bush’s plan is a cautious attempt to help troubled homeowners by persuading financiers to freeze mortgages at low introductory rates for five years, but without actually forcing the hands of lenders and investors who hold the mortgages.

One of the financial industry’s lead negotiators estimated that at most 20 percent of subprime borrowers whose payments will increase sharply over the next 18 months — 360,000 out of 1.8 million people — would qualify for rapid consideration of a special five-year freeze on interest rates.

The number of people who actually obtain help would be smaller, because each borrower would face tests aimed at weeding out those considered too hopelessly in debt and those who make too much money to justify relief.

A Reuters story quotes this assessment by Inez Killingsworth of ESOP

“Making this plan voluntary is like asking a crook to turn themselves in. With this meltdown of the subprime market, the mortgage industry has proven that it cannot self-regulate,” said Inez Killingsworth, President, Empowering and Strengthening Ohio’s People, Cleveland. “It is time to get serious about helping homeowners and saving the economy from a further meltdown. This just redlines everybody who is in trouble right now.

(c/p CCD)


U.S. close to subprime adjustable rate freeze deal with major lenders

November 30, 2007

(c/p CCD)

Wall Street Journal Online today:

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.

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Meanwhile, in Washington…

November 3, 2007

Dems urge faster subprime response

Subprime: Bankruptcy bill faces roadblocks

Common Cause: Why do home foreclosure rates remain so high? Updated report shows mortgage industry has continued to spend generously on federal lobbying and campaign contributions as subprime meltdown deepens (h/t Free Times)