Posted by Becca_FL on 12/6/07 8:55am
Msg #224614
Bush Aims to Prolong Expansion With Subprime Freeze
Bush Aims to Prolong Expansion With Subprime Freeze (Update1)
By Alison Vekshin
Dec. 6 (Bloomberg) -- President George W. Bush today will announce a freeze on some subprime mortgages in an effort to stop a wave of foreclosures undoing the six-year expansion.
Treasury Secretary Henry Paulson and regulators forged the agreement with lenders that will fix interest rates on some loans for five years, said people familiar with the plan. The deal is focused on borrowers who will fall behind once initially low rates reset to higher levels through July 2010.
The housing slump, now in its third year, is pushing home values down and restraining economic growth, which economists estimate will be less than 1 percent this quarter. The collapse in the market for securities backed by subprime mortgages cost the chief executive officers of Merrill Lynch & Co. and Citigroup Inc. their jobs, roiled markets from Auckland to New York and forced the Federal Reserve to cut interest rates twice.
``The magnitude of the economic impact on housing prices in the absence of this plan under current conditions is large,'' said Susan Wachter, professor of real estate at the University of Pennsylvania's Wharton School in Philadelphia.
Bush is scheduled to make a statement on the housing industry at 1:40 p.m. in Washington and Paulson speaks at a press conference later today.
Global stocks rose, led by financial companies. The MSCI World Index added 0.4 percent to 1,615.44, a four-week high, as of 11:25 a.m. in London. Stocks in Europe rose for a second day, while Asian shares rallied to the highest in a month. Futures on the Standard & Poor's 500 Index advanced 0.4 percent.
Foreclosure Projections
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.
``We know when foreclosures hit, it brings down the value of the neighborhood by 20 percent,'' said David Olson, president and co-founder of Wholesale Access Mortgage Research and Consulting Inc. in Columbia, Maryland. ```That's what they are trying to avoid.''
Officials and executives from companies including Citigroup, Wells Fargo & Co. and Washington Mutual Inc. spent much of the past week negotiating how long to extend starter rates on subprime mortgages, which are usually given to people with poor or incomplete credit histories.
Mortgage Freeze
The freeze will apply to mortgages issued between January 2005 and July 2007 that are scheduled to reset between January 2008 and July 2010, said the people familiar with the plan.
To be eligible, borrowers must not be more than 60 days behind in their payments, have less than 3 percent equity in their property and be unable to afford higher interest rates once starter rates increase.
The accord may help between 200,000 and 500,000 borrowers, representing as much as a quarter of the 2 million adjustable- rate mortgages due to reset over the next two years, according to Olson. He based his calculations on Paulson's recent public remarks and discussions with contacts involved in the negotiations.
``We have got to do something drastic, and we have to do something quickly,'' said Representative Elton Gallegly, a Republican from California. ``I don't like the government getting involved in the private sector, but we have potential problems we are already seeing come to pass.''
Political Response
Democratic Senator Hillary Clinton of New York, a candidate for her party's presidential nomination, reiterated her support for a five-year freeze. Some Republicans expressed skepticism.
``My biggest concern is that there are a lot of Americans who are making their mortgage payments, they are current, and the benefit won't go to them,'' Representative Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, told reporters after a meeting with Paulson yesterday.
One challenge has been to craft a deal minimizing lawsuits from investors in bonds backed by the mortgages being rewritten, analysts said. The longer that lower rates are extended, the more risk posed to the bonds' values. Republican Representative Mike Castle of Delaware has proposed legislation offering a ``safe harbor from legal liability'' to mortgage servicers.
`Sanctity of Contracts'
``The things that make the U.S. mortgage market the capital-market success that it is are property rights and the sanctity of contracts, so they have to be careful to not damage either one of those,'' said Scott Simon, head of mortgage- and asset-backed bond investing at Pacific Investment Management Co.
Simon, whose Newport Beach, California-based firm manages the world's largest bond fund, declined to comment on the plan itself until its details are announced.
Foreclosures almost doubled in October from a year earlier as subprime borrowers failed to make higher payments, Irvine, California-based RealtyTrac Inc. said Nov. 29.
Adjustable-rate subprime mortgages usually begin with 7 percent to 9 percent rates that reset to between 11 percent and 13 percent. ``What we are talking about is having these loans modified, so they continue for a longer period of time at the starter rate,'' John Reich, director of the Office of Thrift Supervision, said in an interview Dec. 3.
To contact the reporter on this story: Alison Vekshin in Washington at [e-mail address]
Last Updated: December 6, 2007 06:47 EST
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Reply by Phillip/TX on 12/6/07 10:44am
Msg #224647
Re: Phillip/TX....
No we never did a title search, but you want the persons signing the modification to have interest in the property. What if the husband and wife were divorced, she kept the house, he really has no interest in it anymore, (other than still being vested and on the original loan) but she could not get a loan in her own name. She is remarried... she signs her line, the NEW husband signs for the EX husband... or she signs for both... there has to be something that shows that both parties listed are the ones signing.
This is just how one lender in Texas does it... the lender I worked for, for 4 years, I am not saying it is the way of the future or how other lenders have done it or will do it. Just how we did it.
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