WASHINGTON — President Bush is set to unveil a plan to help struggling homeowners avoid losing their properties, including a five-year freeze on low, introductory mortgage interest rates that would otherwise jump higher in the next few years.
The announcement, which could be made as soon as today, comes as anxiety grows about the nation's economy generally and the troubled housing sector in particular. The concern has begun to resonate on the campaign trail, too.
Democratic presidential front-runner Hillary Clinton, for example, said Wednesday that Wall Street must acknowledge its significant role in the current mortgage crisis and do its part to help solve it.
Speaking at Nasdaq headquarters in New York to a crowd of finance-industry executives, Clinton said that Wall Street enabled and often encouraged risky loans that have devastated middle-class families and threaten the overall economy.
Former North Carolina Sen. John Edwards, another contender for the Democratic nomination, is also calling on lenders to work with struggling homeowners, and argues that any rate freeze on mortgages should last at least seven years.
But the stakes are particularly high for the White House, which would be likely to shoulder the blame if the turmoil in the nation's mortgage markets tips the economy into recession. Interest rates on 1.5 million mortgages are expected to reset higher next year, creating a drag on the economy. Problems with foreclosures are contributing to waning consumer confidence and worries about falling real-estate values for millions of Americans who aren't caught in the trap of rate resets themselves.
Bush, for his part, is focused on staving off foreclosures for people who are making mortgage payments on time, but who will be overwhelmed when the introductory rates on their mortgages rise, and who don't have the cash or home equity needed to refinance.
The president's plan would make it much easier for lenders to freeze the "starter" interest rate for those borrowers for five years, according to a document being circulated by the Treasury Department. The plan applies to loans originated between Jan. 1, 2005, and July 31, 2007, that reset between Jan. 1, 2008, and July 31, 2010. To screen out speculators, owners would have to live in their homes. Office of Thrift Supervision Director John Reich said earlier this week that the plan could help "tens of thousands" of homeowners.
For other borrowers who are in somewhat better shape, the White House also wants to speed up refinancings through the Federal Housing Administration and other sources. For example, the administration wants to allow state and local governments to use more tax-exempt bond programs to fund refinancings.
One of the biggest points of debate has been how long to freeze rates. Investors favor a shorter time frame, perhaps two or three years, while Federal Deposit Insurance Corp. Chairman Sheila Bair favors a much longer period. Investor groups have faced growing pressure to be flexible, however, both from the administration and from Congress.
Bush administration officials helped broker the agreement between the loan servicers who would administer a rate freeze and the investors to whom the mortgage debt has been sold. The deal isn't binding, but because it has the support of major investors, it is expected to give loan servicers much more flexibility to quickly rework some loans and direct other borrowers toward refinancings.
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