Help to slow the foreclosures

WASHINGTON -- Jerry Alberson has devoted a lot of time and energy to remodeling his lakefront home in Mississippi. He says he is not looking for a government bailout, just a temporary break on his mortgage.

"I'm not asking them to give me anything, just some time out," he says.

Alberson, 48, is hoping he will be one of thousands of homeowners who will be able to qualify for a program announced Thursday by President Bush that will freeze rates on certain subprime mortgages for five years.

His mortgage is scheduled to reset next August, pushing his monthly payment up to around $1,600 a month, about $300 more than he is paying now. "That freeze will definitely help," he says. "It will help everyone recover."

The administration's plan is the biggest move yet to show it is dealing aggressively with the mortgage crisis. The escalating problem is becoming a political issue and threatening to push the country into a recession.

"The holidays are fast approaching and this will be a time of anxiety for Americans worried about their mortgages and their homes," Bush said. The administration's efforts, he said, are "a sensible response to a serious challenge."

The initiative would hold down rates for certain subprime mortgages, which are loans offered to borrowers with spotty credit histories. These loans offer initial "teaser" rates for the first two to three years before rates climb sharply, potentially increasing monthly payments by as much as 30 percent.

Bush released his plan on a day the Mortgage Bankers Association reported the number of mortgages entering the foreclosure process in the July-September period set a record. Behind those foreclosures is a steep slump in the housing market. After a five-year boom, home sales are plunging and prices declining in many parts of the country. More foreclosures mean more homes dumped on a glutted market.

The housing slump has caused multibillion-dollar losses at some of the largest banks and investment firms and roiled financial markets. All these problems are expected to drag down economic growth to near recession levels over the final three months of this year and into early 2008.

The administration hopes the rate freeze will slow the pace of foreclosures, buying time for the housing market to stabilize and begin to recover. A rebound in sales and home prices will allow struggling homeowners to switch their current adjustable-rate mortgages to more affordable fixed-rate loans.

At his White House announcement, Bush insisted the country's underlying economic fundamentals were sound. But critics said his administration was slow in reacting to the housing crisis and the delay had worsened the slump. Some contended Bush's plan was too narrowly focused.

Democratic presidential candidate John Edwards cited his proposal for a freeze on any more foreclosures. That is intended to pressure lenders to renegotiate. New York Sen. Hillary Rodham Clinton said the plan excludes 400,000 families whose mortgages are resetting in the final three months of this year; the program will cover only mortgages that are resetting from Jan. 1, 2008, through July 31, 2010.

Bush pointed blame at the Democratic-controlled Congress. Lawmakers, he said, have failed to act on various housing proposals from the administration. One would expand the ability of the Federal Housing Administration to help low- and moderate-income borrowers.

But Senate Majority Leader Harry Reid said Republicans have blocked efforts to get House-passed bills through the Senate in recent weeks.

Sen. Charles Schumer, who has sought a bolder government response, said Bush's mortgage freeze may help but is not a panacea. "There are too many families who have been left out, too much left up to the voluntary willingness of the private sector and too little disclosure and transparency to ensure that families who do qualify are being helped," said Schumer, a New York Democrat.

The administration said its plan could help 1.2 million homeowners -- either through a freeze or quicker ways to help homeowners refinance. The Center for Responsible Lending, which battles predatory lending, estimated that only 145,000 homeowners would qualify for the freeze because the criteria are too narrow.

Bush said homeowners concerned about mortgages that are about to jump up should seek help before they fall behind in their payments. For starters, they can call a hot line operated by an industry alliance known as HOPE NOW: 1-888-995-HOPE.

An estimated 1.8 million homes have subprime mortgages that are scheduled to reset in the next two years. Those mortgages were initially taken out with rates of around 7 percent to 8 percent. Under the scheduled increases, the rates will climb as high as 11 percent in the months ahead without the freeze. That increase could add an additional $350 to a typical monthly mortgage payment of $1,200.

The freeze will be available only to homeowners who have not fallen behind on their payments at the lower introductory rates and who are living in the homes. This requirement would exclude people who bought investment properties hoping to profit from the housing boom.

Also excluded are people who can afford the higher payments. The administration expects these people will move as soon as they can to refinance to more affordable fixed-rate loans.

The administration also highlighted other efforts aimed at dealing with the mortgage crisis and strengthening efforts to attack predatory lending, which critics say was a primary culprit in luring people into mortgages they could not afford.

The Federal Reserve will announce stronger lending standards this month, while the Housing and Urban Development Department and federal banking regulators are acting to improve disclosure requirements, Bush said.

Fed Chairman Ben Bernanke said the proposals were a "welcome step in helping Americans protect their homes and communities from the consequences of unnecessary foreclosures." Treasury Secretary Henry Paulson, who led the weeks of negotiations with the mortgage industry, said the new approach is "not a silver bullet" but should provide significant relief.

The big sticking point in the negotiations was getting investors who had purchased the mortgages after they were bundled into securities to agree to lower interest payments. Critics have said even with a deal, there are likely to be lawsuits although the plan's supporters said they believed it will withstand legal challenges.

George Miller, executive director of the American Securitization Forum, which represents companies that package mortgages into mortgage-backed securities, told reporters he expected the industry would face suits from investors unhappy that the original terms of the mortgages have been modified.

The program

• Mortgage rates will be frozen for five years if they are to jump between Jan. 1, 2008, and July 31, 2010.

• To qualify, you must be current on your mortgage at the lower introductory rate, and you must show you can't afford the higher rate.

• No federal money involved.

• Hotline: (888) 995-HOPE.