The Bush administration Thursday unveiled details of its plan to freeze interest rates for five years for thousands of strapped homeowners whose mortgages were scheduled to rise in the coming months.
The move came on the same day that the nation's mortgage bankers said foreclosures hit a record in the third quarter - with Ohio leading the nation with the highest percentage of loans in foreclosure.
New data show that foreclosures in Southwest Ohio also continued to rise. From January through the end of September, a record 8,298 new foreclosures were filed in Butler, Clermont, Hamilton and Warren counties, according to the Ohio Supreme Court. Filings for those 9 months were up 8.6 percent locally compared to the same period in 2006, while filings statewide rose 5.7 percent, the data show.
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• Special section: Foreclosure's fallout
"Homeowners deserve our help," President Bush said as he announced the agreement between the mortgage industry and its lenders.
The administration hopes to stem a further tidal wave of foreclosures in coming years as 2 million subprime mortgages - loans provided to borrowers with spotty credit histories - reset from their introductory rates of around 7 percent to 8 percent to levels as high as 11 percent, adding hundreds of dollars to the typical monthly payment.
The idea behind it is simple: Help homeowners - and also stabilize the weakening housing market by reducing the number of homes up for sale because of foreclosures, which is also driving down prices. A subsequent housing rebound might enable homeowners to refinance their current adjustable-rate mortgages into fixed-rate loans with more affordable monthly payments.
But the plan was quickly criticized for its limits.
The new mortgage bankers' data showed that "Ohio is among the leading states in foreclosures on prime fixed-rate loans," not just subprime loans, state Treasurer Richard Cordray said. The president's plan "will help in the future, but it will do little to help us right away on Main Street here in Ohio."
Other critics said that even with a deal, there are likely to be lawsuits.
"The $64,000 question remains: Will investors who might balk at going along with this be able to maintain legal roadblocks and prevent the plan from going into effect?'" Sen. Charles Schumer, D-N.Y., asked.
Investors bought the loans, thinking that they would receive higher interest payments when the rates adjusted up.
The plan also was criticized by conservatives, who said the administration was violating its free-market principles by pursuing a government solution to the mortgage crisis. Bush went out of his way to note that the deal was voluntary for lenders and was not a bailout because no government money was involved.
Phil Glasgo, a finance professor at Xavier University, was skeptical that the proposal would solve causes behind the foreclosure crisis.
"It doesn't cure the underlying problem that people bought thousands more (dollars' worth of house) than they could afford and were essentially betting on a buildup of equity - a bet they lost," he said.
There also was wide disagreement on how many of the people facing mortgage-rate resets would be helped by the initiative.
The president said 1.2 million homeowners could be eligible for relief, which includes the rate freeze and helping people refinance into more affordable loans. But the Center for Responsible Lending, a group that promotes homeownership and works to curb predatory lending, said the rules are so strict that only 145,000 households will qualify for the rate freeze.
No matter how many people will ultimately qualify, the program is the biggest effort yet to deal with the surge in mortgage defaults, which have piled up billions of dollars in losses for big banks, hedge funds and other investors while roiling financial markets worldwide. The defaults are the latest economic blow from the worst housing slump in more than two decades. Some economists fear that the housing bust might push the country into recession.
Some details of the new plan:
It covers only homeowners who can't refinance and have adjustable-rate mortgages that were originated between Jan. 1, 2005, and July 31, 2007, and have an interest rate due to reset between Jan. 1, 2008, and July 31, 2010. It's uncertain how many mortgage holders in Greater Cincinnati and Northern Kentucky will be affected. According to data collected under the federal Home Mortgage Disclosure Act, there were 22,264 new high-rate loans originated in the 15-county region in 2006 alone.
The rate freeze will be available to people who are current in their payments (that is, not 30 days late) and who have not been late more than 60 days with a payment in the past 12 months. The freeze also will be available only to people who live in their home, not investors.
If the borrower's payments are current and the borrower could likely refinance into other kinds of mortgages, loan servicers will take all reasonable steps to help, including providing information on products available only from other lenders.
Additional information is available by calling 888-995-4673.
The plan was released after news earlier Thursday that home foreclosures surged to an all-time high in the July-September period.
The Mortgage Bankers Association reported that the percentage of all mortgages that started the foreclosure process in the third quarter jumped to a record 0.78 percent, surpassing the previous record of 0.65 percent of all mortgages in the second quarter.
A record 1.5 million new foreclosures are projected to be filed by the end of 2007, Doug Duncan, the chief economist for the association, said. The figure will easily eclipse the 960,000 new foreclosures in 2006.
Duncan blamed tough economic factors in the Midwest for escalating rates in Ohio.
One of those new foreclosure cases filed through September was against Johnny Luckadoo, a 45-year-old aerospace worker, who lives in Colerain Township with his wife and two children.
Luckadoo and his wife, Keola, refinanced their three-bedroom ranch house with what they thought was a fixed-rate loan, which actually turned out to be an exotic "negative amortization" loan that doesn't even cover full interest costs. At the time of their foreclosure filing, the couple owed almost $96,000 on their house appraised at $86,000.
Since getting help from Legal Aid Society of Southwest Ohio, the couple is claiming its lender violated the Truth in Lending Act and is trying to rescind the loan and renegotiate. Johnny Luckadoo said he thinks that lenders should be forced to be more straightforward.
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source: news.enquirer.com
