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Treasury Secretary Outlines Foreclosure Rescue Plan

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Most of the mortgage bigwigs were in Washington, DC on Monday, attending the National Housing Forum sponsored by the U.S. Office of Thrift Supervision. While the meeting had been scheduled for months, the timing could not have been better as all eyes have been focused on a possible limited bail-out of bankers, servicers, and borrowers caught up in rate adjustments and other problems arising out of the subprime mortgage mess.

Speaking at the Forum, Secretary of the Treasury Henry Paulson commented on an attempt involving the government and private sector players to reduce what is expected to be a huge number of foreclosures over the next year or so.



While insisting that the underlying economy is strong - a statement apparently required in all speeches by officials of this administration - Paulson stated that the housing market downturn is the biggest challenge facing that economy.

Given the cost to individuals, lenders, and whole neighborhoods and communities of the rising number of foreclosures, Treasury, he said, is pursuing a plan to help as many able homeowners as possible to avoid foreclosure "when a homeowner has the financial wherewithal to own a home."

Treasury began the effort by convening a diverse group of market participants, who represent all segments of the mortgage industry. Based on what we have learned Paulson said, the participants are implementing a three point plan to avoid preventable foreclosures and to minimize the impact of the housing downturn on the U.S. economy.

First, efforts will be increased to reach able homeowners who are struggling with their mortgages. This means reaching them early and giving them both information and hope. The need for this became clear based on data showing that 50 percent of foreclosures happen in the absence of any discussion between borrowers and their lenders. In order to make a difference, that percentage must be reduced.

"We learned that mortgage industry leaders had already stepped-up their efforts to reach delinquent borrowers, but many borrowers in trouble were afraid to speak to their lenders. Borrowers did respond more favorably to mortgage counselors, but the counselors didn't know which borrowers most needed assistance. Treasury and HUD helped bring these two groups together in the HOPE NOW alliance - a coalition of mortgage servicers, counselors and investors that are working to avoid preventable foreclosures and to improve the functioning of the mortgage markets."

Paulson said that in the less than two months since it was formed, HOPE NOW has made significant progress. Members are now contacting borrowers 120-days before any scheduled rate reset rather than only after a loan falls several months delinquent. Where borrowers cannot be reached HOPE NOW has launched a nationwide letter campaign which offers a toll-free hotline that homeowners can call to explore their options.

The second step is to increase the availability of affordable solutions for borrowers in trouble. The mortgage industry is looking at solutions such as loan modifications and refinancing. At the same time, state and local governments are also developing solutions including proposing funds that will help some borrowers to refinance out of expensive subprime loans.

Paulson said that current law allows states and local governments to issue tax-exempt bonds to assist first-time homebuyers or buyers in economically distressed areas. The administration is proposing to allow these state and local agencies to temporarily broaden their tax-exempt tax authority to include mortgage refinancings which, if successful, will reduce the cost of innovative mortgage programs and allow them to reach more homeowners.

The Treasury Secretary urged Congress to pass several administration initiatives to provide mortgage relief including passing the President's Federal Housing Administration (FHA) modernization proposal which will lower the required down payment, increase the loan limit, and allow risk-based loan pricing. He estimated that passage of this bill would help refinance some 200,000 homeowners into FHA-insured loans.

He also touted HUD's "FHASecure" program which gives FHA the flexibility to assist even those homeowners who have basically good credit but have fallen delinquent on existing loans. He estimated another 240,000 families will be able to benefit from this program.

The third step that government and industry must take, according to the Secretary, is to develop a systematic solution for transition into affordable mortgages. As the number of struggling homeowners increases as is expected over the next year, the industry will need an aggressive and systematic way to fast-track borrowers into a refinance or mortgage modification. He hastened to add that "this third element does not, and will not, include spending taxpayer money on funding or subsidies for industry participants or homeowners."

Paulson identified, with a broad brush stroke, four categories of subprime borrowers:

  • those who will be able to afford their adjusted interest rate and will need no assistance;
  • those who are already behind on payments under the original loan terms and may not be able to sustain home ownership;
  • those who might choose to refinance their mortgages, putting themselves in a mortgage they can afford while at the same time keeping the investors who own their current mortgages whole. This is the best solution and servicers should move to assist those who can qualify.
  • The fourth category is those with steady incomes and relatively clean payment histories who could afford their initial mortgage rate but not the higher adjusted rate. We are, he said, focusing on this group, determining who they are and what steps may appropriately assist them.

The Secretary stressed that the company who collects the mortgage payment every month is usually limited in the decisions it can make because the loans are owned by others who may, in this global economy, be spread all over the world. He said that the administration is determined to develop a set of standards that can be implemented across the industry.

So, will it work?

Industry officials attending the forum were generally upbeat but tomorrow we will look at some of their responses, why the administration is now moving to address the mortgage issues, and address some of the systemic problems that are going to make the proposed solutions difficult to achieve.

Share your thoughts on this plan by adding your comments below.


Comments

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Bouvier Wilson
on Tue, Dec 4 2007 8:00 AM
The fourth category is where we find myself. I can afford my current mortgage, but not the increase. Simple loan modification would remedy our situations. Someone has to take the hit for this ( call it what it really is, corporate greed ). The big banking gaints have had their way for years. Even slept in the Lincoln Bedroom during afew adimistrations.
Kim
on Tue, Dec 4 2007 8:00 AM
My family may be homeless for Christmas, lender not working with us. GRPFS White Plains NY Parent Comp SallieMae have been unwilling to rewrite, amend or refinance our loan. They will consider a discounted pay off, still puts us out of the home as our credit has suffered pmt has adjusted to $6500 pr month. We have paid GRPFS over $100,000 since May of 2007 to keep our home and have just filed BK to keep the home. Court date of Dec 21, they want it back to lose over $200,000 at foreclosure sale
Mark
on Tue, Dec 4 2007 8:00 AM
This whole thing is ridiculous. Affordablility is the issue and we are losing that. The only thing masking the problem was exotic mortgages that artificially put people into homes. The reality is here and only time will fix the problem. Now they want to push the problem out to another administration. Take the hit now and get it over with.
Doug
on Tue, Dec 4 2007 8:00 AM
What advise do you have for people that currently are not late on their primary home loans. That have allready started falling behind on their other credit obligations. I have lost all my investment real estate and am now looking at bankruptcy. Is there any hope for me. The lender refuses to work with me and I do not qualify for a new loan with any other lender as my credit has now gone down from 740 to below 540. If I am not able to lower the interesdt rate. I will be forced to loose my home.
GimmeABreak
on Tue, Dec 4 2007 8:00 AM
Can't afford the increase??? Then SELL the house and move into something you can actually afford like the rest of us! Why should the government bail out people who were greedy and bought more than they could afford. It is not corporate greed, but the greed of these homeowners that caused the situation in the first place!!!
Doug
on Tue, Dec 4 2007 8:00 AM
I have contacted American Home Mortgage Servicing D. I. P more then 20 times in the past 9 months attempting to refinance my loan with them. They put you on hold up to 40 minutes then disconnect. They will not cooperate with me and have no interest in helping me. They said they went bankrupt 6 months ago and refuse to sell my loan to another lender. They will not lower my increasing interest rate. What advice do you have for people in my situation. I have allready lost all my investment homes.
John Sable
on Wed, Dec 5 2007 8:00 AM
Looking at a way to give solutions to help clients from deliquincys or forclosure Solve the problem at hand short pay on current MTG, roll loan over at lower balance,extend current term with no adjustment, I/O fixed for extended 2 yr period,and give a 2 or 3 month no pay window until client can regain finanial direction. I aggre that the banks have made their proffits and they should be held accountable for working out solutions that work,currently they will do a short pay for new buyers ???????
Rebecca
on Wed, Dec 5 2007 8:00 AM
Lets take it for what it truly is - the people obtaining the loans, the brokers shopping the loans, the banks closing the loans and the investors purchasing the loans are all culpable. However, in my opinion, the borrower and the broker are most culpable - because they are the ones that in the majority of the cases, provided misrepresentations and fraudulent documents to the banks for the underwriters to underwrite. (and yes, a blind eye was often used - because if one bank didn't another would)

What about the rest of us? Those of us who honestly applied and received a fixed rate mortgage and are paying our monthly payment? What break do we get? I will continue to pay 6.75% interest with no concessions while the "liar" loans may only be made to pay the teaser 2% or 3%. Are the economist honestly looking at the impact the proposed actions will have on the national and global economy? The rights of all property owners should be considered, not just the few adversely affected.

Let's face it, the people who honestly applied and qualified for the loans should still be able to obtain a fixed rate mortgage or a modification to a fixed rate. The Banks, the taxpayers and the economy are the losers, and the crooks are the winners, once again. The rat race is over and the rats won.
A Seasoned Loan Officer
on Wed, Dec 5 2007 8:00 AM
As a loan officer for over 17 yrs, I have seen mortgage programs go from 5% down payment to the ever popular "Zero" down. If I have a borrower who comes to me wanting to buy a house and I have a lender that is willing to lend them the money then I have done both a service. The bottom line is that the consumer needs to take responsiblity for their financial decisions. If they knew they couldn't afford the payment & it was an ARM rate then they shouldn't have closed on the loan in the first place
Jeannie
on Wed, Dec 5 2007 8:00 AM
I have a 790 credit score and pay my all my bills on time. I don't charge amounts that I know I can't pay off and I don't spend every dime I make on needless material things. I have a budget on dining out and have the will power to say no to my children who want everything. It's called living within your means. You have to plan for a possible financial crisis and be smart when purchasing a home. I don't think that it's fair to bail someone out when they have made poor financial decisions.
Frank
on Wed, Dec 5 2007 8:00 AM
We can send billions to other countries, why can't we help our own. Our Government needs to wake up.
Mike
on Wed, Dec 5 2007 8:00 AM
It's ENTITLEMENT-NO ONE TALKS ABOUT: MOST shouldn't have gotten INTO house to begin with-100% financing & unprovable income. These UNQUALIFIED buyers created unaffordable homes & taxes for the rest of us. Any price was OK as long as approved for =demand=INSTANT "fake equity" THEN as early as 2-3 years AGO they couldn't pay mtg. From $0 down they now lived off $100,000+ CASH from refi after refi (ARM was OK THEN). NOW NO LOANS AVAILABLE ANYMORE=NO CASH, so lets call it a RESET PROBLEM !!
matt
on Wed, Dec 5 2007 8:00 AM
You said "Someone has to take the hit for this" & "Corporate Greed" What about individual greed? How about taking ownership in your decisions? I have dealt with far too many people that side step true mortgage advice for the "Sounds too good to be true offers"-Well now those Negative Amortiztions have come home to roost.....I cannot tell you how many I advised against only to have the individual move forward with these loans-
Erika
on Wed, Dec 5 2007 8:00 AM
We financed with a lender (bank) however, they sold our loan to a bunch of investors (hedge funds) is that fair? Didn't know our loan was sold to those types of investors. I think that is part of the reason HSBC Mortgage won't do a reset and put us in an affordable fixed rate mortage. Our pymts have gone from $1475 to now $2400 and our credit to crap as a result! We can't refi because we had a fraudulent appraisal (extra 400 sq ft and bdrm) and now can't get the necessary value to refi!
Erika
on Wed, Dec 5 2007 8:00 AM
This is a continuation of my other comment: Therefore, we have decided because we can no longer afford the pymts and the unwillngness to refi us into a fixed that it is hopeless to even continue making pymts even if we could afford it. Why bother paying rent on a house that had a fraudulent appraisal and not being able to refi out of it partly because of that and now because of the bad credit!
jose
on Wed, Dec 5 2007 8:00 AM
The foreclosure phenomenon that we are experiencing today is a direct result of the subprime lending practices. Consumers and speculators purchased over inflated priced properties to the tune of two to three times what should have been the true value. Now, the government and the mortgage tycoons are engineering another scheme by increasing the cap on the jumbo loans higher than $417K and freezing the rates on the outstanding subprime loans.

If the current owners are unable to pay for those properties even if they were priced at $417K, what makes the government and the lending institutions think that raising the cap to the jumbo loans will help. I know. It is not in the best interest of the government to allow properties to go back to a more realistic value. They'll be collecting half the property tax they have been collecting for the last four years.
jose
on Wed, Dec 5 2007 8:00 AM
And the lending institution will attempt to regain liquidity by selling the properties for more than what they are worth.
Anonymous
on Wed, Dec 5 2007 8:00 AM
If I were in that situation, the one I would be the most angry with is myself. Do the mortgage documents disclose what was going to happen with your rate and payment? Did any of you take the time to learn what that meant before you signed it? Read anything that teaching the basics of ARMS? Were any of you coerced or bribed to sign those documents against your will? Ignorance is not a valid defense. It's pretty simple - if you didn't know what it meant, you shouldn't have signed it.
reality
on Wed, Dec 5 2007 8:00 AM
We have two choices. (1) Allow the lenders to continue to hide their losses. This will cause our economy to suffer the same fate as Japan (15 years of economic stagnation!). (2) Allow our economy to correct quickly. In the end real estate values will be the same.
james - LO, RE
on Thu, Dec 6 2007 8:00 AM
This is the fault of the brokers and banks. How many times have you heard radio ads and internet banner ads offering unrealistic rates? Brokers and banks were competing more and more and offering more unreasonable terms and rates. 50 and 60 year terms! Stop blaming the buyers, they just wanted a house, the LOs and brokers really knew what was going on, they had all the docs in front of them and still offered the loan. 100% financing with a 580! Please.

If the brokers and banks would have stuck together and said "No, you can't afford a 250k house with your SS income" then we wouldn't be facing this problem now.
Matt Graham
on Thu, Dec 6 2007 8:00 AM
And if people with SS income who wanted the 250k house didn't tell the broker for that loan or they would get it elsewhere, thus making the broker do the loan or go out of business, this wouldn't have happened either. It goes both ways. Many were overly exuberant. Lots of people weren't paying attention or had a false sense of security.
Anonymous
on Thu, Dec 6 2007 8:00 AM
To under the intricacies of the modern banking society one must first understand the root of The Federal Reserve and who the key players are. Their secret is that they have annexed from governments, monarchies, and republics the power to create the world's money and economy it is all out lined in a documentary The Money Masters. Leaves one wondering who has true control over the global economy...
Mike
on Thu, Dec 6 2007 8:00 AM
I've been in the business for 23 years, in the past 3 years 98% of my loans were refinances out of teaser rates to FIXED before it was too late. THANKFULLY SUBPRIME helped them as not even the almighty FHA would. ONLY 1 of 10 took the offer to pay $0-$100 month more, (w/chip on shoulder) the UNREALISTIC overextended others w/bad credit wanted another $10,000 cash + LOWER PAYMENTS $500+ month or wasn't worth it. THEY HAD A CHOICE, NOW HERE WE ARE !
Mike
on Fri, Dec 7 2007 8:00 AM
NOW instead of correcting past mistakes Paulson wants TAXPAYERS to do it again by LOOSENING the ALREADY ridiculously easy FHA standards that ALREADY allows 98% financing for those w/poor credit scores
Mike
on Fri, Dec 7 2007 8:00 AM
Don't blame the brokers & banks... EVER HEAR OF FHA?? In 2002 when 'the FED' could NOT stimulate the economy after 2000 Recession & 9/11 they TOLD the industry to "TEMPORARILY" FIND ALTERNATIVES to make home ownership 'POSSIBLE' FOR EVERYONE, sound familiar to the HOPE Bailout?
joe
on Fri, Dec 7 2007 8:00 AM
i have a loan several years old and the payments are getting more difficult to make. will the govenment bale me out as i do have great credit and always worked and saved ?
Pamela
on Sun, Dec 9 2007 8:00 AM
Simpley Amazing!!! I feel sorry for our new President Elects. Presidant Bush and Greenspan created the American dream, Mandated every city to build more homes, create jobs, then lowered home interest rates to 1% and 100% financing and no documentation loans. Our econommy was booming and no one complained until the party was over and they had to pay the mortgage that is clearly spelled out in their loan doc's. Opp's cant read english maybe that is the problem. Solution Let's sue Bic their INK..
Rosa Maria
on Tue, Dec 25 2007 8:00 AM
When things go wrong, we blame others, but us. We blame the government, lenders, builders, realtors, bankers, immigrants, buyers, etc. Some of whom have lost their jobs, their homes and credits. Many people participated in the housing revolution. The bigger, the better! Is that wrong? Perhaps Not! It is jut that just like most things in life, the higher the stake, the higher the risk. Let's just learn from it, find solutions for now, and for when it happens again in 10 to 14 years from now.
Anonymous
on Tue, Mar 18 2008 7:00 AM
Some of you people make me sick! You're SO ready to blame people for trying to make a better life with the best they can get! And what about those who just had NO choice in their situation? I bought a nice LITTLE home with payments I could afford. Then I was diagnosed with cancer. I can't work. It's terminal. I had to refinance and draw out the equity. The payments shot up too high and I can't afford them anymore. So, I guess I should just DIE of this cancer, homeless. Yeah, it's ALL my own fault! NOBODY knows the future. What YOU self rightous people have now may not be what you have in a year or two. And I bet you'll cry for some help or a bail out then!
Mari
on Sat, Aug 16 2008 7:00 AM
I see a lot of angry comments. What do you say to my situation: Last year in July 07 despite being on disability we paid the mortgage and everything we owed on time. The following month tried to refi my house and was informed that my July 07 pyment was late. Contacted EMC Mortgage about this and said they had no record of payment. I had to submit a letter so they could conduct an "investigation". It took them almost 6 months to do and despite the fact that they admitted they made the mistake...they wanted me to show proof that I had money in the bank to pay my mortgage as if by some miracle I was supposed to know this was going to happen and I was going to be free & clear of fault. After many months of fighting with them, because you cant work with these people.....they have sent me a letter saying they are nofying all the credit agencies that there was an error in reporting. In the process they have tried to forclose my home because I refused to pay the adjustable. I have submitted 6 modification applications to no avail. Everytime I submit a payment to them I do it in a secure form (wire transfer or fedex) and I still get letter at home saying that they have not received my payment when they already cashed the check. As far as options, I doubt this rescue plan will be for us. My only other alternative would be BK in order to reclaim my house. Did I do anything foolish to loose my house? No, but with some of the comments I see here I am sure someone is going to think we did. We don't have an extravagant lifestyle. We buy only clearances and sales. My son or I don't wear anything over $30.00 and we don't eat out because of health reasons. I have asked this Mortgage co. to freeze my adjustable and keep my mortgage what it was. Before July of 07, everything was impeccable we made sure everything was paid first and it did not get me anywhere. The only reason I had not refi a few months before because of the prepayment penalty. At the time it seemed foolish to loose so much money just because. We were only 3 months away from being able to refi without a problem. Now we couldnt get anyone to touch us with a 10' pole. What is worse, we are getting tired of this fight and it is taking a toll on everybody in my home. Was we at fault of this? No, we did everything we were supposed to in order to stay within our limits despite the fact that there have been health emergencies and I have a son with moderate special needs. It does not make sense how I have tried to work with this lender and how they would rather loose 383k and have the house sit for more than a year before they can even sell for a fraction of what it is really worth. I am willing to pay my debt, they just don't want to fix what they created. There I vented!!!