May not be the time to stop paying now...and the market actually liked it briefly. But here comes the 40 year mortgages. I know I wouldn't want one of those.
http://www.nytimes.com/2008/11/12/busine....White House Scales Back a Mortgage Relief Plan
By EDMUND L. ANDREWS
Published: November 11, 2008
WASHINGTON — The Bush administration is backing away from proposals to have the government refinance a broad swath of homeowners who face foreclosure after taking out subprime mortgages and other high-risk loans over the last few years.
The clearest sign of retreat came on Tuesday, when administration officials announced a much more limited plan to help people who have become seriously delinquent on conventional loans guaranteed by Fannie Mae and Freddie Mac, the two government-controlled mortgage finance companies.
The plan announced on Tuesday could lead to lower monthly payments for several hundred thousand homeowners, according to officials. But it would have virtually no impact on the millions of people who took out expensive subprime loans and who are at the heart of the nation’s foreclosure crisis.
The plan fell well short of one championed by the chairwoman of the Federal Deposit Insurance Corporation, Sheila C. Bair. As recently as two weeks ago, Ms. Bair thought she was close to an agreement with the Treasury Department on a plan to spend as much as $50 billion to modify mortgages and keep people in their homes.
But people close to Ms. Bair said Treasury officials broke off the discussion early last week.
Shortly after Fannie Mae and Freddie Mac announced their new plan, Ms. Bair declared that it was inadequate and pointedly said that the government had spent hundreds of billions of dollars to bail out financial institutions like American International Group, the giant insurer.
The plan “falls short of what is needed to achieve wide-scale modifications of distressed mortgages,” Ms. Bair said in a written statement on Tuesday. “As we lend and invest hundreds of billions of dollars to help institutions suffering leveraged losses from defaulting mortgages, we must also devote some of that money to fixing the front-end problem: too many unaffordable home loans.”
Senior Treasury officials said they were still working on ideas to reduce foreclosures and had not yet rejected Ms. Bair’s proposal.
“There is an ongoing process to examine additional foreclosure prevention proposals such as the F.D.I.C. proposal,” said Michele Davis, a spokeswoman for the Treasury secretary, Henry M. Paulson Jr.
Democratic lawmakers have become increasingly impatient with the Treasury Department’s implementation of the $700 billion bailout program — known as the Troubled Asset Relief Program, or TARP — that Congress approved in early November.
So far, Mr. Paulson has committed $265 billion out of the initial $350 billion that Congress approved to prop up banks and financial institutions. Those commitments consist of $125 billion for capital injections into the nation’s nine biggest banking companies; $100 billion for injections in regional banks; and $40 billion to buy up preferred shares in American International Group.
“I’d like to see them use more of the money in TARP to help homeowners,” said Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee. “I think we’ve given them more authority than they have used.”
To be sure, the program announced on Tuesday by Fannie Mae and Freddie Mac could lead to significantly lower mortgage payments for several hundred thousand people facing foreclosures.
The program would be open to people who are at least three months delinquent on mortgages that are either owned or guaranteed by Fannie Mae or Freddie Mac. The goal would be to reduce the monthly payments on all of those loans — by stretching the term to 40 years, or lowering the interest rate, or even lowering the amount of the loan — so that payments would not be higher than 38 percent of a family’s monthly income.
“Foreclosures hurt families, their neighbors, whole communities and the overall housing market,” said James B. Lockhart, director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.
But the plan directly affects only those people with loans controlled by Fannie Mae and Freddie Mac, and those mortgages are mostly conservative “conforming” mortgages rather than the high-risk subprime loans.
The foreclosure rate on loans owned by Fannie Mae is about 1.72 percent. By contrast, the foreclosure rate on adjustable-rate subprime loans is nearly 20 percent, according to the Mortgage Bankers Association.
Treasury officials acknowledged that the program would not be a cure-all.
“There is no silver bullet to address the housing downturn,” said Neel Kashkari, the assistant Treasury secretary who oversees the bailout program. “We are experiencing a necessary correction and the sooner we work through it, the sooner housing can again contribute to our economic growth.”
But housing advocates were more skeptical.
“It’s a positive step for the loans that Fannie Mae and Freddie Mac control, but it doesn’t solve the foreclosure crisis for the country,” said Eric Stein, a senior vice president of the Center for Responsible Lending, a nonprofit organization that has called for tougher action. “More needs to be done.”
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