Bush set to unveil mortgage relief plan
Thursday, December 6, 2007; 1:31 AM
WASHINGTON (Reuters) - President George W. Bush is expected to unveil a plan on Thursday to prevent a wave of home loan foreclosures that has threatened to knock the U.S. economy into recession and rattled investors worldwide.
The plan hammered out by the U.S. Treasury Department in talks with mortgage industry leaders would bring relief to many of the 2 million homeowners who took out adjustable rate loans with low teaser rates due to move sharply higher in the next year or so.
Officials fear 500,000 Americans could lose their homes.
The initiative is designed to temporarily hold rates steady for subprime borrowers who could not afford to stay in their homes otherwise. The White House said Bush would discuss steps to help distressed homeowners at 1:40 p.m. (1840 GMT) on Thursday, but offered no details on the plan.
As proposed by a mortgage investor trade group, subprime borrowers who took out loans from 2005 through the end of July would be offered a five-year "rate freeze" if they are facing a reset over the coming 2-1/2 years.
During the U.S. housing boom that ended in 2005, many borrowers turned to easy loan terms and low early fixed payments of floating rate subprime loans, which are often extended to borrowers with shaky credit.
Many of these loans were repackaged as securities and sold to investors around the globe. As defaults have risen, investors have scrambled to assess the plummeting value of their assets and banks have written down more than $50 billion of assets tied to mortgages.
Democrats have welcomed the Bush administration's effort but have said more needs to be done.
Treasury Secretary Henry Paulson has worked closely with the investor trade group -- the American Securitization Forum -- as well as mortgage servicers and lenders to nail down a comprehensive plan to modify troubled loans.
Under the plan laid out by the investor group, homeowners who have shown they are a reasonable credit risk, but who could not afford their homes with higher rates, would qualify for "fast-track" loan modification and the five-year interest rate freeze.
Borrowers who can afford their current loan terms would get help refinancing, but those who cannot and were poor credit risks would probably still lose their homes.
(Editing by Eric Walsh)