A Buffer? Or a Bailout?
Friday, December 7, 2007
Several hundred thousand homeowners will qualify for a freeze in home loan rates under the Bush administration's mortgage-relief agreement announced yesterday, a figure that intensified debate over whether the government is helping too many or too few people at risk of losing their homes.
As fresh data yesterday showed record foreclosures among all types of mortgages, lawmakers on both sides of the aisle worried the plan would bail out people who made bad financial decisions, while Senate Democrats attacked it for not helping enough homeowners.
The numbers at the crux of the criticisms are these: 600,000 holders of subprime loans would be put on track to refinance but with no guarantee they could avoid a prepayment penalty. Another group of homeowners, thought to be fewer than 600,000, would qualify for an interest-rate-freeze for five years.
Only those who took out subprime loans between 2005 and this summer, live in those homes and have credit scores less than 660 will be able to obtain a rate freeze with little hassle.
The plan, announced by President Bush at the White House, will not help another 600,000 subprime mortgage holders who are at serious risk of losing their homes by the end of 2009. Nor would it aid anyone who is in foreclosure, administration officials said.
The ranks of those who fell into foreclosure in the third quarter hit a record of 351,000, according to a Mortgage Bankers Association survey released yesterday. And 5.6 percent of all loans are behind on their mortgage payments, the highest level since 1986.
Foreclosures increased among all kinds of mortgages, though the percentage was highest among subprime adjustable-rate loans, which typically offer higher introductory interest rates to people with questionable credit histories. These mortgages made up 6.8 percent of all outstanding loans but accounted for 43 percent of those entering foreclosure. The hardest-hit states included Florida and California, where the subprime loan business boomed.
Another piece of bad news hit the debt markets yesterday when Moody's Investors Service issued an analysis that defaults on junk bonds could quadruple next year. Such reports and statistics increasingly are becoming part of a politicized debate over the role of the government in solving the mortgage mess.
Several Democratic presidential candidates blasted Bush after his news conference for doing too little too late to help homeowners. Sen. Hillary Rodham Clinton (D-N.Y.) again touted her plan to freeze the rates on all subprime loans, regardless of the holder's income, and impose a 90-day moratorium on foreclosures.
Sen. Christopher J. Dodd (D-Conn.) weighed in, too, saying "for the administration, already late in addressing this crisis, to put forth an agreement that amounts to little more than financial wallpaper is insufficient to say the least."
The political infighting over the mortgage crisis also made for strange bedfellows yesterday.
Some Democrats, who normally support a large role for the government, questioned the wisdom of bailing out one group of homeowners. At a House Financial Services Committee hearing, Chairman Barney Frank (D-Mass.) raised concerns over helping people with bad credit while doing nothing for those with good credit.