Bush Subprime Mortgage Plan Will Be Finalized Soon

ABC News has an interview with Treasury Secretary Henry Paulson in which he says that the administration’s plan to help subprime borrowers is nearing completion.

The plan is “industry sponsored” and would offer rate freezes to those homeowners who have the “capability” to own a home, but will lose theirs when the rates reset.

“If there was ever a role for government, it’s to help facilitate a solution when innovation has outrun the private sector’s ability to deal with it,” said Paulson. “And there’s been a lot of innovation and complexity in the mortgage market, and we need to do everything we can to help get the industry ready to meet the growing number of resets that are going to be coming in the subprime mortgage market.”

By innovation does he actually mean “corruption” or “incompetence?” We’re not sure. Anyway:

The plan would establish guidelines for lenders to freeze payments for homeowners who qualify for the program. Paulson said the program would be completely voluntary, and only some borrowers would qualify.

He said homeowners who can handle an increase in payments and those who don’t “have the financial capability to own a home” will not be offered an interest-rate “freeze.”

“We’re focused on those in the center — the middle group — that are going to have a problem meeting their payment, but it’s in the industry’s interest to come up with a solution to help them stay in their homes.”

EXCLUSIVE: Treasury Secretary Paulson ‘Optimistic’ Mortgage Plan Will Be Finished Soon [ABCNEws]

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  1. Me - now with more humidity says:

    Fat lot of good it’ll do the folks who already got crushed– they could have made the payment before the bump, but can’t now.

  2. warf0x0r says:

    Fat lot of good it will do investors who are counting on the money that those interest rate bumps were going to bring them…

    man, we really screwed ourselves.

  3. G-Dog says:

    Why do I get the feeling that this will only benefit 60+ year old white Layers in the end?

  4. Me - now with more humidity says:

    WARFOXOR: would you rather have the property back?

  5. Mojosan says:

    I want my the gubmint to pay my mortgage too!

  6. thewriteguy says:

    Sounds like more corporate welfare.

  7. goodkitty says:

    This is called closing the barn doors after the horses have escaped. Who’s up for some good ol’ fashioned industry reforms and regulation? Yeah!

  8. iamme99 says:

    And why it isn’t going to work:
    [globaleconomicanalysis.blogspot.com]

  9. zolielo says:

    No help for them!

  10. ironchef says:

    I hope its better than all the stupid plans he had so far. He sux at everthing (iraq, katrina, balancing the budget).

  11. Rusted says:

    Hopefully this won’t work at all. Need some fast pain instead of prolonging this mess.

    @warf0x0r: Any high-yield investment is going to be risky. So if they bought paper that went bad, so what?

    @Me: They didn’t have to get the loans.

    @G-Dog: I’m getting a really weird image of large mutant chickens….

  12. goller321 says:

    Yet another lackluster pathetic plan from our half-wit leader. The mess we are in now is because there was NO oversight in the lending industry. Just like the soon to come credit card meltdown, banks should have been subject to much higher scrutiny and regulation. Having said that, I have zero sympathy for the morons that went out and secured ballooning mortgages. Unless they were actually duped or lied to, the people that bought houses out of their means based on interest only payments or 1.9% interest for the first few years deserve what they are getting. Like the old saying goes “if it sounds too good to be true… it probably is!”

  13. specialed5000 says:

    Anytime I see the words “Bush” and “plan” in the same sentence I get an uneasy feeling.

  14. Trai_Dep says:

    Knowing several – well, no ALL – my friends who either sat out the market or got fixed rate mortgages (and paid a premium for this), I don’t see why sober-minded people get shafted because they’re rational. Let the market smack down the others, let property values settle to where they were before the ramp-up began. Except for the cases of fraud, of course: help ONLY if the lenders are jailed and stripped of all their assets.

    I also don’t see any provisioning in this to separate single-family owners living in their homes and speculators that thought that the price of tulips would never fall. Knowing Bush, there probably aren’t any.

    Just say no, to coin a phrase.

  15. synergy says:

    Those people may have the capability to own a home, but obviously not the ones this bullshit is going to allow them to keep. People need to learn to live within their means.

  16. Boberto says:

    Yeah, to qualify for the freeze says absolutely nothing about the fact that your mortgage may have already been repackaged and retraded multiple times and may also have been part of a bankrupted international fund (where perhaps European and other Worldwide investors have already taken a loss).

    Most foreclosures presented before judges now cannot even meet the burden of current ownership due to this complex mix of circumstances.

    My sneaking feeling here is that the banks will show a self interested commitment to renegotiate ONLY where the paper has not yet been traded. Most others will lose their homes.

    This yet another example of what happens when a decidedly “hands off” approach to any meaningful regulation or oversight is implemented. Think Energy, Banking, Import safety etc.

    Thanks GW.

  17. stopthebailout says:

    Avoiding foreclosures has nothing to do with this. The plan is to “rework” loans to insert an intervening cause so bond holders can’t sue the banks that originated and bundled the loans, and perhaps also ratings agencies that received huge sums from the investment banks bundling the loans.

    This isn’t about foreclosures because those are going to come anyway. The question is whether it happens now, or later. Banks and investors can’t afford to keep teaser rates forever because they lose money every day that goes on. When the teasers stop, the foreclosures will come. And they have to stop eventually.

    The is a secret war between US banks and the investors they defrauded with these bogus bonds. It’s no surprise that the US Treasury is pushing these repeated bailout attempts. Treasury Secretary Hank Paulson was Chief of Chief of Goldman Sachs until his confirmation July 2006. Goldman was a firm that bundled mortgage loans while he was Chief.

    If mortgage bond investors were stupid enough to buy these bonds in the first place, they may be stupid enough to lose everything in this rate “freeze.”

    About the only prayer mortgage bond investors have right now is to sue US banks to buy back the bonds at face value. I think Bernanke and Paulson have been pulling out all the stops to find a way to permanently bar mortgage bond investors from suing US banks.

    The first effort was the M-LEC “Super SIV” to hide the true value of the bonds. The second was Bernanke’s advice to Senator Charles Schumer in October for Congress to pass a law raising the loan limits on Fannie and Freddie and providing a government guarantee of their mortgage bonds so that Fannie and Freddie could refinance EVERYBODY moving the liability from US banks to them and US taxpayers. Then not even a week later Fannie had a new accounting scandal and Freddie shortly afterwards announced a $2.5 billion loss.

    That made the Fannie/Freddie bailout impossible. And this was the only “ideal” solution because bond investors and US banks would have both won. Now the war is on between bond investors and US banks with Bernanke and Paulson weighing in heavily on the side of US banks and indeed falsely trying to make it look like US banks and mortgage bond investors are the same people with the same problem. They are different people with different problems — and conflicting interests.

    This plan may succeed because bond investors appear to still be asleep. By Goldman Sachs’ own October 21, 2007 report, California home prices will likely be 35-40% lower in a few years. California is a huge part of the US housing market in dollar terms. That means mortgage bond investors that foreclose would be a lot better off doing it sooner rather than later because their collateral is dropping in value as they sit there doing nothing.

    This isn’t about foreclosures. I think Bernanke and Paulson know the foreclosures can’t be stopped. They are trying to protect US banks from catastrophic losses. It’s about getting confused mortgage bond holders to give up their right to force US banks to buy back junk bonds with fraudulent originations for face value.

    My big question isn’t why. That’s fairly obvious. What I want to know is after this is over, where are mortgage loans going to come from? The entire mortgage securitization industry will probably cease to exist if they defraud these investors twice on the same bonds — once with bad ratings on bonds with fraud in the origination, and a second time in getting bond investors to give up the right to sue originators and investment banks to buy back the loans.

    As for fraud in the process, 90% of appraisers said they were pressured regularly to make fraudulent appraisals and threatened that they won’t work again if they don’t do it because “word will get out” that they don’t play ball. I’d say there’s so much fraud here that they ought to put the burden of proof on the mortgage originator or investment bank to prove there wasn’t fraud in the origination.

    This situation is tragic enough. That the Federal Reserve and US Treasury sell an effort to gain a strategic benefit for Wall Street against some other class of investors not quite so well connected as a way to “help keep working families in their homes” makes this a double tragedy.

  18. zolielo says:

    Interesting post – keep them up.

  19. doodaddy says:

    Don’t let these “poor” home owners fool you. Their plan was to get the teaser rate for a few years, while the house increased in value by double digits per year. Then sell for a profit into the pool of endless, sucker buyers. Or, worst case, re-finance for another cheap rate.

    Oopsie!

  20. S-the-K says:

    If what the gov’t wants to is “corporate welfare”, it’s also a huge hunk of plain old [non-Constitutional] welfare as well. I agree with “Doodaddy”. Too many people were buying houses with the intention of waiting for the market to rise and then sell for a profit. Unfortunately, like the dot-com bubble, they bought at the top of the market and were left holding the bag when the bubble burst.

    I’m sure mortgage companies don’t want to be left with a worthless mortgage note and an empty house that they can’t sell. And the neighborhood doens’t want an abandoned house for the drug dealers and gang members to take over.

    I don’t think that the gov’t should get into the business of paying people’s mortgages, but if someone is gainfully employed and the house is their primary residence, but they bit off more than they can chew, it would not be a bad thing for the gov’t to encourage the mortgage company to work together to keep the homeowner in the home and pay *something* to pay down the loan.

    For those who bought homes for investment purposes, i.e., not their primary residence, I don’t think they deserve help. At least, not until all the primary residence homeowners are back on their feet.

    If the gov’t does get in the business of guaranteeing people’s home loans, if the homeowner defaults, causing a burden on the taxpayer, then any gov’t benefits they are “entitled” to should first go to pay off the taxpayers who paid the defaulted loan. Oh, and 1099 them for the income from the loan they didn’t have to pay off.

    We can criticize so-called “predatory” lenders, but we must not let the “predatory” borrowers off the hook without making their lives a living heck as well.