It would cost between $40 billion and $50 billion, sources said.
The program is being discussed as members of Congress are voicing frustrations that the $700 billion rescue program thusfar has been aimed at helping banks, but not homeowners.

While Treasury and FDIC officials have reached an agreement on the principles of the program, the White House is resisting, according to the sources, who declined to be identified because the negotiations are ongoing.

Treasury, FDIC Crafting Plan to Rework Millions of Mortgages [Washington Post]

As for the 1.5% loan origination fee, students will no longer enjoy having that waived by Sallie Mae. The magazine says you should now start shopping around for lenders who are still willing to pay them (they suggest J.P. Morgan Chase).

"Sallie Mae Halts Student-Loan Consolidation" [SmartMoney]
(Photo: Getty)

Plummeting home values are sticking home owners with properties that they refinanced with the intention of selling before their rates jumped. Now they're trapped in homes they can't afford and also can not sell for more than they owe.

Here's an example from the Times:

An example of the spreading credit crisis is seen in Don Doyle, a computer engineer at Lockheed Martin who makes a six-figure income and had a stellar credit score in 2004, when he refinanced his home in Northern California to take cash out to pay for his daughter's college tuition.

Mr. Doyle, 52, is now worried that he will have to file for bankruptcy, because he cannot afford to make the higher variable payments on his mortgage, and he cannot sell his home for more than his $740,000 mortgage.

"The whole plan was to get out" before his rate reset, he said. "Now I am caught. I can't sell my house. I'm having a hard time refinancing. I've avoided bankruptcy for months trying to pull this out of my savings."

It seems that the heady days of homeowners who were happy to pay huge monthly payments into their "investment" are over:

In a conference call with analysts in December, Kenneth Lewis, the chief executive of Bank of America, said more borrowers appear to be giving up on their homes as prices fall, noting a "change in social attitudes toward default."

"You don't mind making a $2,000 payment when the house is going up" in value, said Steve Walsh, a mortgage broker in Scottsdale, Arizona, who has seen several clients walk away from their homes because they couldn't refinance or sell. "When it's going down, it becomes a weight around your neck, it becomes an anchor."

Mortgage Crisis Spreads Past Subprime Loans [NYT]
(Photo:MeghannMarco)

Among the key provisions of the "Credit Card Bill of Rights Act" are prohibitions on:

• Bait-and-switch interest rate and fee hikes for any or no reason at all during the life of the card;
• Assessing hidden and unfair interest rate charges by charging interest on balances already paid off;
• Unjustifiably maximizing interest charges by requiring consumers to pay off balances with lower interest rates before those with higher rates;
• Charging late fees when consumers mail their payments seven days in advance of the due date; and
• Applying certain unfair interest rate hikes retroactively to balances incurred under the old rate.

"Maloney Bill Targets Credit Card Abuses" [Consumer Federation of America]
"Credit card bill of rights?" [SeattlePI]
(Photo: Getty)

The F.B.I. has been warning for years that mortgage fraud is a significant and growing problem. In the 2006 fiscal year, it documented 35,600 suspicious-activity reports related to mortgage fraud, up from 22,000 the year before and as few as 7,000 in 2003.

Many of the cases the F.B.I. has brought so far have focused on local or regional mortgage fraud rings that involve speculators, loan officers, brokers and other housing professionals.

State officials have been active in bringing mortgage cases. The New York attorney general, Andrew M. Cuomo, is investigating whether Wall Street banks withheld damaging information about the loans they were packaging. Prosecutors in Ohio, Massachusetts, Illinois and Connecticut have also been looking into the industry.

F.B.I. Opens Subprime Inquiry [NYT]
(Photo:alykat)

We know a lot of you really, really, really hate SallieMae, but remember not to drink and drive when celebrating other people's misfortunes, mmk? [CNNMoney]

From Bloomberg:

H&R Block will try to sell the portion of Option One that does billing and collections, the Kansas City, Missouri-based company said today in a statement. The decision may result in $200 million in pretax charges.

Chairman Richard Breeden is trying to salvage part of the sale of Option One begun by his predecessor Mark Ernst, who once predicted the entire company would fetch $1.3 billion. Ernst lost his job after markets for subprime mortgages collapsed, leading to more than $1 billion of losses at Option One. Breeden, who won a proxy fight to get on the board, had urged Ernst to ``stop the bleeding.''

H&R Block Shuts Option One, Will Sell Servicing Unit (Update5) [Bloomberg]
(Photo:Maulleigh)

PREVIOUSLY: H&R Block Subprime Lending Division Loses $676.8 Million
H&R Block Continues To Hemorrhage Money
Say Goodbye To Mark Ernst, CEO Of H&R Block

• Establishing a national licensing and registration system for mortgage lenders;
• Establishing the Office of Housing Counseling within HUD to help borrowers avoid foreclosure;
• Banning loans that a borrower cannot reasonably repay;
• Banning lenders from steering borrowers towards loans with predatory characteristics;
• Making banks that securitize mortgages liable for violating lending laws.

The mortgage lobby spent several weeks trying to derail the bill as it percolated in Committee. Even some consumer advocates oppose the bill in its current form because it preempts strong consumer protections from the states with a uniform federal standard.

The mortgage lobby has already shifted its focus towards killing companion legislation stalled in the Senate. Senate Banking Chairman Chris Dodd (D-CT) has released only a vague sketch of his chamber's response to the subprime meltdown, saying that his legislation will meet two requirements:

[First], it must establish strong standards against abusive practices such as prepayment penalties, steering, and other problems. Second, it must provide for strong enforcement to ensure that those standards are met. My bill...will meet both requirements and help protect homeowners from predatory lending.

The White House has issued a Statement of Administrative Policy objecting to several provisions of the House bill, but has restrained itself from issuing a veto threat.

House Votes to Rein in Certain Mortgage Lending Practices [AP]
H.R. 3915 - Mortgage Reform and Anti-Predatory Lending Act of 2007 [THOMAS]
Write Your Senator
PREVIOUSLY: How To Write To Congress
(AP Photo/Kim Johnson Flodin)

According to Bair, there are still $300 billion in ARMs set to reset before the end of 2008, so the problem can't be ignored.

Merrill Lynch estimates that if home prices decline by just 5 percent, a quarter of subprime loans may enter default, resulting in losses of almost $150 billion.

Fix Rates To Save Loans [NYT]
(Photo:woodleywonderworks)

While other lenders are refinancing troubled borrowers into fixed rate mortgages, critics say Countrywide is funneling customers into yet another risky ARM loan.

From CNNMoney:

ACORN Housing Director Michael Shea said that while his group is "often able to get workouts" from Countrywide, his team is "very frustrated" with the company because "it takes a long time - months" to deal with a case.

And, Shea said, the company relies heavily on "repayment plans" for its workouts. Such a plan may stave off foreclosure by letting delinquent borrowers pay off what's past-due over 12 months in addition to their regular mortgage payment. While the servicer is making a concession by not demanding payment all at once, delinquent borrowers have to pay substantially more than their regular monthly payment. And if they fail to pay in full and on time, the lender can reinstate foreclosure proceedings.

One of the biggest complaints from NTIC counselors is that what loan workouts Countrywide does provide serve more as foreclosure postponement than real prevention. "They refuse to make ARMs fixed for the remainder of the loan. Instead, they are only agreeing to do so for 12-24 months, if at all," said Mark Seifert, executive director of the Cleveland-based NTIC affiliate, The East Side Organizing Project (ESOP), in an e-mail.

Countrywide's alleged preference for shorter-term loan modifications in Siefert's experience "is very different from what we see from our lender/servicer partners where EVERY mod includes making the ARM a fixed rate going forward."

NTIC and its affiliates have partnerships with four servicers: Chase, Citi, Ocwen and Select Portfolio Servicing (SPS). "They're showing absolute diligent effort to help homeowners stay in their home, not band-aid solutions," said Michele Rodriguez Taylor, who heads NTIC's foreclosure-prevention program.

It also reminded CNNMoney that it "received the highest ranking for its workout programs from both Freddie Mac and the Department of Housing and Urban Development (HUD), which evaluates servicers based on their use of workouts to avoid foreclosures." We find this hilarious because Freddie Mac deals exclusively with "prime" loans. Way to change the subject.

Countrywide's 'workouts' fall short, critics say[CNNMoney]
(Photo:Jodi Hilton for The New York Times)

Even with an 8% decline in foreclosures from August's truly mind boggling numbers, September still managed to see 223,538 foreclosure filings.

From Bloomberg:

Foreclosures are deepening the U.S. housing recession by pushing more homes onto a market where sales and prices are dropping. There's a 10-month supply of unsold homes, the highest in at least eight years. As many as half of the 450,000 subprime borrowers whose mortgages will re-set through November may lose their homes because they can't afford the higher payments, according to a report by Credit Suisse Group.

``The truth of the matter is that borrowers are going into default as soon as they hit their adjustments,'' said Rick Sharga, executive vice president of marketing at Irvine, California-based RealtyTrac. The company sells foreclosure information and has a database of more than 1 million properties from 2,500 U.S. counties.

California has the dubious honor of having the most actual bank repossessions (in which the property is unsellable and must be surrendered to the bank), with 7,853.

October is expected to be an exciting month for the subprime meltdown, with $50 billion in ARMs set to reset.

Foreclosures Doubled in September as Loan Rates Rise (Update5) [Bloomberg] (Thanks, Chris!)
(Photo:Getty)

Countrywide, which eliminated 12,000 jobs on Friday, says deeper job cuts may be coming. The mortgage industry has already lost 50,000 jobs this year, according to Reuters.

New mortgages funded by Countrywide are down 17.3% from last year.

Countrywide gets $12 bln new financing, shares jump [Reuters]

Critics are now saying that these low rates were the cause of the crisis.

Bad news for Greenspan who is set to release his book, The Age Of Turbulence, on Monday—just as his successor considers a rate cut that many say is needed to prevent the subprime meltdown from taking down the rest of the economy.

From CBS News:

Greenspan says he knew about the questionable subprime lending tactics that gave loans to homebuyers and investors with low adjustable interest rates that could rise precipitously, but not the severe economic consequences they posed. "While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late," he tells Stahl. "I really didn't get it until very late in 2005 and 2006."

Even though one of the Federal Reserve governors raised a red flag on those lending practices, Greenspan says there was little he could do. "Well, it was nothing to look into, particularly because we knew there was a number of such practices going on, but it's very difficult for banking regulators to deal with that," says Greenspan.

Several of Greenspan's former Federal Reserve governors have since said that Greenspan's policy of lowering interest rates for three consecutive years early in the decade was wrong because it opened the door for the subprime lenders. They think he kept rates too low for too long. "They are mistaken," Greenspan tells Stahl. "It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low," he says.

Greenspan Defends Low Interest Rates [CBS News]

...has no oversight tools in place designed to proactively detect potential instances of lenders providing improper inducements—such as gifts to schools in exchange for preferred status on a school's suggested lender list—or schools limiting borrower choice of lender, two activities that are prohibited by law. Instead, the department primarily depends on external complaints to identify potential instances of non-compliance with these prohibitions.

The DOE does not dispute the report's accuracy.

US not policing college lenders, GAO says [Bloomberg]
Federal Family Education Loan Program: Increased Department of Education Oversight of Lender and School Activities Needed to Help Ensure Program Compliance GAO-07-750 [Government Accountability Office]
(Photo: Daveybot)

Refinance: Replace your mortgage with one with more favorable terms. A lower interest rate, extending the term, or switching from an adjustable to a fixed rate loan are common options.

Forbearance: A temporary reprieve from payments which you either make up later or tack on to the end of the loan

Loan Modification: Lender temporarily reduces the interest rate.

Short-Sale: Lender cancels your debt in return for the money from selling your home.

Kiplinger's notes that lenders might not change your loan terms until you're 30 or even 120 days late on your payments, for legal and tax reasons.

Also, certain states, like Massachusetts, also offer mortgage relief programs that lets owners request extra time to avoid foreclosure.

Having a foreclosure on your credit report gets filed under payment history, which accounts for 35% of your credit score. Plus, would you really want to put yourself in the same league as this jackhole? — BEN POPKEN

What to Do If Your Home Is on the Line [Kiplinger's]
(Photo: Getty)