No quick fix for US subprime mortgages
Updated: 2007-12-07 22:16
WASHINGTON - Be ready to wait if you want to get information from a toll-free hot line about freezing the interest rate on your subprime mortgage.
Minutes after US President Bush outlined a plan to help strapped homeowners, callers were told to have patience until a counselor could answer their questions and "devote as much time to you as necessary."
But, once they do get through, homeowners may not find the answers they sought.
One caller to the hot line (1-888-995-HOPE) was told there would be "lots of hoops to jump through" to obtain the five-year freeze. The rate hold goes to the heart of the relief effort for people with subprime mortgages, which are loans offered to borrowers with tarnished credit or low incomes.
Even President Bush acknowledged the plan is "no perfect solution." US Treasury Secretary Henry Paulson said it was not a "silver bullet."
Only a fraction of the homeowners who face huge jumps in their mortgage payments appear likely to be helped by the plan, negotiated by the Bush administration, to freeze the low introductory rates on their subprime loans for five years. After that, they could be in the same position again.
Homeowners dialing up their mortgage company to get their current rate frozen could be disappointed. The White House plan does not force mortgage companies to give eligible homeowners a break. It is voluntary.
Bush, announcing the initiative Thursday, said 1.2 million people could be eligible for relief. Aid includes the rate freeze and helping people refinance into more affordable mortgages. The Center for Responsible Lending, a group that promotes homeownership and works to curb predatory lending, estimates that just 145,000 families will qualify for the rate freeze. The criteria are too strict, it says.
The White House plan is aimed at stemming foreclosures, which have shot up to record highs as the housing market has gone from boom to bust.
Subprime borrowers have been hardest hit by the meltdown. Initially low interest rates that reset to much higher rates have clobbered those borrowers. Nearly 2 million adjustable-rate subprime mortgages will reset from introductory rates of around 7 percent to 8 percent to much higher rates this year and next. That raises the specter of even more people being forced out of their homes because they cannot keep up with their monthly payments.
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