Rate Freeze Proposal to Offer Borrower Bailout

The Bush administration and banking industry are nearing an agreement on a proposal that would temporarily lock in the teaser rates of subprime borrowers at risk for default.
By: Robert Schroeder: REALTOR® Magazine Online
The Bush administration, mortgage service companies, and investors are nearing an agreement on a strategy to help offer relief to borrowers with subprime mortgages, says Treasury Secretary Henry Paulson.

Speaking at a housing conference organized by the Office of Thrift Supervision, Paulson said he wanted to “develop a set of standards” for modifying subprime loans that the industry could use to speed up decisions on the hundreds of thousands of borrowers at risk of losing their homes. The proposal, he says, would temporarily freeze the teaser rates for certain qualified borrowers.

In an interview late Monday on Bloomberg TV, Paulson said that the downturn in the housing market is "the biggest challenge to our economy," but the Treasury's plan to help out subprime borrowers doesn't include spending taxpayer money on funding or subsidies for either the industry or home owners.

Supporters of a congressional mortgage reform bill criticized the Bush administration’s plan, saying it will remove the incentive to enact their bill, which would provide lasting reform.

Meanwhile, earlier Monday, Boston Fed Bank President Eric Rosengren said research at the Boston Fed suggests that the foreclosure crisis in subprime mortgages will get worse before it gets better.

He urged community banks and states to focus on the 87 percent of subprime loans that are not seriously delinquent and where action may avoid future problems.