As the mortgage market seeks to go north, President Bush has come to the rescue to some subprime mortgage holders with the unveiling of the foreclosure relief plan. Last week, Bush came out with a plan to help 1.2 million homeowners looking to avoid foreclosures.
Rumors had been floating around previously that that the Bush Administration was exploring avenues to curtail foreclosures for extreme cases. This concrete step expands slightly upon the five-year freeze on interest rates for certain home loan borrowers. Distressed homeowners have been seeking help for their mortgages from mortgage lenders for the last few months.
The current mortgage and housing situation is the residue of the recent heydays of the housing boom, when houses were in short supply and demand high. As a result of the boom times, many mortgage loans, specifically subprime mortgages and adjustable rate mortgages were doled out to less than credit worthy applicants with the inability to sustain the home loans for the long-term.
The freeze plan has restrictions, it covers only subprime adjustable rate mortgages (ARMs) that are scheduled to reset no sooner than Jan. 1, 2008 and no later than July 31, 2010.
There are approximately 2 million subprime ARMs expected to be reset by the end of 2009, only 240,000 of those will be included in the freeze plan.
The Bush plan is seen by many as the first attempt to prevent major impending mortgage and housing market corrections in the New Year. Also, the plan aims to make the freeze adjustment process streamlined by allowing mortgage lenders to quickly evaluate home loan modifications for qualifying borrowers; mortgage loan criteria include loan amount, credit scores, payment history, and loan-to-value ratios.
The freeze plan will require mortgage lenders to work out agreeable terms with qualified borrowers under strict guidelines of the plan. This means qualified borrowers will get faster interest rate adjustments.
However, this is a test case for the government in issuing such aid to homeowners. Even though the home loan borrowers affected by the move are small, it sets a precedent nonetheless.
The plan’s impact upon subprime foreclosures will foretell whether or not the Bush Administration will help more borrowers and expand its purview in the future.
Despite apprehensions by mortgage investors, everyone else is excited about the possibilities of helping borrowers keep their homes. In the broader context, this may have not had a great impact upon the housing market.
However, it is a small step in the right direction. Hopefully, the Executive and Congress will work hand in hand to provide expeditious solutions to the mortgage arena. Further areas of opportunities include a possible comprehensive mortgage relief program.