The Bush administration announced Thursday a plan to help struggling borrowers keep their homes. The White House and the Treasury negotiated with members of the private finance sector to craft an agreement that is expected to help 1.2 million homeowners avoid foreclosure, according to Treasury Secretary Hank Paulson. The plan includes a five-year rate freeze for certain subprime loans, many of which are expected to reset in the coming months. Also, borrowers will be able to refinance an existing loan into a new private mortgage or be moved to a loan from the Federal Housing Administration. "It is in everyone's interest -- homeowner, servicer, investor -- to develop a market-based approach to avoid foreclosures that are preventable," Paulson said. Wells Fargo (NYSE:WFC) Home Mortgage Co-President Michael Heid said it would only take a couple days for borrowers to work out new terms for a loan and servicers are modifying "today." Consumers must begin the process by reaching out to lending banks or non-profit credit counseling agencies.
Before the announcement, the Mortgage Bankers Association announced the number of homes in foreclosure increased to record levels in the third quarter. In 2008 and 2009, about 1.8 million subprime mortgages will be reset. Some groups, including certain Democrats and The Center for American Progress, said the plan does not do enough. For instance, it fails to help borrowers whose rates were already reset. Also, Standard & Poor's warned that by fixing rates at lower levels, the plan will devalue securities backed by mortgages. Still, many felt the move is a step in the right direction as it could stymie a significant amount of foreclosures and allow many financial institutions to weather the current housing environment.
Additional Reading: Rate Freezes Won't Solve Foreclosure Problem • Solving The Housing Market Issue: Start by Understanding the Problem
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