Newspaper article The Christian Science Monitor
The Race to Rescue Subprimes
Anyone claiming an easy fix to America's mortgage crisis may also want to sell you a low-interest, no-down-payment subprime loan. Yet solutions are needed, and quickly, to rescue many people on the brink of foreclosure and to reduce the economic drag of a housing recession.
The best solutions, and the ultimate ones, are slowly being implemented by companies that hold the bad loans. They've felt the effects so far of 2.2 million people forced to foreclose on subprime mortgages. The costs to the industry and its investors are estimated to be about $164 billion. By 2009, another 2 million homeowners could default as higher interest on subprime loans kick in.
That provides a strong incentive for private correction rather than government intervention.
At all levels of this complex industry, pressure remains strong to reassess vulnerable loans and keep them afloat. This will help not only homeowners who can still afford a home loan - if given a break - but also help financial investors know the true value of the "bundles" of such mortgages that were resold as securities.
But the pace of cleanup has been far too slow as foreclosures continue to cascade. That forced Treasury Secretary Hank Paulson last week to cite an "immediate need" for lenders to move more quickly in modifying and refinancing loans. He's working with the nation's largest mortgage services to reach out to struggling homeowners. He also helped several large financial institutions set up a $75 billion "superfund" to ease credit problems caused by the uncertainties of mortgage investments.
Such steps by the Bush administration are being echoed in the states, with some asking banks to accept greater losses in a foreclosure. …