Rate Freeze Boosts Stocks; Dow Up 175 on Bush Plan

The Washington Times (Washington, DC), December 7, 2007 | Go to article overview

Rate Freeze Boosts Stocks; Dow Up 175 on Bush Plan


Byline: Patrice Hill, THE WASHINGTON TIMES

President Bush helped spark a rally on Wall Street yesterday by announcing a plan to pre-empt a torrent of foreclosures next year by freezing the mortgage rates of up to 1.2 million subprime borrowers in danger of losing their homes.

"The rise in foreclosures would have negative consequences for our economy," he said, noting the plan will limit losses for the borrowers, banks and investors who made the loans, as well as alleviate the credit crisis that has been driving down markets and endangering growth.

"We should not bail out lenders, real estate speculators or those who made the reckless decision to buy a home they knew they could never afford," the president said. "Yet there are some responsible homeowners who could avoid foreclosure with some assistance."

Calling the first-ever mass loan-modification program a "sensible response to a serious challenge," Mr. Bush said it also shows compassion at a critical time. "The holidays are fast approaching, and, unfortunately, this will be a time of anxiety for Americans worried about their mortgages and their homes. There's no perfect solution, but the homeowners deserve our help."

The Dow Jones Industrial Average gained 175 points, much of it after the president's afternoon announcement. Most Wall Street analysts said the plan is timely since foreclosures, already at record levels, are set to surge next year, when millions of adjustable-rate mortgages made in 2005 and 2006 come due for interest-rate resets that will drive payments higher by 30 percent or more.

The program requires no action by Congress other than $200 million of funding for mortgage-counseling groups that will help identify borrowers eligible for the rate freeze. The administration also has suggested some technical adjustments in tax laws to help ease the way for loan modifications.

Banks and mortgage servicing agencies will carry out the plan, which also involves steering some borrowers into insured loan programs sponsored by the Federal Housing Administration. But individual homeowners have to seek the assistance by contacting their banks.

The administration plan comes as the Mortgage Bankers Association announced that delinquencies on adjustable-rate loans taken out by subprime borrowers jumped to 18.81 percent in the third quarter from 16.95 percent in the second quarter. Nearly half of foreclosures on prime loans and about a third of foreclosures on subprime loans are concentrated in California and Florida, the group said, but foreclosures are on the rise everywhere.

For the millions of people facing default, the program would streamline the process of working out loan modification with banks. The procedures spelled out in loan contracts generally are cumbersome, and have resulted in only 1 percent of problem loans getting worked out, according to Moody's Investors Service. …

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