(Boston, Massachusetts) The Neighborhood Assistance Corporation of America, (NACA) applauds the mortgage industry’s expected plan to freeze interest rates for subprime borrowers but worries the deal won’t go far enough.
According to published reports, the Bush administration is pushing lenders to temporarily freeze interest rates on subprime borrowers who took out mortgages with low teaser rates that are due to reset sharply higher.
The White House fears as many as 500,000 could lose their homes because they can’t meet the higher payments. “Anything other than permanent freeze on interest rates is only putting off the inevitable foreclosures,” said NACA CEO Bruce Marks. “Millions could end up in foreclosure.”
A rescue strategy must go further if we hope to avoid a recession in this country.
Mr. Marks is floating a plan that would save hundreds of thousands more homes. The longtime housing activist suggests freezing the interest rates of all borrowers with adjustable rate mortgages and negative amortization loans back to the initial rate borrowers qualified for. “This will include homeowners who have already been penalized with an interest rate reset “, said Marks.
NACA has been critical of the Bush administration’s use of the lending industry to come up with a solution.
The plan should not rely on the very people that got us into this mess. Lenders, brokers, investment bankers and rating agencies were behind these mortgages that were structured to fail. It then sold and repackaged the damaged goods as securities and sold them around the globe. “This amounts to the fox guarding the hen house.
A blue-ribbon panel made up of representatives from the banking industry, federal regulators and citizen groups and non-profits should structure the deal to ease the housing crisis”, Marks said.
According to Marks, a diverse panel will be empowered to fix the problem and extend relief to prime borrowers affected by the mortgage meltdown. Any mortgage rescue attempt should include other options in addition to the freezing of interest rates.
Payment plans, modifications, re-financing and restructuring of the original home loans need to be part of the equation to truly add up to a viable rescue plan.