(Boston, MA) The Neighborhood Assistance Corporation of America (NACA) recognizes the extraordinary precedent that President Bush is taking to address the mortgage crisis but is critical of its limited impact on homeowners at risk of foreclosure. This new standard for government intervention in the mortgage industry is recognition that if immediate and dramatic action is not taken that it will push the economy into a recession. This is the first time the anti-regulation and pro-business Bush administration has taken across the board steps to limit damage by big business.
The mortgage industry has pushed defective mortgage products that created this crisis. These mortgages were never about long-term homeownership, but about massive profits for the lenders, investment bankers, brokers and rating agencies. NACA has been in the forefront of combating the mortgage crisis and has provided the most significant solution to date with its agreement with Countrywide Financial that permanently reduces the interest rate for homeowners to what they can afford – often to five or six percent fixed.
The administration’s rescue plan only impacts a limited number of homeowners and those within the criteria will have a temporary reprieve. Freezing interest rates temporarily is analogous to having a defective automobile with no brakes, and rather than fix the brakes, you are allowed to park it while making the payments and then drive it down the hill full speed. The inevitable result will be a crash or in mortgage terms – foreclosure.
“The limited scope of the announcement will be disappointing for the millions of homeowners at risk of foreclosure,” said Bruce Marks, NACA CEO. “President Bush is abandoning the approximately one million homeowners already on the brink of foreclosure, and for the eligible homeowners this is only a temporary delay from foreclosure.”
The positive aspect of the announcement is the new standard for government intervention. This provides the precedent and standard to further limit interest rate increases and to roll back many others as the mortgage crisis deepens during the next few months. The only real solution is to go back to responsible lending. Adjustable Rate Mortgages (“ARMS”) should decrease when interest rates go down, instead of the current strangulation ARMs whose rates often double regardless of market changes. These are defective mortgage products whose interest rate increases must be permanently stopped and rolled back to what the homeowner can afford.