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Friday, December 7, 2007

Federal Mortgage Foreclosure Plan: 1-888-995 Hope

Federal Mortgage Foreclosure Plan - Hope Now: 1-888-995 HopePresident George W. Bush announced the federal mortgage relief plan yesterday to help some subprime borrowers with adjustable-rate mortgages keep their homes. Unfortunately, the plan may just be a drop in the buck. President Bush also twice gave out the wrong phone number (using 1-800) for the HOPE NOW plan. Not a great start. Here is the correct information and some analysis about the plan:

HOPENOW.com has a toll-free hotline, 1-888-995-HOPE, which is available 24-hours a day to provide mortgage counseling in multiple languages.
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Bush and Paulson Unveil Plan To Aid Struggling HomeownersD. Paletta, A. Chozick & J. McKinnon / Wall Street Journal:
Bush and Paulson Unveil Plan To Aid Struggling Homeowners -- In unveiling a plan to help more than one million struggling homeowners, the Bush administration and the mortgage industry have embarked on a controversial project: picking winners and losers from the rubble of the subprime-mortgage meltdown.

Under the deal, formally released yesterday, the industry would voluntarily help as many as 1.2 million homeowners who are heading for trouble paying their subprime mortgages but aren't yet lost causes. For some homeowners, loan-servicing companies will agree to freeze mortgages at their low introductory rates. In other cases, credit counselors or loan servicers will walk mortgage holders through refinancing processes.

The deal won't provide relief to many subprime-mortgage holders: These include borrowers who are now in foreclosure, have already refinanced their homes or are more than 60 days delinquent on more than one payment over the past year. In some cases, people with good credit scores will be excluded. Also left out are those deemed able to afford the higher interest rates scheduled to replace their introductory rates over the next two years. [...]
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federal mortgage relief planPatrick Rucker & John Poirier / Reuters:
Bush unveils plan to stem wave of foreclosures -- President George W. Bush announced a plan on Thursday aimed at slowing a wave of home loan foreclosures that has threatened to knock the U.S. economy into recession and rattled investors worldwide.

Bush said the plan, hammered out by the U.S. Treasury Department in talks with mortgage industry leaders, was not intended to "bail out" lenders, speculators or those who knew they could not afford the homes they bought.

Instead, the Bush administration hopes that it can help more than half of the two million homeowners who took out adjustable-rate subprime loans with payments due to move sharply higher soon by offering some of them a five-year mortgage-rate freeze. [...]
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President George W. Bush announces the federal mortgage relief planEdmund L. Andrews / New York Times:
On Mortgage Relief, Who Gains the Most? -- At least one thing is clear about President Bush’s plan to help people trapped by the mortgage meltdown: it is an industry-led plan, not a government bailout.

Although Mr. Bush unveiled the plan at the White House on Thursday, its terms were set by the mortgage industry and Wall Street firms. The effort is voluntary and it leaves plenty of wiggle room for lenders. Moreover, it would affect only a small number of subprime borrowers.

The plan was the target of criticism from consumer advocates who said its scope was too narrow, and from investment firms, who said it went too far. Others warned that the plan, by letting some stretched homeowners off the hook, could encourage more reckless borrowing in the future. “

The approach announced today is not a silver bullet,” said Treasury Secretary Henry M. Paulson Jr., who hammered out the agreement. “We face a difficult problem for which there is no perfect solution.”

The heart of Mr. Bush’s plan is a cautious attempt to help troubled homeowners by persuading financiers to freeze mortgages at low introductory rates for five years, but without actually forcing the hands of lenders and investors who hold the mortgages. [...]
discussion
CNNMoney.com, Washington Monthly, The Atlantic Online
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Treasury Secretary Henry M. Paulson Jr.: Our Plan to Help HomeownersTreasury Secretary Henry M. Paulson Jr. / Wall Street Journal [subscription req.]
Our Plan to Help Homeowners -- After a period of widely available capital, easy credit and unsustainable housing price appreciation, an inevitable correction in the housing market now poses a significant risk to the U.S. economy. Foreclosure starts have almost doubled in the last year and a half, and signs point to further increases. Many Americans are facing mortgage trouble.

Foreclosures are a fact of life; even in strong housing years borrowers who are overextended or who experienced a change in life circumstances find they can no longer afford their home. When foreclosures rise and are concentrated in particular communities, they begin to have a wider, ...
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The White House:
Fact Sheet: Helping American Families Keep Their Homes -- President Bush announced that representatives of HOPE NOW have developed a plan under which up to 1.2 million homeowners could be eligible for assistance. [...]
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Bloomberg:
Bush Aims to Prolong Expansion With Subprime Freeze -- "More than 30 percent of borrowers with subprime adjustable- rate mortgages are behind on their payments before their loans reset at a higher rate, according to estimates from analysts at Credit Suisse Group. The bank projects 775,000 homes with $143 billion of mortgage debt will go into foreclosure in the next two years." [...]
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Kathleen M. Howley / Bloomberg:
U.S. Mortgage Delinquencies Rise to 20-Year High -- As the U.S. housing slump enters its third year, investors are shunning securities backed by mortgages, the top 15 U.S. home builders have lost about $35 billion in market value this year, and the inventory of unsold houses has risen to almost an 11-month supply, the highest in 22 years.

One in every five adjustable-rate subprime loans had late payments in the quarter, a number that excludes the one of every 10 already in foreclosure, the bankers group said in their report. Foreclosures started on all types of mortgages rose to an all-time high of 0.78 percent from 0.65 percent.

In the quarter, 3.12 percent of prime borrowers made their mortgage payments at least 30 days late, up from 2.73 percent in the second quarter, the report said. The subprime share of late payments rose to 16.3 percent from 14.8 percent. [...]
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Matt Padillia / Mortgage Insider / Orange County Register:
Bush’s mortgage plan – the consequences -- I interviewed three sources about the plan and got wide-ranging reactions.

Michael Pento, a senior market strategist with Delta Global Advisors, an investment advisory firm in Huntington Beach, lambasted the plan.

“I hate it. I think it’s disgusting,” Pento said. [...]

On the flipside: Steve Bailey, senior managing director in Countrywide Financial’s Simi Valley office, said the pact is nonbinding on lenders, but they will be under political pressure to follow its guidelines. That’s good for homeowners, and will be of some benefit to the housing market, he said. [...]
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Tanta /Calculated Risk:
The Plan: my initial reaction -- A lot of people are very worked up over the idea that the New Hope Plan is, in essence, the government mandating a kind of reneging on private contracts (the PSAs or Pooling and Servicing Agreements that govern how securitized loans are handled). I personally think you can all stand down on that one. From what I have seen about the plan to date, it is clear to me that it is in fact structured with the overarching goal of making sure that it stays on the allowable side of the existing contracts. I proceed from the assumption that nobody could write such a convoluted and counter-intuitive plan if that wasn’t the goal. [...]
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Tyler Cowen / Marginal Revolution:
The real Bush mortgage relief plan -- There are two main arguments for breaking the loan contracts. The first is that we could limit human suffering. The second is that we could forestall macroeconomic catastrophe. Put together, these arguments have captured many hearts and minds, but neither is very strong on its own. [...]
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Gaming the system

Ryan Avent / The Bellows blog:
Frozen -- the lesson here appears to be that if you see everyone else borrowing well beyond their means, you should too, since the government cannot credibly allow large numbers of homeowners to go into foreclosure.
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Megan McArdle / Asymmetrical Information:
Lessons learned -- This plan is by no means going to end the crisis; for one thing, many of the subprime borrowers who are in trouble seemingly can't make the payments with the teaser rates. But the market is currently in the grips of terror: how bad will it get when rates reset? This may allay those fears enough to ease the credit crunch. [...]
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chart: percentage of sub-prime loansBarry Ritholtz / The Picture Picture blog:
Treasury Plan to Freeze Mortgage Rates -- the just announced "rescue" plan. While it isn't exactly binding, it does have the support of "major investors." I assume this refers to the various banks, brokerages and funds that own the increasingly worth less and less (though not "worthless") paper.

The terms of the plan applies to "loans originated between Jan. 1, 2005, and July 31, 2007, that reset between Jan. 1, 2008, and July 31, 2010." According to the WSJ, the Office of Thrift Supervision Director John Reich said that "the plan could help "tens of thousands" of homeowners."

Tens of thousands? The subprime foreclosure forecast for 2008-09 is over 3/4 of a million homes. [...]
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more discussion:
poll & discussion (+250 comments) /Wall Street Journal Forum:
Do you support the Treasury's plan to freeze rates on some mortgages?

Wall Street Journal Poll:Do you support the Treasurys plan to freeze rates on some mortgages?
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