Lawmakers on the state and national level have been bustling to make deals with mortgage lenders to allow some at-risk subprime borrowers to continue making their low introductory payments and avoid the ballooning reset payments that have left an unprecedented number of such borrowers losing their homes to foreclosure.
The Wall Street Journal reported today that the Bush administration was close to reaching a deal with major lenders. Here’s a bit from that story (subscription required):
An accord could reassure investors and strapped homeowners, both of whom are anxious as interest rates on more than two million adjustable mortgages are scheduled to jump over the next two years. It could also give a boost to the Bush administration, which is facing criticism for inaction amid the recent housing turmoil.
The plan could be announced early next week, the WSJ reported. A plan would likely restrict the help to only those homeowners who could keep their homes if the terms of their mortgage were extended or if their interest rates remained at the teaser intro level — notably barring the help from those who can make their payments even if their loans reset, or from those who can’t afford the loans even at the teaser rate:
Officials in Washington have been cautious about steps that would be seen as rescuing borrowers, lenders and investors from the consequences of their own bad decisions. … [Treasury Secretary Henry] Paulson has decided his best option is to prod the markets to sort matters out themselves, as long as companies bear in mind the public interest in keeping people in their homes.
And in California, Gov. Arnold Schwarzenegger and other lawmakers have floated similar ideas. In Sacramento, the Democrats have also proposed $10 million in funding for housing counselors to help homeowners negotiate their loan schedule with lenders.
I had a conversation about some of this stuff this afternoon with Doug Farry. He’s the managing director for local law firm McKenna Long & Aldridge, and is working on issues related to the federal government. He came to San Diego four years ago after a dozen years working in Washington, D.C.
I asked him for a perspective, based on his conversations with people in D.C. (including some when he was out there this week), on the inside-the-Beltway discussions on these issues.
It’s the nature of politics that if they can postpone tomorrow the crisis that they’re being held accountable for today, they’re willing to pass along the problem to the next politico.
A couple of stories I’ve written, including this one about those six-figure renters, have arisen from the inevitable frustrations of some people should prices to stay at the level they’re at now (post-boom).
Farry added his two cents:
The broad assumption [in D.C.] is that the people on the coasts want a solution that keeps [the housing market] the way it was a year and a half, two years ago. But the fact is that there are maybe lots of people who would be angry and feel like they got the short end of the stick if they had been, for the last four or five years, not investing in a home, waiting for the bubble to burst.
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