Bush to Unveil Plan to Aid Struggling Homeowners

President Bush is expected to unveil a plan worked out with the mortgage industry to help stave off a rising number of home foreclosures. Many homeowners with subprime, adjustable rate loans are seeing their interest rates swell, making their payments too high.

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RENEE MONTAGNE, host:

NPR's business news starts with the president's plan to help homeowners.

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MONTAGNE: With foreclosure rates at their highest levels in 50 years, President Bush today is expected to unveil a plan worked out with the mortgage industry to help some struggling homeowners. Many are saying their interest rates rise sharply. That's pushing payments up hundreds of dollars a month more than they can afford.

NPR's Chris Arnold has been following the troubles in the housing and mortgage markets, and he joins us now to talk about it. Good morning.

CHRIS ARNOLD: Good morning, Renee.

MONTAGNE: What is the president expected to announce today? What's the plan?

ARNOLD: Well, Renee, the president's expected to say, look, you know, there are now so many people in trouble that something more has to be done. And his administration has worked out a plan where the industry is pledging to voluntarily freeze interest rates for some borrowers, and this is an agreement that they've brokered between the industry and some major investors who've bought into these loans.

MONTAGNE: And freeze them for how long?

ARNOLD: Well, we're hearing five years, and we won't know until the president speaks for sure, but that's on one outline of this that's circulating. The focus, as far as we know, is on people who got adjustable loans with initial interest rates that they could afford - say, 7 percent. But a lot of these loans, the rates adjust way up - you know, 9, 10, 11, 12 percent.

So the idea here is to push back that rate-reset date, the point at which the loans start getting really unaffordable, for five years or so. People who just bought way too much home and haven't been able to make their payments even initially, they're not expected to get help. And people who can afford such a high interest rate, that have more resources - they're not expected to get help, either.

MONTAGNE: So how many people, then, is this likely to help?

ARNOLD: Well, there'll be dates announced. We're hearing that this is going to be for loans that were taken out between January of 2005 through this last summer, and that only people whose rates are resetting as of 2008 will be included.

MONTAGNE: That would leave a fair number of people out. Who would be left out?

ARNOLD: Well, look, you know, if your rate reset last week or three months ago and you'd been making all of your payments for two years and now you're stuck and you're having trouble, you wouldn't get help under this. And that's generating a lot of talk, you know, well, how are they deciding who's in and who's out on this thing? For people who fall into that time frame, it looks like it could help a lot of people, but I'm hearing from housing advocates, too, who think, you know, a lot fewer people and it sounds like, might actually get helped.

They're saying, look, you know, the industry has made pledges before - there have been efforts in the Senate and the FTIC has gotten involved, and then the industry really hasn't followed through.

One number that I thought was interesting this week - the office of the Thrift Supervision came out and said that this plan could help, quote, "Tens of thousands of borrowers." That sounds like a lot, but we're talking about a about a couple million people who are in trouble.

MONTAGNE: So once the president makes the announcement, is it a done deal?

ARNOLD: Well, this is a voluntary initiative, so he's basically announcing this agreement that's been brokered between some big investors who've bought into these mortgages, who said I'll go along with this, and some of the companies that manage these loans. So it's not a mandate. It's a voluntary agreement.

MONTAGNE: So what is the biggest obstacle to this plan actually taking effect once the president announces it?

ARNOLD: Well, you know, a lot of people say that the threat of litigation is the biggest obstacle. You know, there are a lot of investors who bought into these loans, and these loans get carved up like a cow going to the butcher and it gets carved into a hundred different packages of meat, you know, basically.

And even if a lot of those investors are helped by this because it cost them a lot of money when a home gets foreclosed on, there'll be others that lose money. You know, it's complicated.

And if they sue, that could gum up the works, and just even the threat of them suing has been holding things back a lot. One thing that'll be interesting to see in this process is whether the president and Congress can offer some kind of protection from lawsuits to the industry.

MONTAGNE: NPR's Chris Arnold. Thanks very much, Chris.

ARNOLD: Thanks, Renee.

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