Bush Unveils Foreclosure Relief Plan
ROBERT SIEGEL, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
MELISSA BLOCK, host:
And I'm Melissa Block.
It's been in the works for months, and today, President Bush unveiled the plan to help struggling homeowners - by freezing the interest rates on their loans. Many people are seeing the rates on their adjustable loans go through the roof. Economists widely estimate that between 500,000 and 1 million homes will get foreclosed on in 2008 alone. Already, foreclosure rates are at their highest in 50 years.
NPR's Chris Arnold begins our coverage.
CHRIS ARNOLD: The president says he wants to help people who could afford their initial interest rate, that is a homeowner who's been making their payments at, say, 7 percent for the past year but can't afford the 10 percent that the loan is about to adjust to. The administration has brokered a deal where the president said the industry will voluntarily help borrowers in one of several ways, including…
President GEORGE W. BUSH: By freezing their current interest rates for five years.
ARNOLD: Arm-twisting this kind of a deal is a bit of change for an administration that usually takes a more free market approach, but the president stressed that this is not a bail out.
Pres. BUSH: We should not bail out lenders, real estate speculators, or those who made the reckless decision to buy a home they knew they could never afford. Yet, there are some responsible homeowners who could avoid foreclosure with some assistance.
ARNOLD: There are limits: the plan only covers people who got a loan between certain dates, and the rate freezes only for people whose rates have not adjusted yet and who are current on their payments. But the administration says this plan, combined with its other initiatives, could help more than a million homeowners avoid foreclosure over the next couple of years.
Some housing advocates, though, are skeptical.
Mr. MIKE CALHOUN (President, Center for Responsible Lending): We support this effort, but don't expect it to reach many families.
ARNOLD: Mike Calhoun is the president of the Center for Responsible Lending. He says the industry has made similar pledges before.
Mr. CALHOUN: This is the third time this year where there's been an announced campaign by industry to modify mortgages.
ARNOLD: But Calhoun says most companies haven't followed through. And his latest plan, too, is voluntary. The government is still asking, not telling, the industry to freeze rates.
Mark Zandi is chief economist with Moodyseconomy.com.
Mr. MARK ZANDI (Chief Economist, Moodyseconomy.com): I think there needs to be some kind of stick, some legislation that makes it much more costly for services and investors not to follow through.
ARNOLD: One idea is to offer protection from lawsuits to the companies that freeze rates or cut other deals with borrowers. Those mortgage companies are worried that they'll get sued by some investors who lose money because of a rate freeze.
Mr. ZANDI: So I think Congress and the administration are going to have to pass some laws to really make this work. I hope they can get those laws in place quickly.
ARNOLD: There is a growing backlash, though, against this rate freeze plan.
Dick Armey is the former Republican House Majority leader. He doesn't like this at all. First, he says, you're rewarding people for being careless and not reading the documents that they signed. And he says the government shouldn't get into the middle of it. It's better to let the market sort it out.
Mr. DICK ARMEY (Former Republican Representative, North Dakota): My point is you might expect this kind of irresponsible short-sighted gibberish from a campaign because campaigns are essentially brain-dead anyway. But you shouldn't have this kind of irresponsible policy, actual policy initiative by people in public office, like the people at the White House.
ARNOLD: But if the market sorts it out by foreclosing on millions of people in a short period of time, that could push the economy into a recession.
Nariman Behravesh is chief economist with the forecasting firm Global Insight.
Mr. NARIMAN BEHRAVESH (Chief Economist, Global Insight): The bigger the number of foreclosures, the bigger the mess, in a sense, the bigger the ride offs are going to be, and the bigger the losses for the banks and other financial institutions, that's the bigger worry. That - you know, if this thing kind of spreads even more, becomes even bigger, then it could begin to seriously hurt the economy.
ARNOLD: This week, Senator Hillary Clinton called for much the same kind of rate freeze as the president. Behravesh thinks the growing pressure from Washington and the self-interest in avoiding an even bigger financial mess means that the industry is going to start cutting more deals with borrowers and keeping more people in their homes.
Chris Arnold, NPR News.