Nov. 30 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson is negotiating an agreement with banks to stem a surge in foreclosures by fixing interest rates on loans to subprime borrowers.
Paulson was joined yesterday by Federal Deposit Insurance Corp. Chairman Sheila Bair, Comptroller of the Currency John Dugan and Office of Thrift Supervision Director John Reich.
Bair has proposed letting borrowers with adjustable-rate subprime mortgages, who are living in their homes and unable to afford resets, get extensions on the starter rate for at least five years. They could also be offered 30-year fixed-rate loans. Reich prefers a three-year freeze.
"The objective of modifications should be to make homeownership sustainable, rather than deferring foreclosure to a later date," wrote Dodd, a Connecticut Democrat who is seeking his party's presidential nomination.
Subprime loans, given to people with poor or incomplete credit histories, typically offer a low introductory rate for the first two or three years. The rate then resets for the duration of the mortgage. About 100,000 subprime loans will reset to higher rates each month over the next two years.Paulson said in an interview with Business Week three days ago that ``well before the end of the year, we will have a template and the infrastructure in place to make it easier to handle the wave'' of mortgage resets.
The rout will get worse because defaults on home loans are likely to rise, analysts said. The FDIC estimates that 1.54 million non-prime mortgages valued at $331 billion will reset by the end of next year.
Paulson may be trying the same approach he took with Citigroup, JPMorgan Chase & Co. and Bank of America Corp. in September to address structured investment vehicles, units set up by banks to finance purchases of assets such as corporate bonds and mortgage securities, Abernathy said. Treasury encouraged the banks to set up a fund that will buy assets from the SIVs, without committing any government money.
Regulators still lack reliable estimates on the extent of the subprime mortgage crisis. Three months after they asked banks to modify loans for borrowers at risk of default, agencies have little comprehensive data on what lenders and loan servicers have done, officials say.
Mortgage-industry lobbyists have argued that an across-the- board solution is difficult to apply. Rewriting contracts also risks moral hazard -- encouraging borrowers to take on more debt in the expectation of being bailed out if needed later. - Bloomberg
One of the arguments against Agricultural Subsidies is... it allows people who have made poor financial decisions to operate in a "Market Based Economy" - not to fail. We are again providing this vehicle to sub-prime mortgagees. whether it be business failure or personal financial failure - it becomes enormously painful to those who have to endure it. These subsidies are not there to protect the individual - they are there to protect the businesses who have provided the money (loans, etc.) The Consumer is the Pawn - Business is the King. Vis...Savings and Loan Bail Out....Long Term Capital Management Bail out. Etc...Iraq War -Business Enrichment.
"In the room the women come and go
Talking of Michelangelo.
And indeed there will be time
To wonder, "Do I dare?" and, "Do I dare?"
Time to turn back and descend the stair,
With a bald spot in the middle of my hair --
(They will say: 'How his hair is growing thin!")
My morning coat, my collar mounting firmly to the chin,
My necktie rich and modest, but asserted by a simple pin --
(They will say: "But how his arms and legs are thin!")
Do I dare
Disturb the universe?
In a minute there is time
For decisions and revisions which a minute will reverse." ........... -The Love Song of J. Alfred Profrock - T.S. Elliot
|Metro area||June 2007||Five-year projection|
|Orange County, Calif.||$1,419||$1,104|
|East Bay, Calif.||$1,562||$1,078|
|Long Island, N.Y.||$947||$725|
|Inland Empire, Calif.||$791||$667|
|Greater Washington, D.C.||$856||$641|
|Palm Beach County, Fla.||$760||$553|
|Salt Lake City||$464||$360|
|Greater Kansas City||$309||$314|