Foreclosure mess to get help

Foreclosure mess to get help

White House plan expected to freeze interest rates 5 years
December 6, 2007

BY TODD SPANGLER

FREE PRESS WASHINGTON STAFF

WASHINGTON -- Help from Washington soon could be on the way for subprime borrowers in metro Detroit, one of the hardest hit areas of the country for home foreclosures.

The Bush administration is expected to announce a plan today to freeze interest rates for five years, a person familiar with the plan told the Free Press on Wednesday.

A congressional aide speaking on condition of anonymity because the plan is not coming from Congress confirmed an Associated Press report that an agreement between lenders and the administration has been reached.
The aide could not provide details about how many borrowers would qualify or which loans -- and from what period -- would fall under the agreement.

Another aide, to Rep. Thaddeus McCotter, a Livonia Republican and a member of the House Financial Services Committee, said the congressman received confirmation of the report from the committee.

President George W. Bush's schedule indicated he would make an announcement on housing issues from the White House today followed by a news conference at the Treasury Department.

Even with many specifics unknown, reaction in metro Detroit was generally positive.

"They're doing something, and that's a good thing," said Deborah Jones, president of the Detroit Alliance for Fair Banking, a group that monitors banking practices and works to ensure credit access for underserved communities.

Jones has spent months working with families who are grappling with foreclosures and negotiating on their behalf with lenders, trying to reach deals to allow people to keep their homes and prop up neighborhoods threatened by sinking property values when homes are foreclosed.

Any plan, she said, will have to be far-reaching to help people in metro Detroit. From July 1 to Sept. 30, the region ranked second highest among the nation's largest 100 metro areas in the rate of foreclosure filings, with 1 for every 33 households. According to RealtyTrac, which tracks foreclosed properties, only Stockton, Calif., had a higher rate.

Michigan's housing problems are exacerbated by the state's 7.7% unemployment rate -- which leads the nation.

That, in itself, could be an issue for how effective the program could be: In other areas of the nation, the question is how much a person can afford to pay. For some in southeastern Michigan, it's a question of whether the person is working.

"Will this person have an income stream in the near future?" Meg Burns, director of the U.S. Department of Housing and Urban Development's Office of Single Family Program Development, said Monday. "If they have no job, how long can this person make this payment?"

McCotter said Tuesday: "The best way to stop homeowner foreclosures at this point is to make sure people have jobs."

The administration agreement with lenders is a signal that government is catching up with the problem, but it is far from the only one. In Lansing, the state House passed legislation Tuesday authorizing lower, fixed rate loans for homeowners through the Michigan State Housing Development Authority. The bill has a less certain fate in the Senate.

Capitol Hill has been increasingly interested as well. The House has passed legislation to modernize the Federal Housing Administration, raising the amounts the agency can loan for homesand strengthening laws to restrict predatory lending.

Another proposal, by Democratic Michigan Sen. Debbie Stabenow, would forgive the taxes a homeowner gets if he or she settles a mortgage for less than the original value of the loan.

"It's not happening fast enough," Stabenow said. "This is a fundamental issue in the economy. There needs to be quick action."

That delay is also part of the debate. While some are pushing for immediate action, others in Congress say quick fixes could lead to more problems and a new wave of foreclosures down the road.

Rep. Tim Walberg, a Tipton Republican, voted against the legislation aimed at restricting predatory lending, for instance, believing it was no more than a political move and could result in less money being made available for home lending.

That doesn't mean, however, that he's against regulating the industry; in fact, he says he believes Michigan -- one of a dozen states with no licensing program for those selling mortgages -- needs more control over agents.

"There are certain regulations even a conservative like me thinks are appropriate," he said Tuesday.

Another key measure likely to be passed soon is an appropriations bill including $200 million for nonprofits offering credit counseling, a measure that may seem modest on its face but is touted by industry experts, administration officials and lawmakers as a significant means of getting lenders and homeowners together before foreclosures begin.

Meanwhile, policy makers, lenders and fair-housing advocates like the Washington-based Center for Responsible Lending are waiting for details of Bush's plan.

On Tuesday, the president said there have to be limits: "In other words," he said, "we shouldn't be using taxpayers' money and say, 'OK, you made a lousy loan, therefore we're going to subsidize you.' "

That leaves questions about who will qualify and how investors -- who may hold securities backed by subprime loans as investments -- may react.

"On the other side, there are many low- and moderate-income homebuyers who either took out fixed rate mortgages or already saw their" adjustable rate mortgage "reset to a higher rate," said Dean Baker, codirector of the Washington-based Center for Economic Policy Research, on his blog Tuesday. "This freeze does nothing for them."

Rep. John Dingell, a Dearborn Democrat, said he wants to make sure lenders are part of the solution and is concerned the Bush plan could be a voluntary one.

"Anytime this administration says it wants something voluntary, it means something that looks good that doesn't do much," he said Tuesday.

But Democratic New York Sen. Charles Schumer, chairman of the Joint Economic Committee, said Wednesday: "The $64,000 question remains: Will investors who might balk at going along with this be able to maintain legal roadblocks and prevent the plan from going in to effect?"