Bush, Banks Unveil Plan to Stem Foreclosure Flood

Dec. 6, 2007 — -- Another shocking headline came out of the housing sector today: Delinquent payments on mortgages are now at the highest level since 1986, and some economists are calling this the most severe housing recession in the post-World War II period.

In response to worries about housing, President Bush and Treasury Secretary Henry Paulson announced a plan today that they hope will stop the flood of foreclosures.

The target is the estimated 1.2 million people who can afford their mortgages at the current rate, but not at the higher interest rate that their adjustable-rate loans are about to reset to.

But not everybody will fall into this rescue push.

"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," Bush said.

"There is no perfect solution," the president added. "The homeowners deserve our help. The steps I've outlined today are a sensible response to a serious challenge."

Banking executives for weeks have talked with government officials on a set of standards to deal with the growing problem.

Some homeowners with better credit would be able to refinance their loans in new fixed-rate mortgages with some lenders possibly waiving prepayment penalties.

Others would have their introductory "teaser" rates frozen for up to five years. Those homeowners would essentially need to have a credit score of 660 or less. And the homes would need to be owner-occupied.

The third group Bush spoke of, those who simply can't afford their homes, will still likely lose them. Basically the government and banks are saying: you probably should be renting.

The plan includes loans that were issued between Jan. 1, 2005 and July 31 of this year and have their rate reset sometime between Jan. 1, 2008 and July 31, 2010.

While this plan is aimed at those with the riskiest credit histories, the so-called subprime borrowers, its impact is expected to ripple throughout the entire economy.

"All homeowners will benefit from mortgage relief because it will keep the value of their homes from falling," said Peter Morici, an economist and business professor at the University of Maryland.