California Mortgage-Help Model Has Critics
President Bush's plan to freeze interest rates on some subprime loans might be popular with homeowners who signed on to risky teaser-rate loans that are about to reset, but plenty of other people are angry at what they see as a bailout of reckless banks and borrowers.
The White House plan is aimed at stemming foreclosures, which have shot up to record highs as the housing market has gone from boom to bust. Subprime borrowers have been hardest hit by the meltdown, with their initially low interest rates being reset to much higher rates.
In San Francisco, where the housing market is brutal, 88 percent of respondents to a San Francisco Chronicle poll said they disapprove of the Bush administration plan, which would freeze some adjustable mortgage rates for five years.
"Most of these people won't be able to afford these homes regardless of the case," said John Doxey, a self-employed training specialist.
Doxey is married, with two grown children who he said have been priced out of homes in the Bay Area. He thinks it is unfair to rescue borrowers who he believes paid too much for their homes, when more responsible people avoided loans with payments that would shoot up after a few years. He is not convinced the mortgage freeze is really intended to help homeowners.
"I think it was designed primarily to bail out large banks, mortgage companies, and financiers on Wall Street," he said.
Many economists said the program has so many restrictions that only a fraction of borrowers facing a mortgage reset will qualify for the freeze. They said the plan, which closely resembles a California plan unveiled two weeks ago, does little to solve the mortgage mess.
Under a separate federal plan, borrowers who do not qualify for a rate freeze could get help refinancing with their lenders or moving into loans secured by the Federal Housing Administration. But whether the Bush plan even gets off the ground is still in question.
Many investors in mortgage securities are likely to object to a rate freeze because they were promised that the interest rate would rise at a certain date, said Christopher Whalen, managing director of the Institutional Risk Analytics in Los Angeles. Freezing the loan would deprive them of that higher rate of return they expected, he said.
Whalen expects to see a flood of lawsuits over that aspect of the plan.
"I've got to tell you. I don't think that's going to survive. If it's challenged in the courts, it will get shot down," he said.
With additional reporting from The Associated Press.
9(MDAyNzUwMDI2MDEyNTA3MTU5NzcyNTQyNA004))
RENEE MONTAGNE, host:
President Bush wants to freeze interest rates on some subprime loans. The rates of more than a million of these loans are expected to go up next year. The freeze is bound to be popular with homeowners whose interest rates would go up, and it's backed by many regulators who fear a subprime meltdown.
But NPR's Elaine Korry reports there's a lot of opposition to the plan.
ELAINE KORRY: In San Francisco where the housing market is brutal, the Bush administration plan to freeze some adjustable rate mortgages for five years is prompting a backlash. Eighty-eight percent of respondents to a San Francisco Chronicle poll said the plan was a bad idea because it bails out reckless banks and borrowers.
Mr. JOHN DOXY(ph) (Training Specialist): Most of the people will not be able to afford these homes regardless of the case. They just can't afford them.
KORRY: John Doxy is a self-employed training specialist. He's married with two grown children who he says have been priced out of homes in the Bay Area. Doxy thinks it's unfair to rescue borrowers who he says simply pay too much for their houses when more responsible people avoided loans with payments that would shoot up after a few years. Even worse, he's not convinced the mortgage freeze is really intended to help homeowners.
Mr. DOXY: I think it was designed to primarily bail out large banks, mortgage companies, and financiers on Wall Street.
KORRY: Critics like Doxy are calling the president's plan socialism, methadone for credit junkies, and worse. And many economists say the program has so many restrictions, only a fraction of borrowers facing a mortgage reset will qualify for the freeze. They say the plan does little to solve the mortgage mess.
But the program unveiled yesterday closely resembles a plan California rolled out two weeks ago, and officials here are optimistic.
David Crane, a special advisor to Governor Schwarzenegger, says there are all kinds of borrowers and it's going to take a multifaceted approach to reach them all.
Mr. DAVID CRANE (Economic Advisor): If you can hit a category, whether it's 12 percent of those borrowers or 25 percent of those borrowers, in some way that works on a streamline basis so that lenders can make mass modifications, you win.
KORRY: Under a separate federal plan, borrowers who don't qualify for a rate freeze could get help refinancing with their lenders or moving into loans secured by the Federal Housing Administration. That is, if the plan to freeze rates even gets off the ground, and some observers say that's a big if.
Mr. CHRISTOPHER WAHLEN (Institutional Risk Analytics): Oh, they're going to litigate the hell out of it. I don't think it'll ever happen.
KORRY: Christopher Whalen is the managing director of Institutional Risk Analytics in Los Angeles. He suspects many investors in mortgage securities will object to a rate freeze. These investors were promised that the interest rate would rise at a certain date; freezing the loan would deprive them of that higher rate of return they expected. And Whalen expects to see a flood of lawsuits over that aspect of the plan.
Mr. WAHLEN: The government cannot take property away from you without compensation, and that's what they're doing here. And I got to tell you, I don't think that's going to survive. If it's challenged in the courts it'll get shot down.
KORRY: And that would be bad news for the estimated 1.2 million borrowers facing their first reset on a teaser rate loan.
Elaine Korry, NPR News, San Francisco. Transcript provided by NPR, Copyright National Public Radio.
