Bush’s Anti-Foreclosure Plan: Is It Any Good?
By Foreclosure-Fighter Staff Writer
Last week, the Bush Administration announced with great fanfare a plan to rescue homeowners in danger of losing their homes to foreclosure. The plan was greatly anticipated, since the United States is currently in an undeniable foreclosure crisis, with estimates that 2.2 million families will face foreclosure in the next two years.
Presented by President Bush, Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson, the plan has met a less-than-enthusiastic reception. Here's why.
The plan's main focus is a five-year freeze of mortgage rates poised to reset in the coming months. Authors of the plan worked out an agreement with the mortgage industry that allows homeowners to continue paying the low introductory (also called "teaser") rates that are typically charged at the beginning of an adjustable rate mortgage.
This rate freeze is intended to allow homeowners enough time to get their finances in order or refinance their loans, and so avoid potential foreclosure when their rates jump as much as 30%.
Additionally, Bush presented a national, toll-free hotline for homeowners who are in danger of foreclosure or interested in learning how the plan will work for them. The hotline (1-888-995-HOPE) will be operated by counselors who can advise concerned homeowners about their mortgage worries.
But the plan met a cold reception from critics across the country. Many see the plan's biggest weakness as its limited reach—only homeowners who have not yet missed payments on their mortgages, but whose interest rates are expected to reset soon, are eligible for the rate freeze.
Furthermore, the rate freeze applies only to those currently living in the property whose interest rate is nearing its reset point. This means that families who have already defaulted on payments and those renting their properties to others will not qualify for relief under the plan.
In speeches, Bush assured the nation that as many as 1.2 million homeowners could qualify for the interest rate freeze. Consumer-centered organizations, though, have much lower estimates. The Center for Responsible Lending has predicted that only 145,000—a mere 7% of homeowners!—will be helped.
Even if Bush's prediction turns out to be accurate, though, one million families will still be out of luck.
Critics have slammed Bush's plan both for its limited scope and for its short-term nature. The plan does not address, for example, what have been recognized as the original causes of the current foreclosure crisis: predatory lending techniques, economic innovation in the mortgage market, and questionable market incentives that cost homeowners.
Some business journals have predicted that, in the long run, this move will lead to a serious recession and possibly even depression for the United States. Other less-dire predictions point to probable increases in interest rates across the board for homebuyers.
For continued updates on the effects of Bush's plan on the real estate market and the foreclosure crisis, continue checking Foreclosure Fighter's article section and news updates.