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US mortgage relief package could avert 1m foreclosures

(WASHINGTON) A mortgage relief package hammered out by the US administration and major lenders could help more than one million homeowners avert foreclosure in the next two years, a White House official said yesterday.

The official said the plan, to be formally announced later in the day, would involve refinancings or freezing of interest rates or payment levels for borrowers with sub-prime loans, made to borrowers with poor credit records.

‘No one wins when a house is foreclosed on,’ the official said on condition of anonymity. The plan, devised by US Treasury officials with major lenders and investors, would help struggling homeowners refinance adjustable-rate loans to avoid a higher payment or freeze the current interest rates ‘for some time,’ the official said.

‘This private sector agreement could help more than a million qualified homeowners with sub- prime loans to avoid foreclosure over the next couple of years,’ the official added. The plan was set to be announced amid growing concerns that the slump in housing and rising home loan defaults could tip the US economy into a downturn.

Various estimates indicate two million or more homeowners are at risk of default because of a hike in interest rates that would mean higher payments on adjustable-rate mortgages or other sub-prime loans that offered low initial rates.

Others warn that an effort to impose new terms on mortgages could send a chill through financial markets and possibly deepen the crisis.

The White House official said the plan was agreed upon by the Hope Now Alliance, a group that includes mortgage lenders and services as well as investors holding mortgage-backed securities. The plan apparently would not be binding but could be widely implemented because it has the support of major lenders and investors.

The official said the plan is aimed at ‘qualified homeowners’ who live in their homes but are unable to make the higher payments on their sub-prime loans once the interest rates reset, but can at least afford the existing payments.

The official said the plan includes ‘a set of industry-wide standards’ to provide relief to these borrowers.

Democratic New York Senator Hillary Clinton said earlier that the administration appears to be seeking an interest-rate freeze for ‘a very narrow group of borrowers.’ ‘That is unfortunate because this crisis demands a more comprehensive approach that is adequate for the scale of the problem,’ the Democratic presidential candidate said.

Mrs Clinton has proposed a 90-day moratorium on all foreclosures on sub-prime, owner-occupied homes, an interest-rate freeze on all sub-prime adjustable mortgages for at least five years, and reports from lenders on their success rate in modifying loans.

 

Source: AFP (Business Times 7 Dec 07)

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