Plans to forestall foreclosures
USA Today reports (Noelle Knox 12/4/2007) that Treasury Secretary Henry Paulson will unveil a plan on Thursday to forestall foreclosures and ease the housing recession.
The release of plan's details will coincide with the release of data from the Mortgage Bankers Association that show that homes in foreclosure hit record levels in April through June, and that nearly 17 percent of subprime borrowers missed at least one payment in the first quarter of the year. An additional 2 million home owners will face their first interest-rate reset by the end of 2008.
"This is the most serious housing recession since the Great Depression," says Mark Zandi, chief economist for Moody's Economy.com. Zandi predicts that home prices, on average, will fall 7 percent more through next year.
Paulson says he wants state and local governments to be allowed to issue tax-exempt bonds to "temporarily" raise money to help some struggling subprime borrowers refinance.
Questions remain about how many investors, who bought bonds backed by these mortgages and are spread out around the globe, will agree to change the terms of the loans.
Meanwhile U.S. Sen. Dick Durbin (D-Ill.) is pushing for a bill that would allow bankruptcy judges to change the terms of a mortgage on the primary residence of owners at risk of foreclosure or bankruptcy.
Judges would be able to lower an adjustable interest rate to a lower, fixed rate. They already have the power to do this for car loans and a number of other debts.
Durbin says his bill could help an estimated 600,000 families at risk of losing their homes because of rising adjustable mortgage rates.
"A strategic change in the bankruptcy code will provide home owners facing foreclosure a degree of financial stability – even when the market cannot," Durbin said.
Supporters of Durbin's bill include senior citizens, bankruptcy attorneys, the AFL-CIO, and the NAACP. The American Bankers Association and home builders are among opponents.
Floyd Stoner, a leading lobbyist for bankers, says bankruptcy judges lack expertise to predetermine a loan's size, value, and length.