Bush Announces Limited Subprime Interest Rate Freeze

After negotiations between federal regulators and U.S. lenders, the Bush Administration announced today a five-year interest rate freeze on subprime mortgages for certain borrowers at risk for foreclosure.

The move, announced by President Bush and Treasury Secretary Henry Paulson, is designed to stem the rising numbers of foreclosures, and protect the borrowers whose adjustable-rate mortgages (ARMs) will reset to painful levels over the next year. The White House said the plan could help 1.2 million homeowners.

With this plan, borrowers of adjustable-rate mortgages whose interest rates will reset in 2008, and who are current with their monthly payments, will have a five-year interest rate freeze.

The freeze is limited, however. Anyone who is judged capable of making mortgage payments as they reset is exempt. Also, anyone more than 30 days late, or borrowers who have been more than 60 days late in the previous 12 months, will be excluded.

According to the New York Times, the investment bank Barclays Capital estimates only 240,000 borrowers will be covered by the freeze, out of the 2 million subprime ARMs expected to reset in 2008 or 2009.

In addition to the rate freeze, the plan will work to speed up other forms of help. The goal is to streamline the refinancing/mortgage modification process, allowing borrowers to move into a new mortgage or a Federal Housing Administration (FHA)-backed loan. Lenders will work quicker to examine loan criteria, credit scores, and payment history to make a determination on next steps.

The plan comes about as the housing situation grows grimmer. According to Credit Suisse Group, more than 30 percent of borrowers with subprime adjustable-rate mortgages are behind on their payments, and face their loans resetting higher. An estimated 775,000 homes with $143 billion of mortgage debt will go into foreclosure over the next two years.

This housing slump is affecting the greater economy, and this new plan and other recent legislation to reform mortgage management are attempts to end the drain on economic growth.

The president, during his announcement about the subprime plan, also urged Congress to act quickly on pending mortgage relief legislation, which has been stuck in the Senate for some time. The legislation includes the FHA Modernization bill and other bills enhancing the mortgage refinancing process.

U.S. Mortgage Rates Stay Steady

Long-term mortgage rates increased slightly in the week ending September 6, 2007, according to finance company Freddie Mac. Their weekly Primary Mortgage Market Survey® was released Thursday.

"Over the past week, long-term mortgage rates were largely unchanged as the most recent economic news showed smaller increases than had been expected," said Frank Nothaft, Freddie Mac vice president and chief economist. "For instance, core personal consumption expenditure price index rose at an annualized rate of only 1.3 percent in the second quarter and July's consumer spending data showed a 1.9 percent gain in the core price index for the twelve months ending in July."

This week's survey indicates 30-year fixed mortgage rates averaged 6.46 percent, a boost from last week's average of 6.45 percent. Last year at this time, the 30-year fixed-rate mortgage averaged 6.47 percent.

Fixed mortgage rates for 15-year terms averaged 6.15 percent, an increase from last week's average of 6.12. A year ago, the 15-year fixed-rate mortgage averaged 6.16 percent.

Averages for Treasury-indexed adjustable-rate mortgages (ARMs) bucked the trend and decreased this week. Five-year ARMs averaged 6.32 percent, down slightly from last week's average of 6.35 percent. At this time last year, the five-year ARM also averaged 6.14 percent.

One-year ARMs averaged 5.74 percent this week, a big drop from last week's average of 5.84 percent. Last year, the one-year ARM averaged 5.63 percent.
Freddie Mac said that to obtain these rates lenders charged an average 0.5-point fee for fixed-rate mortgages. Lenders charged a 0.6-point fee for ARMs.

"In other news, the most recent Conventional Mortgage Home Price Index (CMHPI) release issued by Freddie Mac reported that on average, national house prices grew by 0.1 percent in the second quarter, the slowest quarterly house price growth since the fourth quarter of 1994," said Nothaft. "For the past 12 months, house prices appreciated 3.3 percent, the slowest rate in 10 years."

Freddie Mac is a mortgage finance company established by Congress in 1970. The company buys mortgages and mortgage-related securities and packages them to sell to investors or to hold in its own portfolio. They release their summary of average mortgage rates weekly.


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