Reactions to the Foreclosure Crisis: Bush Announces Mortgage Rate Freeze

In a move to protect the economy from a foreclosure crisis, the Bush administration recently unveiled a plan to freeze subprime adjustable mortgage interest rates for homeowners meeting specific criteria. The plan, crafted after weeks of discussions with mortgage lenders, servicers, and investors, is coordinated by Treasury Secretary Henry Paulson and members of the Hope Now Alliance, a coalition created by the U.S. Department of the Treasury in 2004. The alliance helps families keep their homes and prevent possible harm due to a weakening housing market.

The rate-freeze plan, however, will likely affect only a small group of borrowers. In order to qualify for the five-year freeze on interest rates, homeowners must be current in their loan payments and the first rate adjustment must take place between January 1, 2008, and July 31, 2010. The interest payments must reach at least 10 percent, and the homeowners must be living in the home. The plan applies only to those subprime adjustable rate mortgages taken out between January 1, 2005, and July 31, 2007.

These conditions place severe limitations on eligibility and do not adequately deal with the endemic problems of the lending industry. According to the Mortgage Bankers Association, 0.78 percent of mortgages went into foreclosure in the third quarter, and 5.59 percent were behind in payments. Neither of these groups would qualify under the Bush plan. Approximately 100,000 to 600,000 borrowers will be eligible out of over 2,000,000 homeowners facing subprime adjustable-rate interest increases over the next two years.

The Shriver Center finds that the Bush plan is insufficient and that stronger action is needed to solve the housing market crisis. Moving in this direction, Sen. Christopher Dodd (D-Conn.) recently introduced legislation to improve housing market regulations and the accountability of brokers, lenders, and investors. Dodd’s bill, the Homeownership Preservation and Protection Act of 2007 (S. 2452), takes on such lending problems as excessive mortgage broker fees, inadequate underwriting, inflated appraisals, abusive payment penalties, and fraudulent servicing practices.

Along with the National Community Reinvestment Coalition, the Shriver Center endorses Senator Dodd’s bill and is contacting other lawmakers to build congressional support. By increasing fiduciary responsibility, this legislation holds the potential to bring positive, lasting change in the mortgage-lending marketplace.

For more information, contact Dory Rand at  or Brian Clappier.