The freeze is an agreement with mortgage industries to hold interest rates at their sub-prime rates for five years in an effort to combat the current tide of foreclosures. The Bush Administration revealed the plan on Thursday, December 6, 2007 during a news conference held by Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson. The technical briefing will include plans to begin a five-year moratorium on loans made at the start of 2005 through July 30, 2007 and will affect those rates that were scheduled to rise between January 1, 2008 and July 31, 2010.
The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures that are feared as an estimated 2 million sub-prime mortgages reset from lower introductory rates to higher rates. The fear that the higher rate could boost monthly payments by as much as 30%, has made the plan necessary to keep the industry solvent.
Sub-prime loans are those that are offered at lower introductory mortgage rates to help homeowners qualify. The plan is aimed at these homeowners who have kept their mortgages current but who cannot now afford a higher adjusted rate and will be forced into foreclosure as a result of the increase. The plan was implemented when administration officials became convinced that he tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed rather than the case-by-case approach that had initially been considered.
[tags]adjustable mortgages, mortgage freeze, sub-prime loans, Bush Administration, mortgage industry, Henry Paulson, Alphonso Jackson, foreclosure,[/tags]