Bank of America, Citigroup and other major U.S. banks and lenders announced Tuesday a revised plan to help some borrowers in danger of default remain in their homes.Encouraged by U.S. Treasury Secretary Henry Paulson, the banks will offer a 30-day freeze on foreclosures while loan modifications are considered for borrowers who are at least three months late on payments. The program will include borrowers with prime mortgages, as well as those with poorer credit histories.
Second wave of defaults
The program is being initiated as the United States prepares for the second wave of mortgage defaults as variable mortgages rates reset in 2008. The U.S. Federal Reserve estimates that about two million mortgages will reset to higher rates, with foreclosures expected to soar to one million, absent an intervention. In a typical year, the U.S. has about 500,000-550,000 foreclosures.
The nation and the housing sector are also attempting to avoid the onset of a housing "vicious cycle" whereby defaults further lower home values, preventing some homeowners from refinancing, which would precipitate another round of defaults, further lowering home values, etc.
All plan participants rose on the news early Tuesday. The Bank of America (NYSE: BAC) gained 30 cents to $42.43, Citigroup (NYSE: C) rose 46 cents to $26.25, JP Morgan Chase (NYSE: JPM) climbed 15 cents to $43.50, Wells Fargo (NYSE: WFC) rose 24 cents to $29.80, Washington Mutual (NYSE: WM) gained 20 cents to $16.98, and Countrywide Financial (NYSE: CFC) added 10 cents to $6.74.
Slow progress
Economist Steve Affinito said the new plan represents "incremental progress, but more action and a larger program is needed."
"The banks still aren't ready to face the harsh reality that they're going to face massive losses, absent a restructuring of many at-risk loans," Affinito said. "They need to restructure these loans so that most borrowers can repay them. It will cut into their revenue, but getting 70% or 80% of projected interest income is better than getting no interest income. Banks are not in the real estate business, and absent this, they're going to have a lot homes on their hands with very few buyers."
Some in Congress are considering a larger federally-sponsored program. Sen. Christopher Dodd (D-Connecticut), chairman of the Senate Banking Committee, is exploring the federal program to buy and restructure delinquent and near-delinquent loans, Bloomberg News reported.
Affinito said a plan of that scope "would probably cost more than $40-50 billion annually."
Affinito said it's highly unlikely President Bush would approve such a plan, and noted that it "would probably take a Democratic president and U.S. Congress" to get the legislation through, but "the housing crisis can't wait until after the November 2008 election for a possible solution."











Reader Comments (Page 1 of 1)
2-12-2008 @ 12:08PM
BASILOVECCHIO said...
BASILOVECCHIO'S BLOG
THE FINGER HAS FINALLY BEEN PUT IN THE HOLE IN THE DIKE!!!!!!
GREAT.now what will be done to remove the finger
and not cause a MAJOR catastrophe.
This is a temporary solution that will only pent up demands for forcolures-7.5 million of them when the finger is removed!
THE LOANS MUST BE MADE AFFORDABLE-not frozen at these UN-AFFORDABLE terms and condition.
Ask, what can "FREDDIE AFF" do?
"Freddie Aff" will solve the entire problem.email-
mylonglastname@aol.com
2-12-2008 @ 12:11PM
BASILOVECCHIO said...
Basilovecchio
SORRY,I am new at this.Don't know how to take email address out.
2-12-2008 @ 12:30PM
john rogers said...
why cant they cut sub prime rates to help out people before they get into foreclosure how can you have or get anything now adays with bad credit or a foreclosure against your credit banks aint helping anyone but theirselves they need to do something before people get to that point but no the goverment wants to sit back while the banks get richer off their sub prime rates or foreclosing on a home and reap the benefits of foreclosure . if the govrment wanted to help people why dont they listen to the how to help the people istead of worrying about the best interest of these major banks reaping up all the benefits
2-12-2008 @ 1:14PM
Americas Watchdog said...
We have the National Mortgage Complaint Center and this new Federal scheme is too little, too late. What this fix fails to address is the fact that most of the borrowers are already upside down on their home by at least 10% or more. Why extend the pain? We estimate that there will be 2.4 million foreclosures this year. Thats 1 in 32 US homes.
As far as Chris Dodd (US Senate), he is a fool. Federal bail outs----what a joke. Had he been doing his job as far as over sight in 2004-2005 we would not have this problem now. This disaster should not come with a Federal bail out. We think the lenders/investment bankers should be writing the checks.
Our big worry is the pension funds that purchased the mortgage backed securities. They now have a huge problem. They will be next in line for a bail out.
We fail to see why the taxpayer has to bail out foolish lenders & real estate flippers who bet nothing on flipping a house. They rolled the dice and now the taxpayer pays? Thats Baloney!
Further why should tax payers pay for individuals who never should have bought a home in the first place? We talk to about a dozen homeowners a day in foreclosure. Many to most have not made a mortgage payment in a year. So the tax payer should bail them out?
Why?
2-12-2008 @ 5:20PM
watchdogjr said...
I agree with watchdog fully. It's an ugly an why should prudent citizens take the fall for the foolish?
2-12-2008 @ 1:29PM
watchdogjr said...
I agree with watchdog fully. It's an ugly an why should prudent citizens take the fall for the foolish?
2-12-2008 @ 3:11PM
BASILOVECCHIO said...
You are absolutely correct about the past.Ask about a future plan---It addresses all those issues and provides a solution.The "EVERYBODY WINS" plan proposed by BASILOVECCHIO.Basilovecchio means AFFORDABLE!
2-12-2008 @ 1:26PM
steve said...
we have a combination of problems. inflation is a big part of the problem. the gov just keeps printing money and lowering the value of the dollar. no one is spending money and business's are feeling the cruch. which makes companies downsize and less jobs. then you have the subprimes which people cannot keep up with the payments. our economy is so stretched that there is no place to make money. so things have to drop in price. i see many business closing their doors, and i am wondering "whats going to bring jobs back to the united states. everything is being offshored. we need to start putting tarifs on imports from china and other countries. we need to start building all new homes with solar power and building better public transportation. the gov should start taking care of us first. the is going to be a long cycle. the gov is too little too late to correct this problem.
2-12-2008 @ 1:45PM
Jim said...
When are poeple going to learn. This whole problem is an education problem. If people were educated in money matters, they would not have put themselves in this mess. I dont like the goverment stepping in. Why should they help... If they are going to help those who got into these contracts on their own, then they should help those people that are loosing their homes due to other reasons.. ex. sickness, job lost, ect... but they are not, which shows they are really doing this for the large instutions, not for the consumer.
So my advise is let the chips fall where they may and GET EDUCATED
2-22-2008 @ 8:40PM
Nate said...
So where do we get this money education? I'm not saying I'm ignorant. But what I do know I learned the hard way, by watching others make mistakes. Nobody I knew growing up, knew what they were doing until it bit them, I got to see the results and worked out the causes myself. It's the only thing I have to go on. I haven't got caught with my own mistakes yet, but there is no formal education on money matters. Who teaches money smarts if you can't learn it from your parents?
2-12-2008 @ 1:55PM
don dildy said...
All responsible parties should share in this mess in a forulated prorata formula: (i) regulators (govmt agcies) (2) lenders on subprimes (3) irresponsible buyers of sumptuious, overvalued homes. Us poor taxpayers who live in homes = to our fin status are going to be stuck with the balance via fed. gov. picking up the rest of the pieces.
2-13-2008 @ 1:13AM
Dorothy said...
Not right!
I am 61, saved my money faithfully and bought a very simple home, two years ago, with a FIXED rate.
This place isn't fancy, but it's MINE and I can flat afford it on what little my paycheck is- -so I have to go through hell because other people are just flat to stupid to either READ a contract- -or know how to save, - -or both.
to hell with this!
Don't see any big time government helping ME out.
2-13-2008 @ 4:29PM
Opinion 1198 said...
Why should only certain people be help? Since people took out mortgages to buy houses they could not afford with "crafty mortgages" foreclosures are up the value of my house has fallen. Should I get reimbursed for my lossess?????
2-18-2008 @ 2:45PM
reappzr said...
Why are the not going after the mortgage companies that made more money in the last 3 years that were talking about us paying to bail them out , Where'd the money go, the CEO of the failed companies brought it to there island hideaway
2-20-2008 @ 7:39AM
John said...
Refianancing has helped many get homes and spend money inproving them, but Now is past the time to tighten our Belts and be very careful with the Homes we "own" and try to pay our debts on time and save , this is a bitter pill to swallow for some who spend on Gas gusslers and things just to Look bling well I Hope we can pull through and Not expect WAll street to make Good investments rather than passing the paper around and around if it Looks like a pig it smells Like one!
3-01-2008 @ 10:40PM
LinStorer said...
Big banks can help??? Think again... The WaMu management is in need of thorough brain scanning. In the Loss and Mitigation department, the management will favor foreclosure in place of 73% recovery of their mortgage interest in the midst of mortgage meltdown. Go figure… Sell WaMu stocks!