No quick fix for subprime mortgages

WASHINGTON – Dec. 10, 2007 – Be ready to wait if you want to get information from a toll-free hot line about freezing the interest rate on your subprime mortgage.

Minutes after President Bush outlined a plan to help strapped homeowners, callers were told to have patience until a counselor could answer their questions and “devote as much time to you as necessary.”

But, once they do get through, homeowners may not find the answers they sought.

One caller to the hot line (1-888-995-HOPE) was told there would be “lots of hoops to jump through” to obtain the five-year freeze. The rate hold goes to the heart of the relief effort for people with subprime mortgages, which are loans offered to borrowers with tarnished credit or low incomes.

Even President Bush acknowledged the plan is “no perfect solution.” Treasury Secretary Henry Paulson said it was not a “silver bullet.”

Only a fraction of the homeowners who face huge jumps in their mortgage payments appear likely to be helped by the plan, negotiated by the Bush administration, to freeze the low introductory rates on their subprime loans for five years. After that, they could be in the same position again.

Homeowners dialing up their mortgage company to get their current rate frozen could be disappointed. The White House plan does not force mortgage companies to give eligible homeowners a break. It is voluntary.

Bush, announcing the initiative Thursday, said 1.2 million people could be eligible for relief. Aid includes the rate freeze and helping people refinance into more affordable mortgages. The Center for Responsible Lending, a group that promotes homeownership and works to curb predatory lending, estimates that just 145,000 families will qualify for the rate freeze. The criteria are too strict, it says.

The White House plan is aimed at stemming foreclosures, which have shot up to record highs as the housing market has gone from boom to bust.

Subprime borrowers have been hardest hit by the meltdown. Initially low interest rates that reset to much higher rates have clobbered those borrowers. Nearly 2 million adjustable-rate subprime mortgages will reset from introductory rates of around 7 percent to 8 percent to much higher rates this year and next. That raises the specter of even more people being forced out of their homes because they cannot keep up with their monthly payments.

Rising home foreclosures are a headache for politicians and a danger for the economy.

Bush tried to shift blame for the crisis to the Democratic-led Congress.

“The Congress has not sent me a single bill to help homeowners,” Bush said.

One measure would give the Federal Housing Administration more flexibility; a second would change the tax laws temporarily to help people who have a portion of their mortgage forgiven by banks.

Sen. Charles Schumer, D-N.Y., complained the criteria for Bush’s mortgage freeze are too narrow to help most distressed homeowners and worried that legal challenges by investors might stall the effort.

“While we certainly all hope this will be a shot in the arm for the housing slump, it is hardly a panacea,” Schumer said. “There are too many families who may be left out, too much left up to the voluntary willingness of the private sector and too little disclosure and transparency to ensure families who do qualify are being helped.”

Under the plan outlined Thursday, the rate freeze offer would be available only to people who have not missed any mortgage payments at their introductory interest rate. It also only would apply to loans taken out between 2005 and this past July 31 and scheduled to rise to higher rates in Jan. 1, 2008, and July 31, 2010. To make sure speculators don’t get the break, the rate freeze offer applies only to people living in their homes.

The idea behind the administration-negotiated plan is that the five-year freeze will buy time for the housing sales and prices to start rising again. Such a rebound would enable homeowners to refinance their current adjustable rate mortgages into fixed-rate loans with more affordable monthly payments. But some people who want to buy homes and have been priced out of the market are upset that there’s no help in sight for them.

Of the nearly 3 million subprime adjustable-rate loans surveyed by the Mortgage Bankers Association in the third quarter, a record, 18.81 percent of them were past due. A record, 4.72 percent of the loans entered into the foreclosure process during that period.

Meanwhile, there still is the possibility that investors, who were counting on bigger returns from the higher rate resets, will balk at extending the duration of the lower rate.

George Miller, executive director of the American Securitization Forum, whose members include investors, ratings agencies and other financial players, backed the White House’s effort and developed streamlined procedures for lenders to follow when sorting through borrowers’ requests for relief. He was hopeful lawsuits could be avoided, but he struck a note of caution.

“Certainly, there is no complete insulation from legal exposure,” Miller said.

Bush signs bill to aid ailing homeowners

WASHINGTON – Dec. 21, 2007 – President Bush on Thursday signed a measure to provide financial relief for financially strapped homeowners facing foreclosure or in bankruptcy.

The bill gives a tax break to homeowners who have mortgage debt forgiven as part of a foreclosure or renegotiation of a loan. No taxes would be owed on the value of any debt forgiven or written off. Currently such debt forgiveness is taxable income.

“When you’re worried about making your payments, higher taxes are the last thing you need to worry about,” Bush said in a bill-signing ceremony. He stood alongside members of his Cabinet and lawmakers who pushed the measure.

While the measure is anticipated to reduce taxes of some strapped homeowners by $650 million, the cost to the government would be offset in part by limiting a tax break available on the sale of second homes.

The bill was in response to a mortgage crisis touched off this spring by a blowup in high-priced home loans for risky borrowers, throwing a pall over the economy. Foreclosures are at record highs and late payments are spiking. Lenders have been forced out of business and investors have taken huge financial hits.

“This is going to make a happy holiday for many homeowners,” Bush said of the bill moments before signing it into law.

An estimated 2 million to 2.5 million adjustable-rate mortgages – worth some $600 billion – will jump from low initial “teaser” rates to higher rates this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages, and some overstretched homeowners can’t afford to refinance or sell their homes.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed

Mortgage Insurance is Once Again
Tax Deductible for Borrowers!

Turbulence in the mortgage marketplace has been big news in 2007. But here’s something bigger…and better! MI Tax Deductibility is back and this time for three more years.

This week, our United States Congress has approved or renewed several tax relief measures to keep the dream of homeownership alive for both new homebuyers and existing homeowners. The extension of MI tax deductibility is top among them. The legislation itself is no different than what was passed last year. MI premiums are still fully deductible for taxpayers earning up to $100,000, and partially deductible for those with incomes between $100,000 and $109,000. The only difference is that the deduction now applies to policies written through the 2010 calendar year.

Extending MI tax deductibility is a crucial move for many reasons:

• Risky low down payment loans are no longer a viable option and are being replaced by more secure loans with mortgage insurance.
• Mortgage insurance is not only safe and predictable, but it’s also cancelable and packed with features borrowers want today, including Genworth’s optional and FREE Involuntary Unemployment Insurance and pre/post purchase counseling assistance.
• Consumers today have an increased understanding of how mortgage insurance can benefit them, and the extension of MI Tax Deductibility will help continue that trend.

At Genworth Mortgage Insurance, we not only want you to be aware of what our legislators are doing to help your customers, we want to make sure you have the materials you need to communicate these important benefits to them. Be sure to visit SmarterMI.com and mortgageinsurance.genworth.com for more information you can use when talking with your customers about their mortgage loan needs. Our sales force is also ready to assist with any questions you may have. Or, you may contact our ActionCenter® at 800 444.5664.