WASHINGTON – One wag has called it the “teaser freezer.” But whatever the name, it is going to mean relief for thousands of homeowners facing a painful jump in their mortgage rates in coming months. Thanks to a deal hammered out by the Bush administration, the mortgage industry has agreed to freeze rates on a portion of the 2 million subprime mortgages that were scheduled to reset to higher rates over the next two years. To qualify for the relief, according to congressional and industry officials who have seen the plan, the homeowner must be current on payments under the introductory rates. The freeze will last for five years, said officials. The expectation is that as home sales and prices rise again, homeowners will be able to renegotiate their adjustable rate into a more affordable fixed-rate plan. Officials said the rate freeze will apply to loans made at the start of 2005 through July 30 of this year and will cover loans that had been scheduled to rise to higher rates between Jan. 1, 2008, and July 31, 2010. The administration said President Bush will speak on the agreement today followed by a news conference featuring Treasury Secretary Henry Paulson, Housing and Urban Development Secretary Alphonso Jackson and leading executives of the mortgage industry. AD Quality Auto 360p 720p 1080p Top articles1/5READ MOREPettersson scores another winner, Canucks beat KingsPaulson, who has been spearheading the effort to craft a plan, said on Monday that the program would be available only for owner-occupied homes – to ensure the break is not given to real estate speculators. The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of feared foreclosures as an estimated 2 million subprime mortgages reset from lower introductory “teaser” rates to higher rates. In many cases, the higher rates will boost monthly payments by as much as 30 percent, making it very difficult for many people to keep current with their loans. The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate. Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year. The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed. Paulson and other federal regulators began holding talks with some of the country’s biggest mortgage lenders, mortgage service companies, investors who hold mortgage-backed securities and nonprofit groups that provide counseling for at-risk homeowners. Under the typical subprime loan – those offered to borrowers with spotty credit histories – the rates for the first two years were at levels around 7 percent to 9percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent. For a typical $1,200 monthly mortgage payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment. The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence. The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors. In California, where Gov. Arnold Schwarzenegger announced a similar deal two weeks ago, the plan was met with skepticism. “What we need in bold action and we are not getting it from President Bush,” said Assemblyman Ted Lieu, D-Torrance, who chairs the Assembly Banking Committee. Lieu argued that the proposal would help only a fraction of those homeowners who are facing foreclosure. Staff writer Gene Maddaus contributed to this article.160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set!
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