With record numbers of Americans falling behind on their mortgages, the Bush administration last week unveiled a plan to provide relief to some of the nation’s hardest-pressed homeowners. Under a deal brokered by Treasury Secretary Henry Paulson, a coalition of mortgage lenders and investors agreed to a voluntary framework to streamline the mortgage-workout process for 1.2 million subprime borrowers whose adjustable-rate loans are due to reset higher in 2008. The agreement, said President Bush, “will offer more relief to more homeowners, more quickly.”
Under the plan, the rate on adjustable loans would be frozen for five years for homeowners who have borrowed more than their homes are worth and can’t afford the higher, reset rate. Those who borrowed less than their home’s value could refinance with federally insured fixed-rate mortgages. But reaction to the plan was tepid across the political spectrum. “What they are proposing doesn’t help a single soul who is currently delinquent on their mortgage or facing foreclosure,” said Michael Shea of the homeowner advocacy group Acorn. A group of 61 free-market economists complained of unwarranted “federal intervention” in the housing market.
Any plan that’s attacked from both the left and the right can’t be all bad, said the San Jose Mercury News in an editorial. While it’s no panacea, “the plan rightly prods mortgage lenders and investors to allow some at-risk homeowners to renegotiate.” True, the “Bush plan won’t begin to make up for the reckless lending—and reckless borrowing—that took place during the boom.” But why should taxpayers get stuck with that bill anyway?
The problem with the plan, said Paul Krugman in The New York Times, is that it helps the wrong people. The administration’s approach is focused on “reducing investor losses” by making foreclosures less likely. It virtually ignores the “human suffering” of those who were victimized by predatory lenders. One suspects the plan was designed to give “the appearance of action,” in hopes of scuttling a more aggressive response. One Democratic bill, for instance, would empower bankruptcy judges to rewrite the terms of mortgage loans to help people keep their homes. That’s the sort of plan that “would actually help working families.”