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Bush Administration May Expand Homeowner Rescue Program

According to the Associated Press, U.S. Treasury Secretary Henry Paulson said this morning that the Bush administration was looking into expanding a program to help at-risk mortgage holders. In a CNBC interview, Secretary Paulson said the administration was involved in “discussions” with the mortgage industry to expand the current program, which freezes adjustable-rate mortgages for five years, to include borrowers of loans at prime rates. At this time, the rate freeze covers a much smaller segment of adjustable rate loans that were made to subprime borrowers with weak credit histories.

In the CNBC interview, the former Goldman Sachs chief executive said:

We have a wave of resets coming… One thing we will consider with the HOPE NOW alliance is… maybe expanding this beyond subprime borrowers to other borrowers.

According to the Associated Press, there are 1.8 million subprime mortgages that are scheduled to reset to higher rates this year and next. The HOPE NOW alliance is a coalition of mortgage industry companies which are seeking to reach at-risk borrowers to help them avoid foreclosures.

Bloomberg reported today that the New York-based American Securitization Forum, which represented investors in the talks that led to the creation of HOPE NOW, said it was open to including prime and other types of loans in the program. George Miller, the group’s executive director, said in a statement:

To the extent that servicers can develop and apply systematic approaches to assist them in their efforts to identify appropriate loss mitigation outcomes for adjustable rate mortgages other than subprime, we support those efforts.

The Treasury chief used a speech Monday to defend HOPE NOW, according to CNN Money. Paulson said yesterday, “Over the next two years, we… face an unprecedented wave of 1.8 million subprime mortgage resets, raising the potential of a market failure.” Supporters of the rate freeze note that the spread of the foreclosure crisis could derail the larger U.S. economy, hurting even responsible borrowers. The Bush official added that the rate freeze plan is not subsidized by taxpayer dollars and helps the administration “fulfill our primary responsibility of protecting the broader U.S. economy.” Critics claim that adjusting mortgage contracts amounts to a bailout, and “those who take on risk should suffer the loss when bets go bad.” Paulson countered:

It does not. Mortgage servicers have contractual obligations to their investors, who are spread all over the world. Servicers will fulfill these contractual obligations by pursuing all loss-mitigation options when it is in the best interest of investors, as they normally would.