February 12, 2008
Mortgage Crisis Spreads, White House Responds
Treasury Secretary Henry Paulson and HUD Secretary Alphonso Jackson announced a new mortgage rescue plan that would help all kinds of borrowers, not just those who took out subprime loans.
Dubbed Project Lifeline, the program would enlist the six major mortgage lenders in a "targeted outreach to homeowners 90 days or more delinquent" that would "pause" the foreclosure process. Though the Bush administration continues to insist that the economy hasn't fallen into recession, today's announcement was an acknowledgement that better-off Americans are also suffering as a result of the lending crash.
"Project Lifeline has the potential to offer new solutions to responsible and able homeowners who want to keep their homes," Paulson said at a joint press conference with Jackson. Describing the effort to help struggling homeowners as "evolving," Paulson added, "As our economy works through this difficult period, we will look at additional opportunities to try to prevent additional foreclosures."
In December, Paulson and Jackson announced the Hope Now alliance, which involved a deal with mortgage lenders and investors to ease the strain on subprime borrowers, or those who accepted high interest rate loans because they had poor credit. Despite signing on the dotted lines, many of those homeowners were not prepared when their interest rates were jacked up, or reset, following an initial period of low payments.
Project Lifeline extends some of the terms of the Hope Now alliance to borrowers who have good credit and higher incomes but are still struggling to make payments. The housing bust has made it difficult for even responsible borrowers to refinance or sell for an optimum price, as American home prices have dropped for the first time on record. An economist with Moody's told the New York Times, "This collapse in housing value is sucking in all borrowers."
Under the terms of Project Lifeline, lenders including Bank of America Corp., Citigroup Inc., Countrywide Financial Corp., JPMorgan Chase & Co., Washington Mutual Inc. and Wells Fargo & Co. -- which are responsible for about half of all U.S. mortgages -- will suspend foreclosures for delinquent borrowers for a period of 30 days, during which time the parties will renegotiate payment terms. These same lenders agreed to freeze interest rates for subprime borrowers under Hope Now, and it is too soon to tell how these agreements are impacting their already-hurting bottom lines.
Paulson said that Hope Now had already succeeded in reaching out to at-risk borrowers and helping them hang onto their homes. He said he would request monthly status reports on Hope Now and Project Lifeline, and stressed that overall, the economy was performing strongly.
"The economy will continue to grow, although at a slower pace in most quarters," Paulson predicted.
Economists are still debating whether the nation is already in a recession, however, and the housing bust is viewed as more far-reaching than the tech bust at the turn of the century. The ripple effects are being felt in a wide variety of sectors, from consumption to student loans (subscription).
President Bush is expected to sign a $152 billion economic stimulus package tomorrow. The Las Vegas Sun has a behind-the-scenes look at how Senate Majority Leader Harry Reid was able to coax the contentious legislation through.
Posted at 12:38 PM
Posted to:
Bush Administration, Economy, President Bush
Share via
