The Bush administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans, according to people familiar with the negotiations.
The plan is being negotiated between regulators including the Treasury Department and a coalition of mortgage-related companies including Citigroup Inc., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. People familiar with the talks say the individual members have agreed to follow any agreement reached by the coalition, which is called the Hope Now Alliance.
Details of the plan, which could be announced as early as next week, are still being worked out. In general, the government and the coalition have largely agreed to extend the lower introductory rate on home loans for certain borrowers who will have trouble making payments once their mortgages increase.
Exactly which borrowers will qualify for the freeze and how long the freeze would last are yet to be determined. Under one scenario, the freeze could run as long as seven years. The parties are developing standard criteria that would determine eligibility. The criteria should be finalized by the end of year.
Treasury officials say financial institutions are likely to set criteria that divide subprime borrowers into three groups: those who can continue to make their payments even if rates rise, those who can't afford their mortgages even if rates stay steady, and those who could keep their homes if the maturity date of their mortgages were extended or the interest rates remained at the teaser rates. Only the third group would be eligible for help.
This is very interesting news, and it allows me to advance my Hank Paulsen theory.
My theory (for which I have no proof at all) is that Paulsen told the White House he would take the Treasury position if he had little to no political interference and he could pretty much do what he wants. The White House agreed because Paulsen's resume speaks for itself. He had an incredibly successful career on Wall Street. My guess is he wanted to end his professional career in a public service role. Again -- all of this is just my guess.
I should also advance Bonddad's personal belief about how a President should pick a Treasury Secretary. Every president should go to Wall Street and find 5 people who are in the same political camp and pick the one he likes the most. Not that anyone's asking, but that's how we should get our Treasury secretary from now on.
Paulsen is running into a big problem right now. He's in the middle of a situation that calls for some sort of government intervention, yet he is personally opposed to government intervention. Philosophically he's running into a big problem and has to figure out exactly what he can do within his own belief system. For any person who is self-aware, places like this are fascinating and wonderful experiences; they provide incredible opportunities to grow. In short, I'm sure it's a very interesting place for him on a personal level.
All that being said, some type of plan was bound to some into play as the mortgage mess plays out. The question is how to accomplish this. The article mentions one group of borrowers will be helped: "those who could keep their homes if the maturity date of their mortgages were extended or the interest rates remained at the teaser rates." would be the only people eligible. It looks as though all of the mortgage lenders are going to have to basically re-qualify a ton of borrowers. In fact, if this plan goes through it means that lenders are going to have to do th ejob they should have done in the first place.