Bush freezes US sub-prime mortgage rates

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December 6, 2007

Bush freezes US sub-prime mortgage rates

The White House asks lenders to freeze interest rates for five years for thousands of stretched American homeowners.

Times Online and agencies

The White House has developed a plan to freeze interest rates for five years for tens of thousands of stretched American homeowners whose mortgages were scheduled to rise in coming months.

The unprecedented move is designed to bolster the ailing US economy, which is slowing amid a downturn in consumer sentiment, triggered by a plummeting housing market.

The programme is the biggest attempt yet to deal with surging levels of mortgage defaults, which have accrued billions of dollars in losses for Wall Street's banking giants.

Lenders will not, however, be forced to join up to the proposal, which emerged from negotiations between the Treasury Secretary, Henry Paulson, and the beleaguered US mortgage industry.

The plan would effectively freeze the introductory “teaser” rates offered to entice new borrowers to take out sub-prime mortgages. It would prevent the interest rates on the loans, which were marketed to borrowers with poor credit histories, rising for five years.

A White House spokesman said the move would help “potentially a little more than a million” people who can afford payments with their introductory rates, but not if they jump to higher rates.

It is feared that at least 500,000 Americans are at risk of losing their homes as $367 billion worth of adjustable-rate sub-prime mortgages reset to higher interest rates in 2008 and 2009.

The US Mortgage Bankers Association recently reported that foreclosures on home loans reached a record high in the third quarter of the year. Late payments on mortgages hit the highest level since 1986.

Full story, Source: The Times online