The Bush administration announced a new mortgage industry coalition on Wednesday aimed at helping homeowners avoid being trapped in a rising tide of foreclosures.
Treasury Secretary Henry Paulson said the initiative would boost financial companies’ efforts to help an estimated 2 million homeowners whose introductory mortgages with low rates are resetting at much higher rates, just as the housing industry suffers through its steepest downturn in 16 years.
The House pursued its own plan for helping homeowners, passing a bill to create a federal trust fund to finance construction and rehabilitation of affordable housing. The measure would provide between $800 million to $1 billion a year with the goal of creating 1.5 million affordable housing units over the next decade by funding grants to a variety of housing providers.
The trust fund would be financed mostly from profits Fannie Mae and Freddie Mac, the chief U.S. buyers and guarantors of mortgages.
President Bush has threatened to veto the measure. The White House and conservative Republicans argue that it would duplicate a program at the Department of Housing and Urban Development. GOP lawmakers said that siphoning money from Fannie Mae and Freddie Mac would amount to a tax on middle-income homebuyers.
The new mortgage industry coalition promoted by the Bush administration includes 11 of the largest mortgage service companies, representing 60 percent of all mortgages in the country. Other members are mortgage counseling agencies, investors and large trade organizations, and Paulson urged more mortgage service companies to join the effort.
“We need greater participation if we are going to get to all those that need help as quickly as possible,” Paulson said at a joint news conference with Housing and Urban Development Secretary Alphonso Jackson.
The new initiative, dubbed HOPE NOW, follows an Aug. 31 announcement by Bush that the administration was changing the Federal Home Loan Administration insured-loan program so more people could qualify for FHA-insured loans.
Democrats said the initiative still falls short of what is needed given the foreclosure crisis facing the country.
Sen. Charles Schumer, D-N.Y., noted that the National Association of Realtors on Wednesday revised down once again its forecast for home sales, predicting sales of existing homes will fall by 10.8 percent this year, a bigger drop than the 8.6 percent decline it forecast just a month ago.
“Unfortunately, the bottom is falling out of our housing market much more quickly than the administration is willing to stem the tide of foreclosures,” Schumer said in a statement.
Schumer and other Democrats in Congress are pushing legislation aimed at helping more people avoid losing their homes. Some of the bills also would attack predatory lending practices that critics see as a prime cause for the crisis.
Sheila Bair, head of the Federal Deposit Insurance Corp., suggested last week that mortgage service companies consider doing broadbased conversions of adjustable-rate loans to fixed-rate loans if the borrowers were current on their payments and living in the homes.
Estimates are that mortgages resetting from low “teaser” rates could mean an extra $250 to $300 in monthly payments on the typical $1,200 monthly mortgage payment.
Asked about a more aggressive response, Paulson said it was important that any efforts not harm lenders’ willingness to make more home loans in the future.
“How do we do things to help as many people as possible stay in their homes without shutting off future financing?” he asked.
The rising defaults, which started in the market for subprime mortgages — loans offered to people with weak credit histories — roiled global financial markets in August, prompting the Federal Reserve to cut interest rates last month to ensure the country did not get pushed into a recession.
Paulson said the new coalition had created an “aggressive plan to reach more homeowners and help them find a way to stay in their homes.” That plan includes special toll-free numbers that the mortgage service companies have set up along with mass mailings to inform people of their options.
Industry officials said people worried about being unable to meet higher mortgage payments must contact their mortgage service companies or credit counseling organizations as quickly as possible.
“Consumers who do work with us have a good chance of finding a solution that will help them sustain home ownership, especially when the contact occurs at the first sign of trouble as it enables us to help before the weight of past due payments reduces consumers’ options for staying in their homes,” said Michael J. Heid, co-president of Wells Fargo Home Mortgage.