Deal reached with mortgage industry for 5-year rate freeze

Hundreds of thousands of strapped homeowners could get some relief from a plan negotiated by the Bush administration to freeze interest rates on subprime mortgages that are scheduled to rise in the coming months.

“There is no perfect solution,” President Bush said Thursday as he announced an agreement hammered out with the mortgage industry. “The homeowners deserve our help. The steps I’ve outlined today are a sensible response to a serious challenge.”

Seeking to counter criticism he is violating his free-market principles, Bush said the private-sector plan does not represent the imposition of a government solution to the mortgage crisis.

“We should not bail out lenders, real estate speculators or those who made the reckless decision to buy a home they knew they could not afford,” Bush said after meeting with industry leaders at the White House. “But there are some responsible homeowners who could avoid foreclosure with some assistance.”

Bush said 1.2 million people could be eligible for help. But only a fraction will be subject to the rate freeze.

Others would get assistance in refinancing with their lenders and moving into loans secured by the Federal Housing Administration, Bush said.

Also, the aid will only come to those who ask for it, he said. Thousands of borrowers who are falling behind on their payments have been sent letters about the options, and Bush also urged people to call a new hot line: 1-888-995-HOPE.

The announcement followed news earlier Thursday that home foreclosures surged to an all-time high in the July-September period. The Mortgage Bankers Association reported that the percentage of all mortgages that started the foreclosure process in the third quarter jumped to a record 0.78 percent.

That top the mark of 0.65 percent of all mortgages in the second quarter.

The administration’s effort is aimed at stemming a further wave of foreclosures in coming years as 2 million subprime mortgages – loans provided to borrowers with spotty credit histories – reset from their introductory rates of around 7 percent to 8 percent to levels as high as 11 percent. That would add hundreds of dollars to the typical monthly payment.

Treasury Secretary Henry Paulson, who led the negotiations with the mortgage industry, said that the effort is “not a silver bullet. We face a difficult problem for which there is no perfect solution.”

Bush originally gave the wrong number for the hot line; the White House later corrected him.

The president mentioned other steps to prevent foreclosures. The FHA has greater flexibility to offer refinancing to homeowners with good credit histories.

It is expected that this eventually will help 300,000 families, officials said.

The Federal Reserve is announcing stronger lending standards this month, while the Housing and Urban Development Department and federal banking regulators are acting to improve disclosure requirements, he said.