Foreclosure Crisis: California Says Bush Foreclosure Plan Falls Short

Posted on December 11th, 2007 by saman

The Chairman of the California State Assembly Banking and Finance Committee has said that he believes that President Bush’s plan to freeze adjustable rate sub prime loans falls far short of what is needed to deal with the current crisis. The Chair, Mr. Ted Lieu, points out that the Bush plan has been “whittled down” by industry so that it only aids a select group of borrowers: those who are current on sub prime hybrid mortgages made between January 1st, 2005 and July 31st, 2007. These loans are scheduled to reset between January, 2008 and July, 2010. Moreover, eligible borrowers can not have been more than 60 days delinquent during the past year, have more than 3% equity in their properties and must be unable to afford the upward reset in their interest rate. Statistics suggest these standards would only make abour 1/3 of loan holders eligible under the plan.

Mr. Lieu states that what is needed is bold action. The Wall Street Journal reports that between 55% and 61% of homeowners who got sub prime mortgage loans could have qualified for prime loans. He feels that at a minimum, they should have their sub prime ARMs restructured into conventional fixed-rate mortgages and that the industry should not continue to gain unjust profits by putting applicants into high-interest sub-prime ARMs when they actually qualify for lower-cost loans.

In California, one of the five worst-hit states in the current crisis, more than 2,000 homeowners receive a foreclosure notice each week and this number is predicted to go to 4,000 per week in 2008. Nationwide, more than 1.4-million homeowners are expected to face foreclosure next year, with a similar number for 2009. Mr. Lieu feels strongly that the Bush plan announced last week will do little to aid most of them. He calls on the President to, at a minimum, freeze the rates for all homeowners in sub prime ARMs who could have qualified for the prime, fixed-rate mortgages.

No matter what is proposed, it seems there are liberal quantities of naysayers who feel the government should keeps it’s regulatory fingers out of this industry pie; that many homeowners knew they couldn’t afford the loans and took them anyway and therefore shouldn’t get off Scot free and that these bail-out plans will cause lenders to so tighten lending standards that very few will be able to qualify for them. On the other side of this coin, there are many people who feel that preventing the recession predicted by about 50% of finance industry professionals, should be the first consideration for the benefit of the overall US economy.

So as of right now, the foreclosure rate is still escalating, the predictions of a coming recession are going up as well and there is debate after debate about who is responsible and what needs to be done. For most of us, there is little to do but take a wait-and-see attitude awnd hope for the best.