Mortgage Ship is Sinking & Safety Net May Have Some Holes

Summary of Treasury Secretary Hank Paulson's comments yesterday regarding the current sub-prime mortgage rescue plan.

"We're moving as fast as we can move," Paulson said in an interview with ABC News' Betsy Stark. "We believe that the biggest issue is gonna be beginning next year when the number of [mortgage rate] resets is going to be increasing dramatically. And we're doing everything we can to deal with a complex problem and help the industry come together in a way which is going to be good for homeowners, communities and the economy overall."

Three main elements of the proposal.

1. Increase Efforts to Reach Struggling Homeowners

FACT: 50 percent of foreclosures occur without borrowers ever talking to their lender or a mortgage counselor

Initiative to Reach Borrowers

- HOPE NOW alliance – a coalition of mortgage servicers, counselors and investors that are working to avoid preventable foreclosures and to improve the functioning of the mortgage markets

- All HOPE NOW servicers are contacting borrowers 120-days in advance of their mortgage reset, to reach them early, before their mortgage problem becomes overwhelming

- If you are worried about losing your home, call this number, 1-888-995-HOPE, to see if you are eligible for assistance

2. Increase Availability of Affordable Mortgage Solutions

- Make more mortgage products available for borrowers who have the financial wherewithal to own a home, but are struggling with the higher adjusted rate on their subprime mortgages. The industry is looking at several innovative solutions – including both modifications and refinances. State and local governments, especially in the hardest hit areas, are also developing solutions, including proposing funds that may help financially-able borrowers refinance out of expensive subprime loans.

- Proposal to allow state and local governments to temporarily broaden their tax-exempt bond programs to include mortgage refinances; if enacted, this will reduce the cost of innovative mortgage programs and allow these programs to reach more struggling homeowners.

- HUD initiated "FHASecure" to give the FHA the flexibility to help more families stay in their homes, even those who have good credit but may not have made all of their mortgage payments on time.

3. Develop a Systematic Solution for Transition into Affordable Mortgages

- As volume increases, we will need an aggressive, systematic approach to fast-track able borrowers into a refinance or mortgage modification.

- Four categories of subprime borrowers
and what they need

1. There are those who can afford their adjusted interest rate; these homeowners need no assistance.

2. Homeowners who haven't been making payments at the starter rate on their subprime loan and may not have the financial wherewithal to sustain home ownership; some of these homeowners will become renters again.

3. Homeowners might choose to refinance their mortgage - putting them in a sustainable mortgage while keeping investors whole. This is the first, best option. Servicers should move quickly to assist those who can refinance.

4. And the fourth category is those with steady incomes and relatively clean payment histories who could afford the lower introductory mortgage rate but cannot afford the higher adjusted rate. We are focusing on this group, determining who they are and what steps may appropriately assist them