Bush set to unveil relief plan for US home loan borrowers
06 December 2007
Mumbai: President George W. Bush is expected to unveil a plan to prevent a wave of home loan foreclosures that has threatened to knock the US economy into recession and rattled investors worldwide.
The plan, drafted by the US treasury department after talks with mortgage industry leaders, would benefit many of the 2 million homeowners who opted for adjustable rate loans.
Industry and government officials had estimated that nearly 500,000 Americans could lose their homes in the sub-prime loan crisis.
The initiative is designed to hold rates steady for sub-prime borrowers who could not afford to stay in their homes otherwise. Details of the plan were, however, not available.
Sources said, under the proposed relief plan, sub-prime borrowers who took out loans from 2005 through the end of July would be offered a five-year "rate freeze" if they are facing a reset over the coming 2-1/2 years.
During the US housing boom that ended in 2005, many borrowers turned to easy loan terms and low early fixed payments of floating rate sub-prime loans, which are often extended to borrowers with shaky credit.
Many of these loans were repackaged as securities and sold to investors around the globe. As defaults have risen, investors have scrambled to assess the plummeting value of their assets and banks have written down more than $50 billion of assets tied to mortgages.
Treasury secretary Henry Paulson has worked closely with the investor trade group - the American Securitisation Forum - as well as mortgage service providers and lenders to bring out a comprehensive plan to repack the troubled loans.