Mortgage sector relief?

Tuesday, March 18

The US administration has abandoned its doctrinaire insistence on market-led solutions to the unfolding mortgage crisis, and President George Bush has expressed support for recent Federal Reserve measures to stabilise capital markets.

Yet the administration's appetite for intervention so far has been highly selective, and has failed to target many homeowners who face foreclosure. Yet reports suggest that the Bear Stearns collapse may make the administration more receptive to more comprehensive plans -- although official policy has yet to reflect such a shift:

• Existing plan. The administration has promoted a limited work-out plan, through the private sector. This initiative has subsequently been expanded, to include recommended pauses in the foreclosure process for borrowers more than 90 days delinquent on their loans.
• Increasing transparency. The administration on March 14 tabled a plan to require greater disclosure of mortgage terms, encourage increased state licensing standards for mortgage brokers, and improve oversight of mortgage brokers. These measures would increase transparency in the mortgage process for future borrowers. However, they do little to alleviate the problems of current mortgage holders, whose high-interest mortgages exceed the current market value of their properties, leaving them with 'negative equity'.
• Stimulus plan. The administration promoted a temporary 168 billion dollar economic stimulus plan that provides 300-600 dollar tax rebates to individuals, or 1,200 dollars to couples (subject to an income cap) but this does not target mortgage problems directly.