Translated material
Paulson Plan
US authorities will freeze mortgage rates
The US government continues to try to extinguish the crisis in the mortgage market . A joint plan of local and federal authorities will be presented in the near future to fix interest rates on loans issued. Treasury Secretary Henry Paulson spoke about this yesterday.“The number of problems in subprime mortgage lending is likely to increase significantly next year, and we need to be confident that we can cope with this situation,” Mr. Paulson said at the National Housing Forum in Washington. “We can achieve the necessary balance to reduce the risks to the economy associated with housing market problems.”
To help citizens not lose their homes, it is necessary to freeze interest rates on certain types of mortgage securities for some time, the Minister of Finance believes. He said the proposed plan, if approved by Congress, would allow federal and local governments to temporarily expand tax-exempt bond funds to include mortgage-backed securities. Authorities hope this will reduce the damage that a recession in the housing market could cause to the country's economy, as well as prevent new losses on debt obligations secured by mortgage loans.
These are mainly mortgage loans, the cost of which increases sharply after the first two to three years, Mr. Paulson explained. These terms are usually offered to borrowers with low creditworthiness. When US home prices rose, buyers were led to believe that they could easily refinance their loans. However, this summer the real estate market suffered a crisis, leaving millions of Americans at risk of losing their homes. According to statistics, in October the number of houses alienated for debt doubled compared to the same month last year. So far this has not provoked social problems, since the alienation of housing requires a court decision, and this process, as a rule, takes time. Nevertheless, the prospect of mass unrest on this basis cannot but worry the authorities, especially in the pre-election year. And experts predict that in the next two years, 100 thousand mortgage loans per month should “switch” to new, much higher rates in the United States.
The Finance Minister expressed confidence that a decision on fixing rates will be reached in the near future. He is currently in talks with major mortgage lenders and other mortgage holders on this topic.
However, not all Americans will be able to take advantage of government help. Mr. Paulson warned that support would be given to individuals “who have a stable income and a relatively clean credit history.” “We are ready to help financially responsible, but homeowners who find themselves in a difficult situation,” he said, explaining that those who suffered solely as a result of their own negligence, and especially speculators, will not be able to count on support.
Mr. Paulson did not specify for how long the “freeze” of interest rates on loans is planned, but experts suggest that for maximum effect this period should be from three to six years. Opponents of this idea point out that such intervention could disrupt the natural functioning of the market and “repercuss in the future.”
George W. Bush came up with the first package of emergency measures in early September ( see Vremya Novostey, September 3 ). Then he, in particular, stated that the problems of mortgages throughout the American economy are insignificant and are not capable of undermining the healthy foundation of the economy. Bush promised that the government's FHA Secure program would help homeowners with good credit who still find themselves unable to meet current interest payments refinance their loans. The US President then asked lenders to work with homeowners to renegotiate mortgage terms to prevent defaults. It is noteworthy that he then spoke about the limited role of the government: “Rescuing creditors at the federal level will only contribute to the re-emergence of the problem.” The markets then reacted positively to Bush's speech, but expected new steps from the administration to stabilize the mortgage sector.