Will Bush's subprime plan help?

BY ELLEN YAN AND RANDI F. MARSHALL |

Article Courtesy of Newsday

7:51 PM EST, December 5, 2007

Some subprime borrowers will have their introductory loan rates frozen for five years under an agreement to be announced Thursday between the Bush administration and the industry.

The plan would target homeowners who have been keeping up with payments, got loans in 2005 through July of this year and will face problems when their interest rates are scheduled to rise between next January and July 31, 2010, according to several wire services.

Freeport homeowner Barbara Santamaria says she hopes she'll fit the mold because she and husband, Alex, who have three children, already pay $3,700 monthly on a $414,000 loan, whose 7.5 percent from the summer of 2006 will go up to 10 percent in August.

Referring to the plan, Santamaria, 37, said, "That would help tremendously." Without a freeze, she said, "I'm done. There's nothing I can do and there'll be no way I can keep the house."

The deal reflects compromises between the industry, where some had balked at a rate freeze of anything longer than one or two years, and the Bush administration, which agreed wholesale changes should not be made.

But so many questions need to be answered. There's little word on how many banks and lenders have signed into a rate freeze and how many homeowners could be helped under the plan. Plus, some borrowers have had their rates reset already and it's not clear if they'll left out.

Cut out of the deal may be people who need the most help -- those who have missed payments already and those who got fixed rate loans at much rates.

"It's not going to help as many people as they think," said Islip mortgage consultant Charles DeMonte Jr., who five months ago started fixthatadjustable.com to help borrowers with adjustable mortgages get fixed ones.

Under a typical subprime loan, rates for the first year or two started at 7 to 9 percent, then reset at 9 to 11 percent. For months, as foreclosures rose, everyone from the lending industry to local government officials have focused on damage control of the subprime collapse, which has shaken Wall Street, dented the economy and put a damper on consumer spending.

Michael McHugh, vice president of the Empire State Mortgage Bankers Association, said the lenders and bankers were probably pressured into the deal. "There's going to be losses taken here," said McHugh, chief executive of Continental Home Loans, a Melville-based mortgage banker. "I think it was just political pressure."

Some think the industry-Bush deal will save many homeowners but can do more for a wider group of borrowers, including the ones who may not sink when rates go up but deserve a break.

"Now their rate is going to jump three percentage points and we're saying, 'We're not going to do anything for you,' " said Charles Seelinger, founder of Fast Track Funding, a Hicksville mortgage brokerage.

Marianne Garvin, the president of the Community Development Corporation of Long Island, an advocacy group, said she hopes the plan will emphasize the need for counseling, so that those who get more an extension on their lower interest rates could then repair their credit instead of just delay inevitable problems.

"This problem is so huge,'' she said, "that there is going to have to be more than one solution."